Finnair - Significant losses due to COVID-19

The continuing crisis around COVID-19 forces Finnair to cut its capacity by some 90% in April. We have cut our 20E estimates substantially and expect EUR -52m comparable operating loss in 20E. We keep our rating “HOLD” with TP of EUR 3.5 (5.0).

Second profit warning due to COVID-19

Finnair issued its second profit warning within a month as the COVID-19 continues to hammer the global airline industry. Earlier the company withdrew its capacity estimate for 20E and expected 20E comparable operating profit to be significantly lower than on the previous year. Due to the flight restrictions and low demand, Finnair now cuts its capacity by ~90% starting from April and indicates that the comparable operating loss will be significant in 20E. Also, the company decided to withdraw the ’19 dividend proposal of EUR 0.2 per share.

Strong financial position securing Finnair’s operations

In order to secure its financing, Finnair has started to implement a substantial financing plan. This includes funding instruments such as available credit lines (Finnair has an available non-used credit line of EUR 175m), sale and leasebacks of unencumbered aircraft (Finnair currently has 42 unencumbered aircraft, which represents about half of the balance sheet value of the total fleet) and a substantial, market-based pension premium loan. Also, the Finnish government will actively support the company. Prior the COVID-19 situation, the company had a healthy balance sheet and a strong cash position, which should support Finnair’s finance and operations even if the situation around COVID-19 is prolonged. The company will also make further cost adjustments (prev. aiming cost savings of some EUR 40-50m). We expect relatively quick savings from personnel expenses but many of the other cost savings are expected to be realized later in H1’20E.

“HOLD” with TP of EUR 3.5 (5.0)

We have significantly cut our 20E estimates. We now expect 20E revenue to decline by ~13% y/y (EUR 2707m) while we expect comparable operating profit to decline by ~132% y/y (EUR -52m). This is mainly due estimates cut in Q2’20E. With our updated estimates, Finnair’s 20E gearing would be some 137% (64% in 2019), while the company’s target is to keep the ratio below 175%. Our net debt/EBITDA estimate is 3.9 (1.3 in 2019). On our estimates, Finnair trades at 20E EV/EBITDA multiple of 5.4x, which translates into 105% premium compared to the peers. Despite of the severe situation, we expect Finnair has good possibilities to quickly continue its operations after the situation. As Finnair’s financial position is strong we continue to see Finnair’s mid-term outlook rather positive. Due to the exceptional situation, there are significant uncertainties with our short-term estimates. We keep our rating “HOLD” with TP of EUR 3.5 (5.0).

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