TAP - Will it fly?
All,
Please find our updated analysis here.
So we are feeling rather pleased with ourselves, having upgraded our position just ahead of the restructuring announcement. But what now? The bonds yield 10% YTM and for all the legal and European Commission work we’ve done, TAP is actually an airline (upon closer inspection...).
Was that all?
- The restructuring brought an incremental €643m of cash if one adds in the €107m previously injected. On our modelling that is not yet sufficient to guarantee smooth flying through 2024.
- As part of the plan, TAP have committed to make available 18 of its Lisbon slots. Those should be valuable, but in Corona times demand may be more volatile. The company is also planning on selling its ground handling businesses and other entities.
- The original plan foresaw an additional “Buffer” of €500m, but we suspect that has been replaced with the above measures.
- Assuming good sales of the above assets, we think the company can refinance the bonds in 2023.
The Restructuring:
- The restructuring leaves behind a company with a cash pile that should last a year or two while it is looking to return to 2019 levels of traffic and earnings.
- Leverage is much reduced to some €1.5bn, excluding aircraft leases.
- With TAP S.A. now being directly held by the sovereign, we are wondering if that amounts to a stronger state g’tee than before.
Positioning:
- We remain long the 2024s for what has become 4.5% of NAV. At 91c/€, the bonds yield 11% to a June 2023 call - which is around maturity of the p.p. ranking Portuguese SUNs.
- Considering the strategic value of slots in Lisbon - see our Lufthansa discussion - we think chances are extremely remote that TAP cannot refinance these obligations then, even with Omicron and IHU making the rounds.
Wolfgang
T: +44 203 744 7003