Finnair plans €600 million rights issue to shore up finances

Finnair Oyj plans to raise as much as €600 million ($632 million) issuing new shares, as the Finnish flag carrier seeks to prop up its balance sheet after its strategy was upended by the closing of Russia’s airspace in the wake of the war in Ukraine.

The stock slid as much as 27% at 10:59 a.m. in Helsinki, putting it on track for its biggest drop since at least 1991. The Finnish state, the carrier’s controlling shareholder, backs the offering and plans to subscribe to its pro rata share of the new stock, the company said in a statement on Friday. the offering is fully underwritten, Finnair said.

“Building a sustainable balance sheet is a core part of our strategy to drive sustainable growth by connecting Europe, North America and Asia via our Helsinki hub,” Chairwoman Sanna Suvanto-Harsaae said. 

The rights issue is “the logical next step,” she said, after the airline racked up losses during the Covid-19 pandemic and then had to shift its strategy in response to being banned from flying across Siberia, the shortest route between Europe and Asia. The Finnish carrier has instead opted to switch to a more diversified long-haul network linking Europe to Asia, India, the Middle East and North America.

The airline is also looking for a new leader, after Chief Executive Officer Topi Manner in August said he would leave the company to take the helm at telecommunications operator Elisa Oyj.

“This is a very significant rights issue as the current market capitalization of Finnair is €737 million,” Brian Godsk Borsting, chief credit analyst at Danske Bank A/S, said in a note to clients. The rights issue is “clearly positive” for the company’s 2025 euro-denominated bonds, will lower net debt and financing costs, and “demonstrates the State of Finland’s strong commitment to Finnair,” he said.

Finnair last sold shares in 2020, when it raised about €500 million in a rights issue that proved a magnet to retail investors.

New Financial Targets: 

Finnair added two new long-term financial targets — to bring net debt down to 1-2x comparable earnings before interest, tax, depreciations and amortizations by the end of 2025 and to reinstate ability for shareholder payouts from 2025. It also targets reaching a comparable operating profit margin of 6% by the end of 2025 and to be carbon neutral by 2045.

Finnair will use the net proceeds to pay the portion of the €400 million capital loan that remains outstanding after the offering and accrued interest, it said.

The move also opens the door for Finnair to carry out a renewal of its short-haul fleet — on hold for years — after renewing the long-haul fleet with Airbus SE A350 aircraft that it’s taken delivery of since 2015. Finnair currently has a fleet of 79 widebody, narrowbody and smaller regional jets. Of those, 30 are single-aisle Airbus planes, half of which are more than 20 years old.

The offering will be conditional on the shareholder approval, with an extraordinary general meeting to be held Oct. 27, and is expected to be completed by the end of the year. Deutsche Bank AG and Nordea Bank Abp are the joint global coordinators, lead managers and underwriters of the offering.

The Finnish state owns 55.8% of the shares in Finnair and the government has already taken a decision on participating in the transaction by allowing Finnair to use the new shares to repay existing debt, according to a separate statement. The government would require approval from parliament to allow its stake in the company to fall below 50.1%.

“As a responsible long-term owner, the state seeks to do its part to ensure that Finnair’s ability to operate continue into the future,” said Anders Adlercreutz, the minister in charge of state-owned companies.

Finnair also plays a key role for its northern homeland that’s separated from most of the rest of Europe by sea and flanked by Russia to the east. The security aspect of having a national carrier has not gone unnoticed by Finns, who joined the North Atlantic Treaty Organization this year to deter any Russian aggression.