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On 9 September 2021, easyJet plc (easyJet) a fully underwritten £1.2bn rights issue, marking the second fundraising that easyJet has announced since the pandemic, following a in June 2020  raising approximately £419m. The fundraising is intended to help easyJet withstand potential prolonged market challenges as the airline anticipates that it will not recover to pre-pandemic levels until 2023.

The £1.2bn rights issue is the largest secondary offering by a UK listed company this year and the fourth largest rights issue in the last five years. It was priced at £4.10 per new share, representing a 48% discount to the closing price on 8 September 2021 and a 35.8% discount to the theoretical ex-Rights price of an existing share. However, with more shares available on the market and a 39.7% dilution for shareholders not participating in the rights issue, easyJet’s book value per share and earnings per share have decreased. Investor support for the fundraising is rumoured to be low, and amid this backdrop market confidence in easyJet’s recovery has waned, its share price plummeting by 28% since the announcement and closing at £5.66 on 15 September 2021.

Since the global restrictions on foreign travel were introduced in March 2020, the aviation industry has faced a significant drop in demand and there have been several secondary offerings in the aviation sector as cash-strapped airlines turned to the market for emergency funding. These include the £2.5bn  by International Consolidated Airlines Group, Ryanair’s £400m , Jet2’s £422m  and easyjet’s own £419m . In addition to the funds that easyJet is seeking to raise from the rights issue, the company has also secured a new US $400m revolving credit facility from its banks with the intention of investing the additional equity into growth opportunities in its core markets, as well as its easyJet Holidays business.

Uncertain market conditions and fragmentation have invited speculation upon whether a wave of consolidation is about to hit the European airline industry, given the large competition for market share. Within the announcement of its rights issue, easyJet also  that it had rejected a low premium and highly conditional all-share approach from an unnamed bidder, rumoured to be Wizz Air. EasyJet’s rejection of the bid is unsurprising given the preparations the airline has taken recently to compete for customers amid the return of leisure travel, including conducting the largest restructuring and cost-out programme in the group’s history. More recently, the group has focused on minimising cash burn and maximising liquidity by optimising crew efficiency, negotiating lower airport and ground handling fees, and making significant cost savings in engineering.

Easyjet has positioned itself for an anticipated surge in activity, a gamble which may well pay off. International travel rules are expected to be updated soon ahead of a formal review on 1 October as part of the government’s winter plans, in which it has been suggested that ministers are considering simplifying the traffic light system for foreign travel. It is hoped that travellers will no longer be required to demonstrate a negative PCR test, or that the traffic light system will be scrapped, which would likely lead to an increase in travellers over the winter months. Nevertheless, speculation remains around the company’s future.

Market Tracker will continue to monitor this transaction as it develops. Rights issues are captured in our transaction database (a subscription to Lexis®PSL Corporate is required) which contains information on over 7,000 public company transactions.