The second quarter of 2020 (2Q20) saw the country stand still.  As the government imposed the severest of the measures  to contain the COVID-19 Pandemic, the country’s economic activity almost ground to a halt.  In that quarter, Cebu Pacific (CEB) virtually stopped its flight operations.

Despite the fact that CEB stopped its operations, operating expenses still piled up.  In the 2Q20 where it did nothing much else, CEB incurred total operating expenses of 7.7 Billion Pesos.  The figure provides a clue on how much it will cost CEB to sustain its operations at the lowest level.  The 7.7 Billion Pesos  serves as the floor of its quarterly operating expenses.  That is the hurdle that CEB must overcome to break even.

In that second quarter of 2020, CEB only generated 1.4 Billion Pesos of revenues, resulting in an operating loss of 6.3 Billion Pesos.

With COVID-19 still ravaging on, CEB scale of flight operations a quarter is unlikely to generate revenues surpassing the 7.7 Billion Peso-hurdle.

As past earnings have been plowed to airplanes, properties, and equipment, CEB may have to replenish capital and raise cash as it contends in the near term paying short-term debt of 4.4 Billion Pesos, current portion of long-term debt of 7.1 Billion Pesos, current lease liabilities of 5.8 Billion Pesos, and refund and travel fund payables of 5.3 Billion Pesos.

CEB’s cash balance as of end of 1H20 is at 9.7 Billion Pesos.  If it burns cash every quarter of around 6 Billion Pesos CEB’s cash balance could last for only 2 quarters.

CEB drags down JG Summit Holdings, Inc. (JGS) financial results. CEB is consolidated into JGS, as CEB is a 67.87% owned subsidiary of JGS.

The COVID-19 pandemic posed an existential threat to airlines.  CEB must lay-out a clear financial and operational plan to weather this severe turbulence.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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