Download - EasyJet Plc Fleet Plans
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Making a strong business stronger
18 June 2013
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Introduction
John Barton Chairman
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Fleet order
Carolyn McCall Chief Executive Officer
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Continuation of strategy to drive growth and returns
1. Drive demand, conversion and yield across Europe
2. Build strong number 1 and 2 network positions
3. Maintain cost advantage
4. Disciplined use of capital
• Sustainable growth
• (slightly in excess of market c. 3% to 5% per annum)
• Improved returns
• Tangible and regular cash returns via 3x cover dividend
Leverage easyJet’s cost advantage, leading market positions and brand to deliver point-to-point low fares with operational efficiency and friendly service for our customers
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easyJet Ryanair Lufthansa Norwegian Vueling airberlin IAG Air France KLM
16% 16% 12% 9% 7% 3% 1% n/a
ROCE
Bubble represents size of ROCE
easyJet’s leading ROCE is driven by high asset utilisation
Adj. Asset turnover
easyJet generates highest returns in sector
easyJet 16%
Ryanair 16%
Vueling 7%
Norwegian 9%
airberlin 3%
IAG 1%
Lufthansa 12%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0% 3.0% 6.0% 9.0% 12.0% 15.0%
Adj. NOPAT Margin
1. Data from company filings sourced by Goldman Sachs.
2. Local corporation tax rates for 2012 sourced from KPMG www.kpmg.com/global/en/services/tax/tax-tools.
3. ROCE shown calculated using leases capitalised at 7x for 12 months to 31 March 2013.
4. Lufthansa ROCE is stated including the impact of IAS19 on book equity. Lufthansa have written down a large proportion of book equity under the IAS19 rules.
5. Air France KLM not shown on graph due to 0% ROCE for 12 months to 31 March 2013.
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Lowest cost of
ownership • Identify funding
requirements
• Portfolio approach – 70/30
owned / leased mix
• Alignment of owners’ interests with operators' obligations
easyJet’s approach to fleet strategy
Integrated approach required to deliver lowest fleet cost across the lifecycle
Lowest cost of support
• Maintain asset technical integrity
• Define and plan business needs
• Maximise value from strategic supplier relationships
Lowest lifecycle cost • Business case driven decisions
• Negotiate fleet transactions
• with range of suppliers –
• manufacturers and lessors
• Maximising transaction benefits
Fleet plan flexibility
• Network requirements define capacity needs
• Short lead times for capacity decisions
• Fleet plan defines need for fleet transactions
Fleet planning
Fleet procurement
Maintenance and Engineering
Finance
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Existing arrangements with Airbus
• Contract provides for up to 315 aircraft
• Original contract announced in 2002 for 120 firm orders and 120 purchase rights
• 2006 – 75 additional purchase rights approved by shareholders
• 230 have been delivered as at 31 May 2013
• 15 further deliveries by 2014
• 39 options and 31 purchase rights remaining
2003 - 2014 (Current Contract)
Excludes the 2 ex GB Airways aircraft
230
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39
31
0
50
100
150
200
250
300
350
Delivered to date Further deliveries
Options Purchase rights
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New technology options available to easyJet
Airframe First delivery / First firm airline order
Fuel saving1
Airbus A320neo family 2015 / Virgin America 15%1
Boeing 737 MAX family 2017 / Southwest 13%2
Bombardier CSeries 2014 / Lufthansa (for Swiss) 20%3
1. Manufacturer’s estimate vs. current generation A320 2. Manufacturer’s estimate vs. “today’s most efficient single aisle airplanes” 3. Manufacturer’s estimate vs. “in production aircraft in its class”
Engine Available on aircraft family
P&W PurePower PW1000G • Airbus A320neo
• Bombardier CSeries
CFM LEAP • Airbus A320neo
• Boeing 737 MAX
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Highly competitive, rigorous and thorough process
Technical review
