ACE reports more losses, job cuts
Air Canada parent ACE Aviation reported a fourth-quarter loss and unveiled plans to cut about 600 non-union jobs. In its fourth quarter, the company said it lost C$103m ($89.4m), compared to a year-earlier profit of C$15m. The fourth quarter is traditionally a weak one.
Revenue rose to C$2.36bn from C$2.06bn. ACE said its quarterly operating loss widened to C$33m from C$3m a year earlier.
ACE said aircraft fuel costs were its biggest expense increase in the quarter, soaring C$146m or 34%, from the year-before quarter.
Ownership costs, comprising aircraft rent and depreciation, also rose as Air Canada added 41 aircraft, including regional jets from Bombardier and Embraer.
ACE said it planned to pay out C$54.5m in employee profit-sharing for 2005. Air Canada’s yield was 17.9 Canadian cents in the latest fourth quarter, versus 16.9 Canadian cents a year earlier.
The company expects the 20% reduction in jobs to come from management and other non-union staff, mainly at Air Canada, and its cargo unit, as well as at its ground-handling and maintenance services. The company expects to record the job-cut costs in its first quarter.
Separately, ACE’s board of directors approved a special distribution to its shareholders of units of Aeroplan Income Fund (AIF). The distribution of approximately 0.18 AIF unit per Class A variable voting share, Class B voting share and preferred share (on an as-converted basis) of ACE is being made as a return of capital and represents in the aggregate approximately 10.1% of the units of AIF on a fully diluted basis.
Based on the closing price of $13.18 per AIF unit on 16 February, the distribution is valued at approximately $266m or $2.37 per ACE share.
WestJet Airlines was back in the black in the fourth quarter as an improved load factor helped stem higher costs.
WestJet earned C$1m in the quarter, compared to a year-earlier net loss of C$46m. The previous year’s loss was due to intense competition and writedowns on aircraft earmarked for retirement.
Revenues during the fourth quarter were C$367.9bn, up 34% from C$273.7m.
For all of 2005, WestJet earned C$24m, after a net loss of C$17m the year before.
WestJet, which has just replaced its older Boeing 737 aircraft with new, more-efficient models, was hit by a 14.5% rise in costs due to the jump in jet fuel prices after the US Gulf Coast hurricanes.
WestJet’s market share has grown to 33% in Canada, and it has branched out to test a handful of US markets in recent years.
International Lease Finance placed an order for four Airbus A350s, worth $678m at list price. The two A350-800s and two A350-900s are in addition to a larger order placed at the Dubai Air Show in November 2005 for 12 A350 planes, worth $2bn.
In January, Airbus delivered 29 aircraft: 22 single-aisle planes, one A330-600R, and six new-generation wide-body planes including one A340-600, which went to International Lease to join Virgin Atlantic’s fleet on an operating lease.
Trans States Airlines
Trans States Airlines will be an all-regional jet fleet by autumn 2006, retiring its remaining six British Aerospace J-41 turboprop aircraft.
“The decision was difficult but is consistent with our overall strategy of fleet simpliﬁcation,” president Richard A. Leach said.
SkyWest Airlines posted an 82% hike in net income to $38.7m for the fourth quarter ended 31 December. Revenues increased 127% to $742m over the year-ago period.
The improved results were due to the positive impact of the purchase of Atlantic Southwest Airlines last autumn.
During the quarter, SkyWest took delivery of five new 70-seat regional jet aircraft from Bombardier and ﬁnanced the acquisitions with long-term permanent US leveraged leases and third party long-term debt.
SkyWest ended the quarter with 306 regional jets (108 United and 198 Delta), 62 EMB-120 aircraft (49 United and 13 Delta) and 12 ATR-72 aircraft (12 Delta).
Annual net income improved 37% to $112.3m, owing to a 70% jump in operating revenue to $2bn that was attributable in large part to the $42m acquisition of ASA. Operating income rose from $144.7m in 2004 to $220.4m in 2005.
SkyWest ended the year with approximately $324.5m in cash and marketable securities ($24.8m restricted cash relating primarily to collateral for worker’s compensation policies and remaining escrow for the ASA acquisition), compared with approximately $549.7m in the year-earlier period.
Long-term debt increased to $1.42bn as of 31 December compared with $463.2m in the year-earlier period, as a result of the acquisition of ASA.
Hawaiian Airlines ﬁled a lawsuit against Mesa Air Group, which aims to start a low-fare inter-island service using CRJ200s and CRJ900s. It claims that Mesa improperly used confidential data, marketing and route information and ﬁnancial projections.
MAIR Holdings, parent company of Mesaba and Big Sky Airlines, reported a net loss of $4.5m for the third quarter ended 31 December, compared with net earnings of $1.5m for the same period a year earlier.
Fiscal 2006 third quarter results include a $4.8m pre-tax charge for MAIR’s guaranty related to a Cincinnati hangar that Mesaba Aviation vacated in October 2005.
