EasyJet raises €1.2bn bond after UK reveals plans to lift lockdown

EasyJet attracted strong demand in a bond offering on Wednesday, showing how the budget airline is benefiting from enthusiasm surrounding the UK’s plans to reopen the economy.

The travel sector has been battered by the pandemic but was offered a glimmer of hope this week after prime minister Boris Johnson said non-essential air travel may be able to resume from May 17, subject to a government review. 

The UK-based airline raised €1.2bn worth of seven-year bonds on Wednesday at a yield of 1.875 per cent. Nearly €6bn worth of orders flooded in, allowing easyJet to increase the size of the deal.

The robust order book highlights the extent of investor expectations for a revival in the industry and also how hot debt markets remain as a result of vast central bank and government stimulus actions. 

“Monday’s announcement was incredibly helpful but, this was opportunistic on the back of recent market conditions irrespective of [the] announcement,” said Mark Lynagh, co-head of Emea debt markets at BNP Paribas, who worked on the deal.

He added that this “plays into the optimism around the recovery that we’re going to see and there is a view that low-cost carriers like easyJet are well placed to benefit from that”.

The bonds were issued through the company’s Dutch-domiciled vehicle, making them eligible for purchase by the ECB under its corporate bond-purchasing programme.

EasyJet’s new bonds are rated Baa3 by credit rating agency Moody’s, leaving them at the lowest rung of the investment-grade category that is required for inclusion in the ECB’s bond-buying scheme. Investors in the bonds also lack claims on specific easyJet assets in the case of default.

“The real risk if there is any hiccup at all in anybody’s golden plans for holidays over the summer, then you could find easyJet losing a notch and going into high yield,” said Luke Hickmore, investment director at Aberdeen Standard Investments.

On Tuesday, the airline and other European travel companies enjoyed a rush of reservations from individuals eager to plan their holidays. EasyJet said bookings for flights from the UK surged more than 300 per cent week on week, while its holiday arm recorded a more than 600 per cent jump in bookings.

“The timing of a recovery in 2021 is highly uncertain and the key tourist seasons continue to be at risk,” Moody’s analysts said in a note, adding that there is likely to be “very strong latent demand” when travel restrictions are removed.

EasyJet shares have risen nearly a fifth this week as equity investors welcome the possibility of a return to mass travel later this summer.

At January 25, the airline had access to £2.5bn worth of cash, according to its quarterly results. It estimates it will burn £40m per week cash in cash because of fixed costs and capital expenditure while planes remain fully grounded.

Hickmore said easyJet’s reopening success will heavily depend on national travel policies across the continent as well as battling with competitors on price: “Ryanair and Wizz are going to be competing the hell out of those routes.”

Additional reporting by Philip Georgiadis