As major U.S. airlines trotted out warning after warning, the news was equally grim in London, where shares of easyJet plunged as it announced a plan to raise cash and debt to shore up its balance books.
Shares of the FTSE 250
company slid 10% on Thursday, leaving that index 0.6% lower. It comes a day after airlines rallied on a report that the U.K. government may switch to a travel system based around the vaccination status of travelers, instead of the intended country being visited.
EasyJet said it would launch a rights issue to raise 1.2 billion pounds ($1.65 billion), and has acquired a new $400 million credit line to repair its balance sheet. The company said the extra cash would help boost liquidity and allow it to invest in growth.
But it also referred to a tough time for the industry after months of countries battling the contagious delta variant of COVID. The airline predicted fourth-quarter capacity to be around 57% of 2019’s fourth quarter levels, and expects to fly up to 60% of 2019’s first-quarter capacity in 1Q 2022.
News of the right issue sent shares tumbling, while its capacity forecasts suggest a “hard winter ahead,” said Laura Hoy, equity analyst at Hargreaves Lansdown.
“There is some potential upside to consider. Legacy carriers may pare down some of their routes indefinitely, leaving space for easyJet to up its presence at major airports,” said Hoy. Trying to raise extra cash may be a smart move on easyJet’s part, as “it’s sink or swim time in the aviation industry and the move could pay off if easyJet is able to expand its presence into more profitable routes,” she added.
As for the other piece of news, analysts were speculating on who easyJet’s spurned suitor was, with some suggesting Wizz Air could be behind that. EasyJet said the unnamed other party was no longer interested.
“It’s unclear who the suitor was, but we suspect the winds of change are coming to the beaten down airline sector and this could be the first rustling,” said Hoy.
Elsewhere, shares of 888 Holdings
which owns several online gambling brands and websites said it has bought the non-U.S. assets of fellow online gambling company William Hill from U.S.-based Caesars Entertainment
for 2.2 billion pounds ($3.03 billion). The company said it also expects to raise around £500 million by issuing new equity through a capital raise.
“The strategic rationale stacks up (strong sports brand, better market positions, £100m of synergies) and management expects value accretion and EPS enhancement of more than 50% in the first full year,” said analysts Ivor Jones and Douglas Jack at Peel Hunt, in a note. “If 888 could agree the sale of the shops and eliminate the equity issue, we would expect the share price to step up.”
The main FTSE 100 index
tumbled nearly 1% to 7,013.44, a loss that if continues into the close, will mark the worst one-day drop since August 19. The pound climbed 0.4% to $1.3829, gaining as the dollar fell.