Virgin Australia announces changes to its Boeing 737 MAX order
On 30 April 2019, Virgin Australia announced that it had reached an agreement with Boeing to restructure its Boeing 737 MAX aircraft deliveries following the ongoing investigations into the safety of and subsequent global grounding the aircraft.
Under the agreement, Virgin has deferred the delivery of its first Boeing 737 MAX aircraft from November 2019 to July 2021 and converted an additional 15 of its Boeing 737 MAX 8 aircraft on order to Boeing 737 MAX 10 aircraft. Management noted that the restructure results in a significant deferral of capital expenditure and provides the company access to the superior economic benefits of the MAX 10 aircraft.
We see the changes to the Boeing 737 MAX orders as credit positive for Virgin as it reduces the company’s near term capital expenditure. Further, the MAX 10 aircraft are the largest in the 737 fleet which allows for greater seat capacity and operating efficiencies following delivery.
Transocean reports 1Q19 results
On 29 April 2019, Transocean reported its results for the quarter ended 31 March 2019, the first full quarter results following its Ocean Rig acquisition. Contract drilling revenues sequentially increased USD6m to USD748m.A net increase of USD43m due to the full quarter of revenues from three working rigs acquired in the Ocean Rig transaction in December partially offset by lower utilisation on Transocean’s ultra-deepwater fleet and reduced activity following rig retirements. Adjusted EBITDA was down quarter on quarter, falling to USD254m from USD260m in 4Q18. However, there was a 49% improvement when compared to 1Q18, predominantly due to contributions from assets acquired during the merger. The company reported a net loss of USD171m for the quarter.
The results release follows Transocean’s release of its Quarterly Fleet Status report in which it detailed that it has been awarded 6 new contracts and had 3 customers exercise contract extensions or amendments in the Company’s favour. Over the quarter, Transocean further enhanced its market leading backlog pipeline through the addition of approximately USD373m in contract backlog. As at 17 April 2019, Transocean’s total contract backlog was USD12.1bn.
Zenith Energy Capital Raising
On 3 May 2019, Zenith Energy announced the successful placement of AUD25m of equity with investors. Further, the company commented it will be inviting existing shareholders to participate in a share purchase plan to raise up to AUD5m of additional capital. The proceeds of the capital raising will be used to strengthen the company’s balance sheet for the ongoing construction of power generation infrastructure projects as well as provide it with headroom to convert future opportunities. In our view, this continues a string of positive announcements for Zenith’s credit profile over recent months.
Mercer International reports 1Q19 results
On 2 May 2019, Mercer International reported 1Q19 earnings for quarter ended 31 March 2019. The Company reported strong revenue of USD483m, compared to 1Q18 revenue of USD367m. Further, net income also climbed to USD51m in 1Q19 from USD25m compared to 1Q18. Whilst Mercer experienced softer prices for Northern Bleached Softwood Kraft (NBSK) pulp due to lower overall demand from China, sales volumes increased by approximately 27%. Demand from China accounts for a quarter of Mercer’s revenue.
The increase in the quarter compared to the prior comparative period is primarily due to the inclusion of full quarter results from the Mercer Peace River (MPR) pulp mill in Alberta, Canada. Mercer completed the acquisition of MPR on 10 December 2018. The recent acquisition reinforces the Company’s ability to grow revenue and volumes through strategic M&A transactions, whilst creating economies of scale through lower per unit and labour costs.