Total operating revenues for the quarter were $21.2m, which represented $5.3m attributed to Big Sky and $15.9m attributed to Mesaba’s operations between 1 October through 13 October, the date of Mesaba’s bankruptcy filing.
Operating expenses for the quarter were $28.3m, representing $6.5m from Big Sky, $7.3m from MAIR Holdings, and $14.5m from Mesaba’s operations from 1 October through 13 October.
SAS’ first profit in five years
Scandinavian airline SAS posted its first full-year profit in five years, despite a weaker-than-expected end to 2005.
Competition from no-frills airlines, rising jet fuel costs and overcapacity have hurt airlines in recent years.
SAS’s swingeing cost cuts and capacity reductions, as well as a pick-up in global airline traffic, helped it back into the black in 2005, and its 2006 performance is likely to benefit from similar trends.
“SAS has said for three or four years it would deliver a profit and now it has,” said Handelsbanken analyst Ann Bowers. “This is a positive and should definitely be reflected in the equity market today.”
Full-year pre-tax profit was SEK418m Swedish kronor ($54.1m), compared to a loss of SEK1.83bn in 2004.
Bowers added that strong growth at SAS’s Spanair and Blue1 units, a brightening outlook for the core businesses, and the completion of the Turnaround 2005 cost-cutting programme had been positives.
SAS made a pretax profit of SEK573m in the fourth quarter after a loss of SEK395m a year earlier.
“If it had not been for the sale of Jetpak, the figures would have ended up in the red,” said Jacob Pedersen, an analyst at Sydbank, who added that the overall report was weak.
The fourth quarter was hit by an SEK80m capital loss at its Spanair unit and gains of SEK410m on the sale of Jetpak and SEK50m from the European Aeronautical group.
Revenues were SEK16.3bn compared with SEK14.95bn a year earlier.
Cheap one-way fares within Europe, which helped get passengers back on SAS aircraft, cost cuts and global economic growth helped the airline's shares to rise over 70% last year.
The flag carrier, owned by the governments of Sweden, Denmark and Norway, said it had completed a SEK14.2bn cost-cutting plan and would cut SEK2bn more in 2006.
Styrian Spirit is looking at renewing its fleet. It currently operates three Bombardier CRJ-200s and one CRJ-700 and is looking for a fleet mix of three Q400s and two CRJ-700s. It takes delivery of a new CRJ-900 in May.
Air Asturias is planning to re-launch itself as a low-cost airline in the spring with a fleet of two Airbus A320s and one Boeing 767. From its base at Asturias, the carrier would operate domestic and European services such as Barcelona, Madrid, Sevilla, Malaga, La Manga, Amsterdam, Berlin, Frankfurt, London, Milan, Paris and Rome; from Madrid the airline would operate longhaul flights to Isla Margarita (Venezuela), Panama City (Panama), Cartagena (Colombia) and Campeche and Cancun (Mexico). Air Asturias has a capital of €4m and is owned by hotel group Celuisma (78%), construction company Mall (20%) and individual Javier Taibo (2%), who was one of the founders of Air Madrid.
Gulf Air plans to spend $900m to replace nine ageing Boeing 767s but did not name the aircraft it intended to buy.
James Hogan, chief executive of Gulf Air, told reporters the airline would seek a long-term loan to finance the purchase once approved by the airline owners, the governments of Bahrain and Oman.
Gulf Air, which returned to profitability in 2004 after years of losses, carries a debt of about $500m.
“Our idea is to change the type of aircraft to two within ten years from four now,” he said after a board meeting in Muscat, which will become the airline’s other hub in March.
Hogan said the Manama-based Gulf Air, which operates a fleet of 34 aircraft, would start placing orders by May.
The government of Abu Dhabi, which launched its own airline in 2004, has announced its intention to withdraw from Gulf Air. Abu Dhabi and other former co-owner Qatar have injected millions of dollars to keep the airline afloat in its red years.
Ryanair announced a slightly weaker-than-expected 6% rise in third-quarter net profit.
Profit after tax in the three months to the end of December rose to €36.8m from an adjusted €34.8m a year earlier.
Ryanair said it remained on track to meet its target for an increase in adjusted net profit for the year to the end of March of 10% to €295m.
Revenues in the third quarter rose 27% year-on-year to €370.7m.
In terms of the industry’s outlook for Ryanair’s coming business year, which starts in April, chief financial officer Howard Millar said he expected fares to be flat or slightly higher.
“It’s probably the most benign period for fares in almost two years,” he added.
The company, which had already forecast yields would fall 5 to 10% in the traditionally quiet January to March period, said that it now saw the fall towards the middle of that range.
“We remain cautious in our outlook for the remainder of the fourth quarter,” chief executive Michael O’Leary said.
The company currently has 90% of its fuel requirements covered until March at a price of $49 a barrel.
Vueling reported revenues of €136m in 2005 and said it was profitable in the second half of the year, without providing details.
The Barcelona-based LCC carried more than 2 million passengers. “With these results we have easily exceeded the company’s initial business plan forecasts,” CEO Carlos Munoz said.