• Airframe and engine suitability
• Technology risk assessment
• Ability to meet future environmental standards
• Price
• Commercial benefits
• Support
• Guarantees
• Maximise cost / benefit
• Minimise cost per seat
• Minimise P&L impact of any transaction
2012 Jan – May 2013 Jun – Jul 2013
Fleet planning
Financial analysis
Transaction
• Deliver capacity needs of 10 year fleet plan
• Minimise investment in current generation aircraft
• Fleet delivery flexibility
Selection criteria
Requirements
Mission capability
• Minimise any payload loss carried across network
• Minimum take-off weight and engine thrust
• Minimise fuel burn
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New Framework Arrangements with Airbus
• 35 A320 current generation with CFM engines
• 33 options1
• 2 purchase rights
• Aircraft for delivery between 2015 and 2017
• 6 options2 and 29 purchase rights remaining
• 100 new generation A320neo aircraft
• Aircraft for delivery from 2017 to 2022
• Engines
• ceiling price agreed with either CFM or Pratt & Whitney
• price may improve
• A further 100 purchase rights over A320 family aircraft
• to be exercised by 2025
New Framework Arrangements
1. As part of the exercise of options the final 2 remaining ex-GB Airways deliveries have been cancelled 2. Expire 30 September 2013
• Contract provides for up to 315 aircraft
• Original contract announced in 2002 for 120 firm orders and 120 purchase rights
• 2006 – 75 additional purchase rights approved by shareholders
• 230 have been delivered as at 31 May 2013
• 15 further deliveries by 2014
• 39 options and 31 purchase rights remaining
2002/6 Contract with Airbus
2003 - 2014 (Current Contract)
2015 - 2017 Bridge (Current Contract)
2017 - 2022 New Generation contract
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Why Airbus has been selected
• All manufacturers demonstrated ability to meet easyJet’s performance requirements
• Airbus selected on superior economics
• price represents a very substantial discount from the list price
• level of discounts applicable to the 35 Current Generation A320 Aircraft is in line with the price concessions applicable to aircraft previously delivered under the Existing Airbus Contract
• level of discounts with regard to the 100 New Generation A320neo Aircraft is greater than the level of discount price concessions, in percentage terms relative to the relevant list price, granted under the Existing Airbus Contract
• Airbus also demonstrated flexibility and capacity to support easyJet’s fleet plan
• easyJet has secured favourable delivery dates from Airbus
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We have delivered on our objectives
1. Introduce more cost efficient 180 plus seater aircraft to replace our 156 seat A319s
2. Improve on our current cost advantage over competitors on our routes through the introduction of the next generation of more fuel efficient aircraft
3. Support our prudent planned capacity increases of c.3% -5%; in line with our current strategy of delivering sustainable growth and returns
4. Retain our leading market positions; as our existing fleet ages and older aircraft exit the fleet
5. Continue to benefit from the flexibility available in our fleet planning arrangements, ensuring that we maintain the ability to phase timing of deliveries to reduce the risk of holding surplus capacity
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Enhances easyJet’s cost advantage
Chart assumes fuel at US$1,100/tonne
Move to new generation will allow easyJet to maintain its cost advantage
Total cost saving of 11-12% against current 156 seat aircraft
Move to 180 seat A320 enhances easyJet’s cost per seat advantage
Current generation
A319
Fuel Maintenance Crew Ground ops and
navigation
Ownership Other Current generation
A320
Fuel Ownership New generation A320neo
4-5%
7-8%
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Profitable opportunities within existing markets
Source: Market size sourced from OAG data based on easyJet definition of short-haul routes; estimates of transfer traffic obtained from airport and company external announcements. P2P = point to point; LCC = Low-cost carrier.
