Ryanair Willing to Pay to Keep Cash in Banks

Negative interest rates won't force Ryanair Holdings PLC to take money out of the bank.

Europe's biggest airline by passenger numbers had EUR4.18 billion ($4.87 billion) in cash at the end of June. All of those funds are kept as bank deposits. The company eschews money-market funds and other financial vehicles because it wants quick protection against external shocks or flight disruptions, said finance chief Neil Sorahan.

However, the Dublin-based airline will have to pay to store some of its cash in the coming six to 12 months, as European banks increasingly pass on the cost of negative interest rates to their clients.

Ryanair has been spared from paying for its deposits since the European Central Bank's introduction of negative rates in June 2014, but as interest income falls, banks are seeking ways to make up for the shortfall.

The European Central Bank left its monetary policy mix unchanged last Thursday. That means that negative interest rates--currently at -0.40 for overnight bank deposits--as well as the expanded asset-purchasing program, remain in place in the eurozone. Ryanair reports earnings in euros.

Nonetheless, Mr. Sorahan doesn't plan to pull the airline's money out of the 20 or more banks it uses.

"I want the cash to be liquid and for it to be in a safe place," he said. "We have looked at everything else. Boring cash deposits still work."

Ryanair's cash haul equates to approximately 62.3% of its fiscal 2017 revenue. As of March 30, revenue was EUR6.64 billion. Profits for its first fiscal quarter of 2018 rose 55% to EUR397 million.

In 2016, the company operated its aircraft at a per passenger unit cost of EUR27--far lower than its competitors, Mr. Sorahan said.

The airline's longing for liquidity is by no means extraordinary, according to Andrew Lobbenberg, an analyst at HSBC Global Research.

"It is a desperately inefficient way to store cash but one that is very normal in the industry," he said. Airlines typically have 20% of their annual revenue available in cash, he added.

Ryanair has limited options. It announced a EUR600 million share buyback at the end of May and is in the process of growing its fleet and looking to invest outside its core business.

Its strong position in the European short-haul market makes acquisitions challenging due to anti-competition concerns, Mr. Lobbenberg said.

Ryanair said on Monday it had made a non-binding bid for struggling Alitalia SpA.

The surplus cash means Ryanair doesn't have to provide additional collateral when ordering new planes, Mr. Sorahan said. Net debt is down to EUR94 million and expected to fall further this year.

Competitors, including SAS AB and Air France-KLM SA, use revolving credit facilities to keep cash to hand. SAS had credit facilities totaling 4.9 billion Swedish krona ($597 million) in April, with SEK3.2 billion still available. Air France had EUR1.76 billion in undrawn credit lines at the end of June.

SAS had 9.07 billion krona in cash and cash equivalents on hand as of April 30. Air France had net cash of EUR4.46 billion at the end of March.

Ryanair would be in a strong position in the event of a "hard" Brexit, Mr. Sorahan said, as its cash pile would allow it to withstand revenue pressure from changes to the regulations that govern flights between the U.K. and other European Union countries.

"We are in a shock prone industry," he said.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

(END) Dow Jones Newswires

July 26, 2017 04:37 ET (08:37 GMT)