Following in the footsteps of United, Delta and Spirit, Hawaiian Airlines is leveraging its own loyalty and brand assets to raise $800 million in order to repay its CARES Act loan.
Speaking on the airline’s fourth quarter earnings call, CFO Shannon Okinaka commented that the new financing will “generate significantly higher borrowing capacity than the CARES Act loans with a lower total cost of capital, better payment terms, and more flexible terms overall”, adding that the deal will put the airline in a better position as it begins the process of repairing its balance sheet.
The unregistered offering of $800 million senior secured notes due 2026 is from two newly-formed subsidiary Issuers: Hawaiian Brand Intellectual Property and HawaiianMiles Loyalty.
Issuers plan to lend the proceeds to the company after depositing a portion of such proceeds in a reserve account.
Final terms and notes size have not yet been announced.
The notes are guaranteed by Hawaiian Holdings and will be secured by a first priority lien on the core assets of the company's HawaiianMiles loyalty program (including the intellectual property required or necessary to operate the loyalty program) and substantially all of the company's other brand intellectual property.
Hawaiian has reported a 79% decline in total revenue for the fourth quarter of 2020, with a 72% decline in capacity.Passenger revenue was down 86% year-over-year, while other revenue was down only about 3%, driven by continued strong performance in Hawaiian’s cargo and charter businesses, and some year-end trips with its HawaiianMiles credit card partner. Hawaiian booked a net loss of $173 million for the fourth quarter, and adjusted net loss of $551 million for the full year 2020.
The airline closed the quarter with $864 million in cash and short-term investments, which includes the receipt of $41 million from the at-the-market equity offering announced in December, which issued 2.1 million shares at an average price of $19.79 per share.
Including the new loyalty program financing as well as our $168 million allocation of funds from the Payroll Support Payments (PSP) extension, Hawaiian estimates it will have $1.8 billion in liquidity, which the airline says puts it in a “very comfortable position” as it is significantly more than its previously stated $500 million target.
Okinaka stated that the airline will reassess its liquidity targets and deleveraging plans “later this year after the financing transaction, and when we have a clearer sense of how demand will return”. Capital expenditure for 2021 is estimated to be in the range of $50 million to $70 million, which includes some 77 spare engine pre-delivery payments as well as technology and facilities projects.
Hawaiian’s fourth quarter daily cash burn was $1.7 million, which was favourable to its original forecast of $2.2 million. The airline is forecasting cash burn in the first quarter to be $2.3 million to $2.7 million per day, which remains “highly dependent on ticketing for second and third quarter flying”, which remains unclear.
The sequential increase from the fourth quarter is primarily associated with the timing of semiannual debt service payments on Hawaiian’s EETC debt, which accounts for about $600,000 per day.
Okinaka said that although achieving cash burn breakeven is a goal, the airline does not expect to reach that point in the first half of this year since this is highly reliant on an acceleration in the pace of bookings. “As we await more widespread distribution of the vaccine and better control of the pandemic, we’ll continue our focus on cost discipline and will monitor our capacity carefully to ensure we’re on the path to positive cash generation,” she said.
Looking ahead, Hawaiian confirmed that bookings for the first quarter were on a positive upwards trend for most of the fourth quarter, increasing from about 15% of 2019 levels. However, the launch of pre-travel testing in October and an increase in COVID cases in the US caused bookings to falter. Hawaiian reports bookings are currently about a third of 2019 levels, with second quarter 2021 intakes between a quarter and a third of historical norms.
"While 2020 has been the most challenging year the airline industry has experienced, we are encouraged that the re-opening of Hawai‘i to tourism through the State’s pre-travel testing program and Hawaiian’s successful testing partnerships have allowed us to begin the journey to recovery” said Peter Ingram, Hawaiian Airlines President and CEO. "The negative impacts of COVID-19 will create a challenging beginning of 2021, but we are confident that the structural pieces are in place for a sustained recovery.