DAVY VIEW

As the CEO of a global lessor recently pointed out, airlines that receive state support will likely prioritise retiring this debt as soon as possible given that it could otherwise strategically and practically impair their business. With passenger demand unlikely to fully recover until 2023 (at the earliest) and with a focus on deleveraging towards investment grade, shareholder returns will go to the back of the queue at Air France KLM, and indeed an equity issuance is likely in the coming 12-24 months. With this in mind, we move our rating to ‘Underperform’. IAG is one of the few airlines globally that should have enough liquidity – and equity – to see out the crisis. With its restructuring measures and quicker free cashflow recovery, we retain our ‘Outperform’ rating (price target: £3.50). We outline our estimates for the coming years for both airlines.