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Summary
- As per the industry expert's data, the British economy is expected to bounce back at the fastest rate in July 2020 to September 2020 quarter after declining the most in April 2020 to June 2020 quarter.
- The UK government recently extended support of £400 million for aerospace research and development projects, which would support the aerospace sector.
- Wizz Air Holdings launched Wizz Air Abu Dhabi, which would operate flights from Abu Dhabi to six new routes in Europe from 1 October 2020.
- Wizz Air Holdings raised £300 million under the COVID Corporate Financing Facility (CCFF) of the Bank of England.
- Gama Aviation's US maintenance division operated at 50 percent of the budgeted level in April 2020 and secured a loan of USD 5.75 million from the US Paycheck Protection Program.
- Gama Aviation received air ambulance contracts from the Government of Guernsey and the Government of Jersey.
Given the above-market conditions, we would review two aerospace stocks- Wizz Air Holdings PLC (LON:WIZZ) & Gama Aviation (LON:GMAA). As on 22 July 2020 (before the market close at 1.40 PM GMT+1), WIZZ was up by 0.41 percent, and GMAA was up by 2.59 percent, against the previous day closing. It is mindful to note that recently a consortium of airlines has asked the UK government to waive-off the air passenger duty for one year to support the airline sector. Let's walk through their financial and operational updates to understand the stock better.
Wizz Air Holdings PLC (LON:WIZZ) – Announced the launch of three new base and expansion of two existing base
Wizz Air Holdings PLC is a UK based low fare air carrier operating in Central and Eastern Europe. The Company operates 121 aircraft covering 155 destinations across 45 countries. In March 2020, the Company operated on 703 routes and carried 40 million passengers in one year. Wizz Air is included in the FTSE 250 index.
FY2020 Annual results (ended 31 March 2020) as reported on 5 June 2020
In FY20, the reported revenue increased by 19.1 percent year on year to €2,761.3 million due to growth in air traffic and capacity. The passenger ticket and ancillary revenue were €1,508.5 million and €1,252.8 million, respectively. The average revenue per passenger increased by 2.8 percent year on year to €69.0 in FY20 from €67.1 in FY19. The total operating expense was €2,359.3 million, and the net profit was €281.1 million. As on 31 March 2020, the Company had cash of €1.5 billion. In April 2020, it raised £300 million under the COVID Corporate Financing Facility (CCFF) of the Bank of England. The Company had cut down costs to mitigate the impact of the pandemic on the balance sheet. In FY20 the airline added 98 new routes.
Key Financial Indicators for FY2020
(Source: Company Website)
Recent Events
- On 13 July 2020, the Company launched Wizz Air Abu Dhabi, and the operations are expected to start from 1 October 2020. It is the first expansion of the Company outside Europe. The Company would operate two Airbus A321neo aircraft from Abu Dhabi to six new routes in Europe. The plan is to add more aircraft after the start of operations.
- On 18 June 2020, the Company announced that it would open new aircraft base in Germany, Romania and Russia in addition to expanding the existing base in Belgrade and Serbia. Wizz Air deployed seven aircraft and launched 44 routes for the expansion.
Share Price Performance Analysis
1-Year Chart as on July-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)
Wizz Air Holdings PLC's shares last traded at GBX 3,428.00 (as on 22 July 2020, before the market close at 1.40 AM GMT+1). Stock 52-week High and Low were GBX 4,526.00 and GBX 1,500.00, respectively. The Company had a market capitalization of £2.93 billion.
Business Outlook
The Company is confident of the position as an ultra-low-cost carrier, and thus believes that it has enhanced ability to sustain business interruptions due to the pandemic for a longer period. Notwithstanding the current situation, the Company launched the business in Abu Dhabi and the expanded new routes in Europe, which shows the resilience of the Company's business model. The Company is focusing on digitalization and automation in ticket bookings and check-ins to enhance the customer experience. In FY21, the Company expects to grow the passenger seats by 9 percent compared to FY20 and a fleet growth to 131 aircraft by the end of FY21.
Gama Aviation (LON:GMAA) – Taken actions to restructure and preserve cash
Gama Aviation is a UK based company that provides services to private aviation, air ambulance, infrastructure monitoring, military application and police air support sectors. The Company is engaged in aircraft on the ground assistance, booking a private jet, aircraft management, base maintenance and line maintenance. The Company operates in the US, Europe, Middle East and Asia. Gama Aviation is listed on the FTSE AIM All-Share index.
FY2019 Result Update (ended 31 December 2019) as reported on 9 April
The Company has reclassified many costs related to reporting of the FY19 annual result and expects to publish the result by the end of July 2020. In the trading statement, the Company highlighted that it has reclassified cost of USD 4.2 million that would reduce the adjusted EBIT for FY19; however, it would not have any cash impact. The gains and losses of foreign exchange on the borrowings would reduce the EBIT by USD 0.7 million. Given the economic uncertainty, the Company highlights that the total receivable and inventory would get eroded and thus it has created a provision of USD 2.5 million to USD 3.0 million for accounts receivable and USD 1.0 million for inventory. On 2 March 2020, the Company sold US Air Associate business for USD 33.0 million; out of the total payment USD 10.0 million was for 24.5 percent equity interest and USD 23.0 million was related to branding fees and other trading related considerations. On 23 June 2020, the Company stated that it had cash of USD 19 million and USD 29 million of undrawn credit facility from the USD 50 million credit facility with HSBC.
Business Update and Covid-19 Impact
The US maintenance business operated at 50 percent of the estimated level in April 2020. The business secured loan of USD 5.75 million from the US Paycheck Protection Program, and it is optimistic of getting a waiver on most of the loans. The division is undergoing restructuring to improve efficiency and cut costs. In Europe, the Company started Scottish Ambulance Service helicopter fleet from 1 June 2020. In the Middle East division, the Company received a three-month waiver on rental charges and airport fees; the Company mitigated the impact of the lack of charter business by costs cutting. The CASL (China Aircraft Services Ltd.) associate of the Company incurred substantial losses following the subdued civil aviation business at the Hong Kong airport. On 20 July 2020, Gama Aviation received air ambulance contracts from the Government of Guernsey and the Government of Jersey. The engagement is for five years, with an extension option of five years.
H1 FY2019 Financial Statement
(Source: Company Website)
Share Price Performance Analysis
1-Year Chart as on July-22-2020, before the market close (Source: Refinitiv, Thomson Reuters)
Gama Aviation PLC's shares last traded at GBX 38.99 (as on 22 July 2020, before the market close at 9:34 AM GMT+1). Stock 52-week High and Low were GBX 88.50 and GBX 31.00, respectively. The Company had a market capitalization of £24.05 million.
Business Outlook
The Company suspended the financial guidance for FY20. The Company would focus on the collection of receivables, cutting discretionary expenses, managing outstanding debts and seeking financial support to maintain liquidity headroom. In Europe division, the maintenance bookings have picked up after April, and the future maintenance bookings are steady. In the Middle East, the operational outlook remains uncertain. The Company would target new contracts to grow the business.
