Finnair is intending to launch a new rights issue to existing shareholders to raise up to €600 million. The airline has convened an Extraordinary General Meeting (EGM) to authorise the offering, which is expected to be completed during the fourth quarter of 2023.
Finnair intends to use the net proceeds will pay down the outstanding portion of the €400million capital loan. Together with the redemption of its €200 million hybrid bond, Finnair says the move will provide a sustainable balance sheet and significantly reduce its financing costs.
Finnair believes this financial strategy will enable the company to meet its key financial targets of a comparable operating profit margin of 6% by the end of 2025, 1–2x net debt to comparable EBITDA by the end of 2025, and to reinstate its ability for shareholder distributions from 2025 onwards.
The offering is supported by Finnair’s main shareholders, with the remainder fully underwritten on a standby basis, confirmed the airline. Finnair’s largest shareholder with a 55.8% stake, the State of Finland, will subscribe for its pro rata share of the new shares paid for by offsetting the price against a corresponding amount of the principal of the capital loan.
Finnair’s other shareholders Varma Mutual Pension Insurance Company, Elo Mutual Pension Insurance Company and Ilmarinen Mutual Pension Insurance Company, representing approximately 3.4 per cent of the shares, also plan to vote in favour of the offering and to subscribe for their respective pro rata share.
The remainder of the offering, some 40.7%, is fully underwritten on a standby basis. Deutsche Bank and Nordea Bank would act as the joint global coordinators, lead managers and underwriters of the offering.
“Building a sustainable balance sheet is a core part of our strategy to drive sustainable growth by connecting Europe, North America and Asia via our Helsinki hub,” said Sanna Suvanto-Harsaae, Finnair’s Chair of the Board. “After successfully responding to the external shocks of COVID-19 and the closure of Russian airspace, we have shifted our strategy, restored the company’s profitability and repaid our hybrid bond. The rights offering is the logical next step and will result in a return to a more normal, sustainable capital structure. It will support the continued execution of our strategy and enables us to continue to enhance shareholder value, also through shareholder returns.”
Outgoing chief executive, Topi Manner, said that he was “fully committed” to this capital raise project, adding that he feels confident in leaving a strong Finnair in “excellent and capable hands, with a bright future ahead after completion of the rights offering”.
Manner, who has resigned from the airline and will leave the company on March 1, 2024, said: “After successfully redirecting our network, optimising our fleet and implementing many key strategic initiatives, Finnair’s operations are more profitable today than in 2019. Building a strong balance sheet through the rights offering will further reduce our cost of capital and strengthen our resilience. Very importantly, it will also enable future investments and increase flexibility on actions required to fulfil our long-term carbon neutrality target.”
Finnair has reiterated its pledge to become carbon neutral by 2045 along with the additional long-term financial targets already mentioned above. Finnair says that its long-term financial targets are based on increasing its overall capacity, measured in Available Seat Kilometres (ASK), by more than 15% from 2023 to 2025; keeping Finnair’s maintenance capex at between €80–100 million annually; and also assumes that Finnair would be able to utilise €190 million of the recognised deferred tax assets, which would limit the corporate tax payable over the medium term; and that it would maintain cash to sales ratio of 30 per cent over time.
In September, Finnair carried 921,800 passengers, which was 3.5% more than in September 2022 but 5.0% less than in August 2023 due to “normal seasonality”.
September passenger traffic figures improved year-on-year as the COVID-19 pandemic impacts have mostly faded and as the Russian airspace was closed already during the comparison period. The negative impact of the Russian airspace closure especially on Asian passenger traffic figures was, however, still visible in September 2023 compared to the pre-pandemic figures. The distance-based reported traffic figures do not take into account longer routings caused by the airspace closure as they are based on Great-Circle distance.
The overall capacity, measured in ASKs, increased in September by 9.8% year-on-year but decreased by 5.5% month-on-month. Finnair's traffic, measured in Revenue Passenger Kilometres (RPKs), increased by 13.0% year-on-year but decreased by 7.9% month-on-month. The passenger load factor (PLF) increased by 2.2% points year-on-year but declined by 2.0% points month-on-month to 77.9%.