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ANA eyes $920m loan as coronavirus drains cash

Japanese carrier seeks extra liquidity to cover plunge in travel demand

An ANA counter at Kansai International Airport: The financing sought by the carrier would go toward covering employee pay and ticket refunds.   © Reuters

TOKYO -- The parent of Japanese airline All Nippon Airways is looking into a roughly 100 billion yen ($920 million) syndicated loan from seven lenders as the carrier fortifies its balance sheet to cope with the drop-off in air travel demand.

ANA Holdings, which typically refinances about 50 billion yen every year around June, will accelerate the schedule to April and double the amount to confront the steep revenue declines caused by flight cancellations amid the coronavirus pandemic. Additional financing also will be considered going forward.

The money would cover employee pay and ticket refunds. The holding company possessed 126.8 billion yen in cash and deposits along with 263.2 billion yen in securities holdings as of the end of 2019. ANA Holdings usually averages 300 billion yen to 400 billion yen in cash on hand throughout the year, but it wants to boost the reserve to about 50% above the normal level.

The lending syndicate includes Japan's top three banking groups: Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group

Costs for labor and aircraft leasing give carriers heavy fixed expenses, and their break-even load factor -- the average percentage of seats they need to fill on flights to turn a profit -- reportedly is between 50% and 60%.

The flight cancellations let airlines slash some expenses, such as for fuel, but they still must pay certain fixed costs. ANA logged 880.7 billion yen in fixed costs for the year ended in March 2019, which accounted for about half of its operating expenses. At rival Japan Airlines, fixed costs of 487.2 billion yen made up about 40% of that carrier's operating expenses.

A 50% drop in demand for air travel would produce a cash outflow of 4.5 billion yen monthly at ANA, Masaharu Hirokane of Nomura Securities estimated. With demand having plunged beyond that level in recent days, more money will be flowing out of the group, some observers say.

ANA had raised capital expenditures to accommodate the recent spike in travel to Japan and the increase in international landing and departure slots at Tokyo's Haneda Airport. The carrier's balance of interest-bearing debt reached 848.1 billion yen at the end of December, up about 150 billion yen from the end of March 2016.

With travel restrictions and cancellations of events and business trips, ANA and JAL report that international flight bookings for April have plummeted 70% from a year earlier, with domestic numbers down 50% to 60%. JAL also is considering arranging financing.

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