Manchester Airports group seeks financial waiver

Manchester Airports Group (MAG) is seeking approval to waive any breach of covenants on the group’s £1.96bn bonds and rolling credit facility.

The plea is due to the continued impact the coronavirus pandemic has had on the aviation industry, and airports around the world, which have seen passenger volumes slump to almost zero due to border closures and travel restrictions since the pandemic took a grip in March 2020.

The group, which includes Manchester, Stansted and East Midlands Airports, is seeking waivers on £1.46bn of fixed rate bonds and its £500m revolving credit facility. It believes, due to the pandemic restrictions, it could breach its financial covenants in September this year and next March.

So far, more than 58% of bondholders have signalled their approval. The rest have until a June 2 deadline to make their decision. MAG needs 75% acceptance to avoid any penalties for breaching covenants.

A MAG spokesperson said: “The coronavirus pandemic has had an unprecedented impact on the aviation industry, and the economy as a whole.

“MAG responded over the last 12 months with a range of measures to preserve cash and limit the impact of significantly reduced passenger volumes.

“These include minimising costs, delaying non-essential capital expenditure and, as is common when businesses encounter such circumstances, securing additional shareholder equity support and temporary waivers on our secured borrowing.

“The impacts of COVID-19 have continued for longer than anyone in the aviation sector reasonably expected.

“Therefore, we are in the process of discussing short-term extensions to the waivers we agreed last summer, to reflect the latest understanding of the likely recovery of international travel.”

They added: “Before the pandemic, MAG successfully increased traffic volumes for 10 years in a row, supporting jobs and growth across the North, the Midlands and the East of England.

“Our actions and the support of our investors puts us in a strong position to respond positively to a recovery in air travel, which, in turn, will deliver wide ranging economic benefits to the communities and regions that our airports serve.

“We look forward to getting back on track with our ambitious growth plans and helping to restart the UK’s regional economies as soon as possible.”

The group said it was in a strong liquidity position when it entered the pandemic last year.

Since then it has managed to raise £700m of funding through a £300m equity injection in July 2020 from stakeholders, followed by £400m from property sales that were brought forward.

It has also managed to achieve £180m of savings in the year to March 2021, and expects to achieve a similar amount in financial year 2022. £100m of savings have been made through staffing costs, including a 10% wage cut for a year from last April.

The group, and the industry, is hopeful of a gradual recovery from June, at the earliest, thanks to the Government’s roadmap out of lockdown restrictions, although short haul airlines are expected to recover faster than business and intercontinental travel.

MAG has prepared two scenarios for recovery from the pandemic involving a resumption of travel from June, and a resumption from September this year, which would mean the loss of lucrative summer holiday traffic.

Scenario one depends on the continuing successful roll-out of the vaccine and easing of restrictive measures in the UK and around the world.

It estimates a 60% reduction in passenger volumes in financial year 2022, then a return to 84% of customer levels in FY23, and back to pre-COVID levels in FY24.

MAG is predicting an EBITDA of £45m for FY22 and a liquidity position of at least £360m over the next two years. It said it will return to covenant compliance in FY23.

The second, more gloomy scenario, is based on a delay to lifting restrictions and the vaccine roll-out, caused by a vaccine resistant variant.

This could mean international travel isn’t sanctioned until September this year, which would involve passenger volumes of just three per cent for the group in June, five per cent in July to September, and then 41% from September.

Overall, this would lead to a 75% reduction in FY22 passenger volumes, which are expected to then recover to 84% of volumes by FY23.

The second scenario predicts a £31m negative EBITDA in FY22, and liquidity of £240m over two years.

However, the group reiterated that it is in a “very strong position” once international travel restrictions are lifted.