Deloitte disappear in a matter of days, who honestly cares what they say now.... It is clear Bain just told everyone what they wanted to hear to get what they wanted. They won and they can do whatever they want now.
Not if they want to make money though.
The value in the business is predominantly VFF worth between $1.6 to $2bn - without an incentive to earn & use VFF points for flying then the attraction for VFF is lost and QFF becomes the winner. VFF in 2018/19 took in $411m & made a net profit of $122m
We will probably never hear the true story behind what has happened but what is in public domain I suggest PS' ego got the better of him.
Go back a couple of months and it was clear that Bain had chosen PS over JH. So JH went looking for alternate roles in a CV world. She obtained the role as a Director with Hawaiian Airlines (likely based on her Jetstar experience).
Possibly emboldened by this, PS thinks he is untouchable now that JH is off the scene & looks to 'stamp' his authority. May have said my team is required for the future - they cannot be broken up. Bain says it is not his call. PS thinks JH would in no way come back after Bain dumped her for any future role - so presents ultimatum, 'If they go then I go.'
Bain responds, 'Close the door on your way out please!'
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With the valuations for airframes down 20% or more since 31 Dec 2019 (official valuers' figures) then sale & leaseback has a problem. Many airframe leasing companies are themselves facing bankruptcy as they operate on a leveraged basis. Seeing a 20% drop in asset values even if they're receiving lease payments will see their financiers reluctant to roll debt over. Quite a few airlines have stopped lease payments altogether.
Equally these leasing companies have big orders for the A350, B777-9/10, B787 Max, Airbus Neos placed on the basis of the pre-CV projections. Things are grim everywhere so very little ability for Bain to enter into sale & leasebacks even if their fleet was new.
VA MkII is not sitting on a pile of readily saleable fixed (hard) assets - not land, buildings nor tangible assets. Which is exactly the position Q is in as it happens - the big difference is Q has not entered administration yet.
So Q has 2,000,000 sqm of property leases around the world of which around 90% is on airport. Q cashed out on their existing leases in Australia for Brisbane, Melbourne & Sydney which saw them enter into new long term leases after pocketing around $1bn for breaking their leases early. This $1bn profit funded the bulk of the franking credits used to buy back Q's shares (& boost EPS) which had the happy coincidence of see Q's senior execs et al pocket healthy bonuses for meeting revenue & profit related KPIs.
Q also has many airframe & engine leases. However Q seems to have negative Net Tangible Assets now, they were down to just 17 cents per share as at 30 June and Q's creative 'cash burn' calculation is chewing through around 4 cents per share a week.
So with this 'competitive'environment facing VA - their arch-competitor hamstrung with high long term leases vs VA mk II's take it or leave it renegotiated lease costs - VA mk II has many advantages in pursuing the middle road.
I may be missing something here, but cash is king in this environment & Q is still haemorrhaging cash with a higher legacy cost structure complicated by having well over half its fleet by value (& cost) grounded through to likely at least July 2021 (their international fleet). VA mk II virtually does not. Q will face a massive cash requirement once it needs to re-certify its international fleet - once put into long term storage then AFAIK it is akin to a car becoming unregistered - just massively more expensive to regain the certification (which is why the A380s may never come back into service given their specific issues).
VA Mk II cannot justify a full valuation for VFF unless VA Mk II remains a draw for redemptions. Q's results show that QFF redemptions on JQ are 3/10th of nothing compared with the redemptions on mainline Q.
So I am waiting to be blind-sided by Bain....
Or not!
In the next few days the much delayed August international aviation stats will be published (delayed by over a month) followed closely by the domestic figures. The domestic figures will provide a much clearer picture of how both airlines have been coping.
www.smh.com.au
