Capital markets are rebounding and airlines see 2011 as the year to repair balance sheets hammered by the global financial crisis.
With their first profits since 2007, carriers with improved cash reserves are considering the advice of Glenn Tilton, chairman of United Continental Holdings, who sees this as the time to "deleverage" balance sheets and use some of that cash to retire debt. The big choice, says American Airlines treasurer Beverly Goulet, is deciding how much cash to keep for liquidity and how much to use to reduce debt. The other option is the bond markets, where debt can be refinanced at near-record low rates. Brazilian carrier Gol has already tapped this by raising $356 million. Bond investors are attracted to airlines, despite the low rates on new issues, because airline bonds are outperforming other sectors.
Will interest rates stay low? Yes, if the US Federal Reserve succeeds in pumping $600 billion into the economy through its treasury bond buy-back. No one knows how much China's boost in bank minimum capital reserves, or Europe's sovereign debt woes, will offset the Federal Reserve's move, but most bets are on interest rates staying low.
Among airlines, most of the action so far is in Asia, where Cebu Pacific successfully launched, in late October, the biggest-ever initial public offering by a low-cost carrier, which raised over half a billion dollars. Garuda Indonesia is moving toward its historic IPO in February.
Following General Motors' blockbuster IPO of $23 billion - the world's biggest - analysts believe confidence has been further boosted among investors, who are anxious to find better returns than those available on bonds.
Source: Flight International
