One minute you’re saying AJ is popping a celebratory cork but 10 posts earlier youre of the opinion QF is about to be a failed entity.
Not everyone likes QF and you’re obviously one of those.
But QF has a balance sheet X times strother than Virgin with a different ownership structure and has already outlasted the fatal injuries virgin gave itself trying to keep up with QF.
My posts are consistent. If VA does not resurface then that makes Q's weak hand a little stronger - but still a weak hand.
I have no grudge just that companies should be honest & transparent in what they do so that current & potential shareholders can make a fully informed decision. BTW - that is the law believe it or not.
AJ & Q are on a hiding to nothing, and know it. Their one trump card is the "perception" carried over as Australia's flag carrier etc. Post CV - their cash flow is very negative, in the hundreds of millions a month imho. Their balance sheet is a wonder of financial wizardry that may not face scrutiny. This was revealed on their write-down of the international fleet in 2013/14:
Qantas has reported a lower than expected full-year underlying loss before tax of $646 million, but booked a statutory loss of $2.8 billion as a result of hefty restructuring charges and writedowns to its fleet.
www.smh.com.au
"
There had been speculation for nearly a decade that Qantas' fleet was overvalued. The airline said on Thursday the writedowns were triggered by the decision to split its international business from the rest of the operations, because the asset values were then no longer shielded by the surpluses in other divisions."
&
"Following the writedown, the carrying value of the fleet will be more reflective of the current market value, and
depreciation charges will be reduced by $200 million a year, the company said."
Now is definitely not the time to be found to be over-valuing.
In doing a plane by plane reconciliation at the time - it became clear that Q seems to have a unique approach to 'valuing' their aircraft', and the movements had an uncanny correlation with reported P&L in a most inventive way. After all, it does seem unusual to have a 21 year old B747 valued in the balance sheet at more than it cost when purchased in the early 1990s
DESPITE claiming depn on it every year?
Especially when Q states it uses straight line depreciation on planes & parts over a range of 2 to 20 years.
Is it a Ponzi scheme of sorts? Who knows but 1 + 1 ALWAYS = 2 eventually. In Australia we have a long record of Top 100 companies getting their annual reports signed off by the external auditors year after year - and the company then goes under often accompanied by an 'irregularity' in their accounts.
Looking at the cash flow is normally a good guide. Q raised around $1.4bn by selling of the remaining Terminal leases for Brisbane, Melbourne & Sydney. Over the same time they bought back over 30% of outstanding shares. Looking at their balance sheet and off-balance sheet liabilities - does not fit the description of looking very strong.
Their Earnings per share (adjusted effect of for the buy back) has actually fallen around 30%.
The 30%+ buying back of shares, ceteris paribis, boosts the EPS by more than 42%. Statutory EPS has risen from 49 cps to 55cps since July 2015 to 30 June 2019, a little over 10% increase.
In the year to June 2019, statutory eps was described as flat despite shares on issue falling by 7%. The buy back would have increased EPS by 7.5%, and this period saw the profit on selling its Melbourne lease in the 2018/19 financial year for $355m realising a profit of $141m. Perhaps more disturbing was that Q wrote-back the value of their
Helloworld Travel shareholding after managing to sell 2 million shares
@ $5.50 - Q reversed its 'impairment charge' on its remaining holding by $43m - so all up increasing its profit by $184m (around 13% of NPBT).
[The current Helloworld Travel share price is around $1.30 having traded as low as $0.67 recently.]
Yet despite all these one-off boosts the EPS was flat. A bit like how Australia's GDP per capita has been falling but total GDP (due to the net 200,000 annual immigration) had been growing perhaps?
Q's cupboard is pretty bare with almost no 'hollow' logs left, and looking at its fleet carrying value suggests that despite writing down the A380s in 2013/14 massively, they may have been revalued (despite claiming annual depreciation) back to around what they were prior to the writedown. If you are interested try sending an email to Q investor realations and ask how much the Q A380 fleet is valued at in the balance sheet as I cannot quite work it out.
AJ & Q's only hope was/is that VA does not get resurrected due to the rest of the world's airlines cash flow woes. Then as Australia's sole remaining domestic/international airline - the Fed Govt will step in to provide whatever they require - or I could be totally wrong.
Q has/operates a fleet of around 314 aircraft with over 100 the basis of their international fleet. Given the well publicised issues with all but Emirates A380s then the BS valuation of these may well get questioned by the external auditor. The first two A380s to reach 10 years (operated by SIA on lease) despite the positive talk encouraged by Airbus - could not find any operator wanting them.
Subsequently when it was revealed that the ex-SIA planes had been sent to be dismantled for parts there were many articles about how the parts where worth more than the sum of the whole etc etc. Subsequently revealed that buyers were proving harder to find for the parts and the 2 A380s were written down substantially more.
Post CV - a number of airlines have parked their A380s with the likelihood that they will not be put back into service. The cost of maintaining them to (say FAA) standards requires between 238 to 407 man hours of maintenance every 48 hours depending on their age for example. Given the A380 requires the highest load factor of any widebody to break even - there are many other planes that will go back into service before A380s.
Air NZ is mothballing their B777s (except one converted temporarily to freight by taking out it's seats) until at least April 2021.
Running the numbers, for some airlines, it seems that retiring the A380s is cheaper than maintaining them for 6 months or more.
In Q's case who knows.
Q has very large fixed costs for its international fleet, plus substantial parking expenses in Australia & overseas (due to lack of space within Australia), Australian & overseas terminal leases (including Q Club lounges etc), locked in fuel hedges at 100% for 2019/20 at much higher levels for perhaps 4x as much fuel as they are currently using - and no place to store it. This will not be cheap.
As of 30 June 2019 they had unearned revenue of just under $6 billion as liabilities of which approx $3.5bn is ticket sales and around $2.5bn of QFF points allocated but yet to be redeemed. Q restricted QFF redemptions back on March 20th despite saying there was no run on points redemption;
"Qantas has limited purchases through its loyalty store to two items of each product every day in response to "high retail demand". The airline - which says there has not been a "run" on points - has told members the limit was to "ensure the continued availability of products to as many members as possible"
Against this Q had around $2bn of cash. Since then share buybacks have chewed through a good portion of the cash as has the interim div payment and the impending final of around $200m.
Time will tell how this all pans out - but Q isn't as safe as the spin may say or many hope. If there's a run on their QFF points then their credit rating is likely to go below investment grade aka become junk.
Of course, international flying might recommence with 78% plus loads from 1 July 2020 but I don't think so. Similarly I don't see any of the European Govts, Asian nor the US doing Q any favours once borders eventually reopen.
or maybe on points ...
