WFS – modelling of the divergent segment trends of WFS into 21; updated comments

All, 

We have updated our model to reflect a quarterly split between Ground handling and Cargo.

Please find it here. 

We remain cautious on the WFS bonds. Our analysis suggests that even under a 2H 2021 timeframe for the relative normalization of the Ground handling activity - ie less than 20% down from 2019 levels – WFS will struggle to return to 2019 levels of EBITDA generation. As the Q2/Q3 21 cash crunch approaches, WFS could seek to proactively start refinancing or restructuring discussions. The recent comments from management - indicating that the appointment of advisors on Jun 20 is still considered to be of a “precautionary” nature - indicated that it has not yet lost hope that either a significant improvement in FCF, cost-cutting or an equity injection could allow it to scrape through the cash needs required for the recovery phase. 

The Cargo sector continues to perform much better, while still weighed down by the decline in “belly cargo” capacity which is intrinsically linked to the decline in passenger volumes. The retirement of old and less efficient aircraft from the part of the airlines should drive the conversion into dedicated air freighters. The significant decline in jet fuel costs, the result of excess inventory of oil and oil products, should also encourage air cargo volumes. However, as management admits, this process will be gradual.  

We are looking forward to exchanging ideas on WFS with you. 

Juliano