Emirates to raise debt as it braces for most difficult months ever

The state-owned airline, which suspended regular passenger flights in March due to the virus outbreak that has shattered global travel demand, said that a recovery in travel was at least 18 months away. (File/AFP)
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Updated 10 May 2020

Emirates to raise debt as it braces for most difficult months ever

  • The airline, which has been promised financial aid from its Dubai state owner, did not say how much it expected to raise
  • Dubai Ruler Sheikh Mohammed bin Rashid Al-Maktoum said in the group’s annual report released on Sunday that he was confident Emirates would emerge from the crisis strong

DUBAI: Emirates, one of the world’s biggest long-haul airlines, said on Sunday it will raise debt to help it through the coronavirus pandemic and may have to take tougher measures as it faces the most difficult months in its history.
The state-owned airline, which suspended regular passenger flights in March due to the virus outbreak that has shattered global travel demand, said that a recovery in travel was at least 18 months away.
It reported a 21 percent rise in profit for its financial year that ended on March 31, but said the pandemic had hit its fourth quarter performance and it would tap banks to raise debt in its first quarter to lessen the impact on cash flows by the virus.
The airline, which has been promised financial aid from its Dubai state owner, did not say how much it expected to raise.
“The COVID-19 pandemic will have a huge impact on our 2020-21 performance,” Chairman Sheikh Ahmed bin Saeed said in a statement.
“We continue to take aggressive cost management measures, and other necessary steps to safeguard our business, while planning for business resumption.”
In an internal email sent to staff on Sunday and seen by Reuters, Sheikh Ahmed said the months ahead would be the most difficult in the airline’s 35-year history.
“At some point, if our business situation doesn’t improve, we will have to take harder measures,” he said in the email.
Emirates did not immediately respond to an emailed request for comment on the internal email.
Emirates Group, which counts the airline among its assets, said it will not pay an annual dividend to its shareholder, Dubai’s state fund. Its cash assets stood at $7 billion, it said.
Dubai Ruler Sheikh Mohammed bin Rashid Al-Maktoum said in the group’s annual report released on Sunday that he was confident Emirates would emerge from the crisis strong, and a global leader in aviation.
Dubai said in March that it would inject funding into the airline. Emirates said in the annual report that Dubai would financially support the airline if it was required.
The airline made a profit of $299.5 million in the year to March 31, up from $237.17 million a year earlier, it said. However, it cautioned that the virus outbreak had hit its final quarter.
Revenue contracted 6.1 percent to $25.05 billion as the number of passengers carried fell 4.2 percent to $15.3 million.
In March, Emirates also temporarily cut staff pay due to the coronavirus pandemic.
It is not clear when Emirates will resume normal flights. Rival Qatar Airways has said it would begin rebuilding its network from this month, while Abu Dhabi’s Etihad Airways plans to resume regular flights from June.
International connectivity is crucial for Emirates’ Gulf hub model, which transformed Dubai six years ago into the world’s busiest international airport. It does not operate domestic flights and most of its passengers transit through its hub.
Emirates sister company dnata saw profit drop by 57 percent in the year through March 31 to $168.277 million, which the company attributed to investments in its catering and airport services divisions and weak demand in its travel business.
Dnata has laid off some employees so that they could be eligible for unemployment schemes, Sheikh Ahmed said in the internal email.
Dnata is reviewing its operations in Australia after it was excluded from a government job protection scheme there due to its foreign state ownership.
Profit at the Emirates Group, which also includes dnata, fell 28 percent to $462.9 million. Revenue was down 4.8 percent to $28.318 billion.
Unfavorable currency exchange rates cost the Group $272.294 billion in profit, it said, while it saw some respite from cheaper oil prices.


HSBC profit slump adds to bank sector coronavirus woes

Updated 04 August 2020

HSBC profit slump adds to bank sector coronavirus woes

  • London-based bank reports massive slump in net profit, plans to slash 35,000 jobs

LONDON: HSBC on Monday reported a 69-percent slump in net profit, joining a number of major banks whose earnings have been slammed by the coronavirus fallout.

HSBC announced earnings of $3.1 billion compared with almost $10 billion in the first 6 months of 2019, as spiraling China-US tensions also hurt the British-based but Asia-focused lender.

Alongside HSBC results, top French bank Societe Generale on Monday announced a second quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans. UK banks Barclays, Lloyds and NatWest all last week reported huge financial hits linked to the pandemic’s fallout.

But there have been some bright spots, with French bank BNP Paribas weathering the coronavirus storm in the second quarter with only a small dip in net profits thanks to a surge in investment banking.

Credit Suisse meanwhile saw net profit jump almost a quarter in the April-June period, also on investment banking gains.

HIGHLIGHT

$1 BILLION - Alongside HSBC results, top French bank Societe Generale on Monday announced a second-quarter loss of more than €1 billion as the pandemic forced it to set aside more provisions against bad loans.

“HSBC has done little to lift investors’ spirits as it brings the curtain down on what has been a costly half-year reporting season for banks in general,” noted Richard Hunter, head of markets at Interactive Investor.

Even though banks “are much better prepared for this economic onslaught than during the financial crisis of over a decade ago ... the immediate outlook is bleak,” he added.

HSBC said that its pre-tax profit slid 64 percent to $4.3 billion in the first half while revenue was down 9 percent at $26.7 billion.

The figures missed analyst forecasts and the bank also raised its estimate for 2020 loan losses to $13 billion from $8 billion.

CEO Noel Quinn described the first 6 months of the year as “some of the most challenging in living memory.” He added: “Our first-half performance was impacted by the COVID-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility.”

Even by the standards of the current economic maelstrom engulfing global banks, HSBC has had a torrid time.

Before the coronavirus crisis it was beset by disappointing profit growth, ground down by US-China trade war uncertainties and Britain’s departure from the European Union.

The London-headquartered bank embarked on a huge cost-cutting initiative at the start of the year, including plans to slash about 35,000 jobs as well as trimming fat from less profitable divisions, primarily in the United States and Europe.

The coronavirus upended some of that cost-cutting drive with banks hammered by market volatility and the economic slowdown caused by the pandemic.

But HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.

HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.

As a result it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.

The bank has tried to stay in Beijing’s good graces. It vocally backed a draconian national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests. The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.

But that has not shielded it from Beijing’s wrath. Quinn referenced the bank’s growing political vulnerability in Monday’s results statement.

“Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint,” he said.

“However, the need for a bank capable of bridging the economies of East and West is acute, and we are well placed to fulfil this role,” he added.