Breakingviews – Corona Capital: Planes, High fashion, Bill Ackman

MELBOURNE/LONDON/MILAN (Reuters Breakingviews) – Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

A Qantas 747 jumbo jet is pictured before its departure, as Qantas retires its remaining Boeing 747 planes early due to the coronavirus disease (COVID-19) pandemic, at the Sydney Airport in Sydney, Australia, July 22, 2020.


– Qantas

– Norwegian Air

– Fashion

– Pershing Square Holdings

TAKE WING. Qantas Airways is offering some hope to shareholders and fellow airlines. The $7.7 billion Australian carrier said on Thursday that reopened local borders would help it utilise 68% of its domestic capacity this month, up from 20% earlier in the year. What’s more, boss Alan Joyce expects his company to break even at the underlying EBITDA level in the first half through December.

Such developments will make it the envy of many peers, some of which are still raising capital to cope with the pandemic. Qantas has its hurdles, though. Revenue this financial year stands to shrink by $8 billion compared to pre-Covid times. And although it has retained its investment-grade credit rating, net debt has swollen by a quarter to $4.4 billion. Joyce also expects international travel to be grounded until at least June. All things considered, though, he is on a comparatively better trajectory. (By Jeffrey Goldfarb)

FLYING ON FUMES. Like the pilot of a doomed aircraft frantically tapping the fuel gauge, Norwegian Air Shuttle may finally have run out of financial gas. The once high-flying transatlantic budget carrier, now worth just $140 million, hopes to keep airborne by swapping another chunk of debt for equity and raising $450 million by selling new shares. More state aid might be needed beyond the $292 million injected in May.

It’s hard to see creditors or the government signing up. Oslo has already said it won’t be writing any more cheques. And Norwegian’s current shareholders are the creditors, mainly leasing firms, who agreed a $4.3 billion debt-equity swap six months ago. Asking them to wipe themselves out in return for almost worthless shares and another cash call doesn’t sound like fun. An asset fire-sale will only give creditors a fraction of what they are owed. But it’s better than clambering aboard a flying money pit. (By Ed Cropley)

PANDEMIC SLOG. The China factor won’t immediately save the luxury sector from its pandemic misery. Frantic domestic buying by Middle Kingdom shoppers has put a patch on sliding revenue at heavyweights such as LVMH and Kering, third-quarter results showed. Chinese travelling – a source of retail spending – has already recovered domestically. Yet a global recuperation will take time, McKinsey’s annual report on the state of fashion shows. International tourism could remain subdued until 2024 after a likely 80% contraction this year, the report says.

Chinese bling shopping will continue to boom in 2021 and could be up to 30% higher than in 2019. But global luxury sales will still be between $40 billion and $80 billion below pre-pandemic levels next year, says McKinsey. A complete global recovery could come as late as the fourth quarter of 2022, with Europe not returning to 2019 levels until 2023. The severity of the virus hit requires a commensurately long convalescence. (By Lisa Jucca)

HEDGE GROW. Bill Ackman’s pandemic trades have helped propel him to the top of UK corporate society. The hedge fund manager’s prescient bets against corporate credit ahead of the lockdown crisis have helped lift his London-listed fund’s net asset value by 63% this year. That has propelled it into the benchmark FTSE 100 Index, brushing shoulders with stalwarts such as Barclays and Diageo.

It has been a long trip for the 4.8 billion pound Pershing Square Holdings. It originally listed on Euronext Amsterdam in 2014, and three years later joined the London Stock Exchange in a bid to boost liquidity. Now that it is in the big league, PSH should get an extra kick as index-tracking funds pile in. That may help close its roughly 20% discount to net asset value. Sometimes, index funds can be an active manager’s friend. (By Neil Unmack)


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