Avis Europe is to attempt a £151 million rights issue to bolster its finances in the wake of the global downturn and problems associated with disruption caused by the volcanic ash disruption.
Avis said in March that rental income had fallen by 11 per cent — then revealed last month that trading had worsened as the ash cloud hit airlines.
Shares will be offered at 15p, a 57 per cent discount on Thursday’s average price, with the proceeds used to cut Avis’s £758 million net debt. It has also secured a three-year €375 million (£309 million) credit facility.
The global car rental industry is showing signs of recovery after two years of pain, according to a report from Standard & Poor’s.
For consumers, especially those travelling for leisure rather than business, the recovery is likely to mean higher prices. The big six global rental companies, having cut their overheads and their fleet sizes, have eliminated the excess capacity that held prices down during much of 2008 and 2009.
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S&P rates six companies in the global car rental sector: Enterprise Holdings, Avis Budget Group, Hertz Global Holdings and Dollar Thrifty in America, as well as Localiza in Brazil and Europcar in Europe. Having lowered the ratings of most of them in 2008, S&P said that improving industry conditions and operating performance meant it had raised the corporate credit ratings on Avis, Budget, Enterprise, Hertz and Dollar Thrifty.
Shares in Avis closed 6¼p lower at 28½p.
The report comes at a key point of consolidation for the sector. In April Hertz offered $1.27 billion in cash and stock for Dollar Thrifty. Avis Budget said in May that it would make a “substantially higher” offer for the company. Both offers would be examined by the Federal Trade Commission.
Despite uncertainties surrounding the acquisition of Dollar Thrifty, Betsy Snyder, an analyst at S&P, said: “Despite the prospect of further economic weakness in Europe, and turmoil in the capital markets, we believe that the actions taken by the companies have aided their credit quality and placed them in a good position to take advantage of improving market conditions.”
Although S&P is expecting the recovery in the car rental industry to be global, it expects a more moderate recovery in Britain amid continuing weak demand from leisure customers from southern European countries.
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The car rental sector came under huge pressure in late 2008 and in 2009 after 15 years of intense competition forced prices down to unrealistic levels. With the drop in airline traffic caused by the recession reducing demand for rental cars, the difficulty of securing finance for new vehicles and the lack of buyers for second-hand cars left many operators with smaller fleets of increasingly older cars. S&P said that the companies had made permanent reductions in their overheads and other fixed costs. “As a result, lower operating costs led to improved margins.”
The turnaround comes on the back of a sharp increase in air passenger numbers, a key indicator for car rental companies. The International Air Transport Association is forecasting passenger revenues of $414 billion (£277 billion) this year, up 12.2 per cent from 2009 estimates, but still lower than 2008’s figure of $439 billion.