Friday, April 24, 2020

IAG: Can they survive?

Rough guess to see how long International Airlines Group can survive without raising capital.

Their balance sheet on Dec 2019:

  • Current liabilities are 6.7bn.  Ignore deferred revenue as advanced ticket sales are refunded with credit and  no one cares about customer loyalty points when there are no flights.
  • They have 2.2bn receivables.  Not sure how much they can collect.
  • They said in March they have 9.3bn cash and undrawn credit.
Their biggest expense is employee costs.  I think it can be cut from 4.9bn to 2.6bn:
  • Flights are reduced by 90%
  • Under the UK Job Retention Scheme (JRS), furloughed employees' are granted 80% of their salary up to 2,500 pounds per month.  Spain's ERTE scheme pays 70% of the salary - the remainder is social security which may be delayed.
  • IAG is paying 80% of their cabin and ground crews' pay through JRS (so IAG will have to pay anything above 2500 the pounds limit). And pilots agreed to take one month unpaid leave in April/May.  I think if it is still bad after this, the pilots need to continue on half pay, or else be let go.
So I estimate total operating costs at 5.9bn:
  • 2bn for IT/property (no change)
  • 2.4bn for staff
  • 0.6 interest payments
  • Operating lease 0.9bn (from 2018 - in 2019 it is lumped under D&A for IFRS16, but this is a cash cost that will still be there).
So I guess they can last 5 months (end June) to 10 months (end Nov), depending on how much of their receivables they can collect.

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