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Vacation blues

11 Nov 2020 By Christopher Thompson

Tui has cancelled Santa Claus trips to Lapland this Christmas. Still, Chief Executive Friedrich Joussen could get an early seasonal gift from German Chancellor Angela Merkel in the form of a 1.8 billion euro bailout. With markets celebrating Pfizer’s vaccine and other companies raising capital, it looks like a festive slap in the face for taxpayers.

Hannover-based Tui, Europe’s largest tour operator, can certainly plead hardship. Revenue in its most recent financial quarter collapsed by 98% year-on-year due to travel restrictions. Joussen has cut costs by 70%, and already called on the government for 3 billion euros in debt and equity-like capital.

In a zero-bookings environment, the new money could buy Joussen an additional six months waiting time, assuming operating costs of around 300 million euros per month. That could keep the lights on until a coronavirus vaccine is widely available next year, travel restrictions are eased and holidaymakers restart bookings ahead of the crucial summer season.

The new funds may also help tackle Joussen’s leverage problem. Tui has net debt of roughly 5.9 billion euros, equivalent to some 6 times next year’s earnings before interest, tax, depreciation, and amortisation according to Refinitiv estimates. At least part of the extra capital will be in the form of equity or convertible bonds, Reuters reports. Cutting the metric to a more manageable 4 times implies Joussen needs to raise 1.9 billion euros of equity.

Still, Tui could probably raise all that money from shareholders, which include Russian steel tycoon Alexei Mordashov. True, a 1.9 billion euro rights issue would be equivalent to nearly three-quarters of Tui’s market value, implying severe dilution for investors who don’t pony up. Yet delaying shareholder dilution is hardly the job of the German government.

Markets are certainly receptive. Tui shares have risen by a fifth since Monday when Pfizer announced preliminary results from its vaccine. Earlier this week share pops allowed German group Deutsche Lufthansa to raise a convertible bond, and cruise operator Carnival tapped investors for up to $1.5 billion.

Joussen can at least expect stiff terms. In August, the government charged a high 9.5% interest rate on a convertible bond. While that may ease the burden for taxpayers, the case for further bailouts looks weak.


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