EZJ 46m seats
Non-LCC P2P (est)
86m seats
Non-LCC transfer (est)
26m seats
Other LCC 51m seats
Share of traffic at easyJet’s top 20 airports
Growth in existing markets
• easyJet has approximately 22% share of capacity at its top 20 airports – equating to around 46m seats
• Other low cost carriers (LCCs) have ~25% share
• Non-LCCs account for 53%, with 12% estimated to be for connections to long-haul flights
New Framework Arrangements
• Profitable opportunities for easyJet to grow capacity at c.3% to 5% a year
• 2% to 4% capacity growth from new routes or increased frequencies
• 1% capacity increase from larger aircraft on existing routes
A further 41% or 86m seats opportunity within easyJet’s top 20 airports
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Flexibility and increasing the proportion of A320s in the fleet
2014 2015 2016 2017 2018 2019 2020 2021 2022
Fleet plan – base case1 226 231 241 256 261 264 269 276 276
Current Generation A3201, 2
32% 36% 39% 42% 41% 41% 40% 39% 39%
Current Generation A3191, 2
68% 64% 61% 57% 52% 44% 41% 33% 25%
New Generation A320neo1, 2
- - - 1% 7% 15% 19% 28% 36%
Average age of fleet (years)1
5.8 6.4 7.2 7.6 7.7 7.8 8.3 8.0 7.9
Seats flown growth 4.7% 4.6% 5.4% 4.8% 3.0% 3.0% 3.0% 2.8% 3.1%
Maximum fleet1, 3 226 237 247 262 279 300 301 306 298
Minimum fleet1 226 215 217 223 185 167 177 162 165
1. At the end of the relevant Financial Year 2. Based on fleet plan – base case 3. Does not include the purchase rights
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Flexible arrangements to de-risk the fleet plan
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125
150
175
200
225
250
275
300
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 Fleet Plan
Ability to downsize fleet to 165 aircraft by 2022 if conditions dictate
FY14
FY15
FY16 FY17
FY22
FY18
FY19
FY20
FY21
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Financial impact of the new framework arrangements
Chris Kennedy Chief Financial Officer
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Rigorous analysis underpins the Board’s recommendation
• Rigorous and robust financial modelling
• Head to head comparison of costs over a life of 20 years for aircraft which met easyJet’s requirements, discounted to NPV using easyJet’s WACC
• Detailed business plan to 2022 to analyse various fleet scenarios including the scenario where easyJet does not enter into the New Framework Arrangements
• Modelled on easyJet’s existing network and factoring in all cost elements including fuel, navigation, airport operations and maintenance
• Key assumptions:
• A maximum age of 16 years in the period 2014 to 2022;
• An average aviation fuel cost of US$1,100 per metric tonne; and
• An average US$:GBP exchange rate of US$1.60:£1.00 and a Euro/GBP exchange rate of €1.18:£1.00
• Sensitivities show the business case remains robust at varying levels of fuel price and exchange rates
• Externally validated:
• Ernst & Young LLP reviewed the construction of the financial models on the basis of the assumptions agreed by the Board
• BDO LLP reviewed the controls and the overall governance around the process
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New Framework Arrangements aligned to financial objectives
Objectives Measures New Framework Agreement
Return Targets
• Earn returns in excess of cost of capital through the cycle
• Invest in growth opportunities where returns are attractive
• Improve profit before tax per seat to £5
• ROCE1 including operating leases
Capital Structure And Liquidity
• Ensure robust capital structure • Return excess capital to
Shareholders • Maintain sufficient level of liquidity
to manage through the cycle and industry shocks
• Maximum gearing of 50% • Target £4m cash per aircraft • Cap of £10m adjusted net debt per
aircraft
Dividend Policy
• Target consistent and continuous payouts
• 3 times cover, subject to meeting gearing and liquidity targets
• Annual payments based on full year profit after tax
• Consider returns over 3 times cover to reduce excess capital
Aircraft Ownership
• Maintain flexibility around fleet deployment and size
• Target of c.70% owned aircraft, c.30% leased aircraft
Return on capital employed—Normalised profit after tax divided by average capital employed. Normalised profit after tax comprises operating profit adjusted for implied interest on operating
leases (calculated at one-third of the charge for aircraft dry leasing for the year), less tax calculated divided by average capital employed at the standard rate of corporation tax ruling at the
end of the year. Average capital employed comprises the average sum of Shareholders’ equity and adjusted net debt (as defined in ‘‘gearing’’) at the start and end of the year;
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Fleet expenditure broadly in line with current levels
2005-20121 2013 – 20142 2015-20172 2018-20222
Additional aircraft 49% 37% 48% 16%
Replacement aircraft
42% 39% 12% 54%
Maintenance 9% 24% 40% 30%
Total 100% 100% 100% 100%
Total expected fleet acquisition and overhaul expenditure as a % of easyJet revenue
18% 10% c.8% 10% - 12%
Fleet acquisition and overhaul expenditure expected to be funded through a combination of easyJet’s internal resources, cashflow, sale and leaseback
transactions and debt
1 . Based on actual revenue for the 2005 – 2012 Financial Years 2 . Based on estimated revenue
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Conclusion
Carolyn McCall Chief Executive Officer
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Conclusion
• Continued execution of a strategy that has delivered returns and growth for shareholders
• Delivers significant cost advantage through fleet replacement
• Flexibility in arrangements mitigates risk
• Enhances ability to deliver cash returns to shareholders
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Q&A
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Appendix
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easyJet generates highest returns in sector
easyJet Ryanair Vueling Norwegian airberlin IAG Air France Lufthansa
LCU LCU LCU LCU LCU LCU LCU LCU
EBIT 390 718 34 1,047 31 -52 -219 1,257
Interest on leases (33%) 31 33 43 346 198 143 322 33
Adjusted EBIT 421 751 77 1,393 229 91 103 1,290
Tax (local enacted rate) -101 -94 -23 -390 -68 -43 -107 -381
NOPAT 320 657 54 1,003 161 48 -5 909
Tax rate % 24% 13% 30% 28% 30% 30% 33% 30%
Ave. equity 1,587 3,290 227 1,982 -26 5,061 4,671 4,900
Ave. net debt / (cash) -238 54 -331 3,004 703 1,431 7,054 1,923
Ave. capitalised leases (7.0x) 683 661 823 6,693 4,116 2,891 6,409 826
Average capital employed 2,032 4,005 719 11,679 4,792 9,383 18,133 7,648
ROCE 16% 16% 7% 9% 3% 1% 0% 12%
Capitalised leases at 7.0x and local tax rate
ROCE - using 24% Tax rate 16% 14% 8% 9% 4% 1% 0% 13%
1. Data from company filings sourced by Goldman Sachs.
2. Local corporation tax rates for 2012 sourced from KPMG www.kpmg.com/global/en/services/tax/tax-tools.
3. ROCE shown calculated using leases capitalised at 7x for 12 months to 31 March 2013.
4. Lufthansa ROCE is stated including the impact of IAS19 on book equity. Lufthansa have written down a large proportion of book equity under the IAS19 rules.
5. Air France KLM not shown on graph due to 0% ROCE for 12 months to 31 March 2013.
All figures expressed in reported local currency units (LCU)
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Disclaimer This presentation has been furnished to you solely for your information on a confidential basis and may not be reproduced, redistributed or passed on to any other person, directly or indirectly, nor may it be published in whole or in part, for any other purpose.
This presentation does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of easyJet plc (“easyJet”) in any jurisdiction nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. This presentation does not constitute a recommendation regarding the securities of easyJet. Without limitation to the foregoing, these materials do not constitute an offer of securities for sale in the United States. Securities may not be offered or sold into the United States absent registration under the US Securities Act of 1933, or an exemption there from.
This document should not be relied upon, or form the basis for any decision or action, by any person. easyJet nor any other party or any of their respective subsidiary undertakings or affiliates or any of such person's officers or employees, advisors or other representatives, accepts any liability whatsoever (whether in negligence or otherwise) arising directly or indirectly from the use of this document or its contents or otherwise arising in connection with the presentation. This document has not been approved by any competent regulatory or supervisory authority.
Certain statements in this presentation contain forward-looking statements These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘forecasts’’, ‘‘plans’’, ‘‘prepares’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘projects’’, ‘‘will’’, ‘‘targets’’, ‘‘aims’’, ‘‘may’’, ‘‘would’’, ‘‘could’’, ‘‘continue’’ or, in each case, their negative or other variations or comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of easyJet or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. In particular, certain statements in this presentation relating to future financial results, plans and expectations regarding easyJet’s business, growth and profitability, as well as the general economic conditions to which easyJet is exposed, are forward-looking in nature and may be affected by factors including, but not limited to, those set out in Part 2 (Risk Factors) of the Circular. It is strongly recommended that Shareholders read Part 2 (Risk Factors) of the Circular for a more complete discussion of the factors which could affect easyJet’s future performance and the industry in which it operates in the context of the New Framework Arrangements.
By attending or reading this presentation you agree to be bound by the foregoing limitations.