Vueling launched service on 1 July 2004, and originally forecast revenues of €115 million in its first full year of operations. It hopes to achieve a turnover of €260m in the current year and double the number of passengers to more than 4 million.
It also expects to operate more than 30,000 flights in 2006, twice the number in 2005.
The carrier is adding seven new A320s to bring the fleet to 16 aircraft by year-end. It recently finalised a €30m capital increase, lifting its share capital to €60m.
Temasek’s Thai AirAsia stake
Temasek Holdings, the controlling shareholder of Singapore Airlines and a major investor in two Singapore-based LCCs – Tiger Airways and Jetstar Asia – will retain a sizeable stake in Thai AirAsia under a new ownership structure announced to keep the carrier in compliance with Thai laws on foreign ownership. Last month, Temasek acquired Thai telecom giant Shin Corp, which owns 50% of Thai AirAsia. The other major shareholder is AirAsia with 49%. Thai AirAsia CEO Tasapon Bijleveld holds 1%.
Under Thai law, foreign investors may not own more than 49% of an airline, an amount that was exceeded given that AirAsia is based in Malaysia and Temasek is based in Singapore.
Under the new shareholding structure, Shin’s 50% stake is being sold for THB400m ($10.2m) to a Thai company named Asia Aviation Co, which is owned 49% by Shin and 51% by Thai businessman Sittichai Veerathummnoon. AirAsia’s stake will remain at 49%.
Asiana Airlines is preparing to go on a buying spree this year, with its eyes on the Airbus A380 and Boeing 787. The carrier says it has yet to issue a formal request for proposal (RFP), but it is considering these aircraft types. Although being tipped by Boeing as potential 747-8 customer, that aircraft does not seem to be in its requirements. “As of yet, we do not have any detailed plan for purchasing the two [aircraft types], but we are thinking of considering the two airliner types,” says Asiana Airlines. Any decision on the long-haul fleet heavily depends on international traffic rights the carrier is seeking for the European, Chinese and US markets.
The carrier operates a mixed fleet of Airbus and Boeing aircraft and is half-way through the introduction of a new A330-300 fleet. This year the carrier is also taking delivery of two 777-200ERs, after it received its last 747-400 aircraft last month.
Japan Airlines’ net loss in the latest quarter widened due to high fuel prices and sluggish demand. JAL said record fuel prices, which have squeezed airlines worldwide, pressured profit, costing it nearly 28% more in the October-December third quarter than in the same period a year earlier.
For the three months ended December, JAL posted a group net loss of ¥11.06bn yen, against a loss of ¥3.72bn a year earlier.
“On domestic flights, demand from individuals such as business travellers was slow, while group tours were brisk,” vice president and general manager finance Toshiyuki Kawarabata said.
He said improving corporate earnings, which meant an increase in business travellers, were helping reduce the impact of safety problems, but said passenger numbers and distances they travelled were still lower in the latest quarter than a year earlier.
Revenues rose nearly 4% to ¥556.95bn in the latest quarter, thanks to a weaker yen and higher per-passenger spending. The operating loss widened to ¥16.64bn from ¥3.82bn a year earlier.
Last November, JAL announced a restructuring plan, saying it would spend ¥60bn on safety measures and ¥65bn to upgrade services between 2006/07 and 2010/11. The plan also proposed wage cuts.
JAL, which had estimated fuel costs would rise by ¥90bn in 2005/06 from the previous year, also plans to extend and increase its fuel surcharge on international flights from March.
JAL plans to restructure due to its disappointing results. The carrier will cut more international services and step up aircraft retirements as it aims to break-even this year.
JAL says that it will “accelerate fleet downsizing” by retiring three Airbus A300s, six Boeing 747 Classics, and four NAMC YS-11s in this fiscal year.
Air China aims to sell shares and list in Shanghai to help it buy 45 new aircraft, as Beijing prepares to lift a 10 month freeze on share issues.
The state-run airline said it would seek approval to issue up to 2.7 billion yuan-denominated A shares to qualified investors, including foreign banks such as HSBC and Morgan Stanley, that have won the go-ahead to buy and sell yuan-denominated stocks and bonds.
Air China, valued at around $3.2bn, is buying 20 Airbus and 25 Boeing aircraft, with a list price of $5.68bn.
The airline aims to sell its shares at no less than 90% of the average closing price of its Hong Kong stock during a “price consultation” period.
Now speculation is mounting that the government will lift a hiatus on initial public offerings (IPOs) in Shanghai and Shenzhen. Air China, though listed in Hong Kong, would be considered to be floating for the first time in Shanghai.
If the issue goes ahead, Air China would join rivals China Southern Airlines and China Eastern Airlines on the Shanghai exchange.
Garuda Indonesia is still negotiating with its creditors on possible options for the settlement of the airline’s $794m debt.
“There has been a meeting with our creditors, but we are still waiting for their agreement,” Garuda chief executive Emirsyah Satar said. “Garuda has already proposed that a portion of the debt be restructured. But we cannot make any statements as the figure has not been finalised yet,” he said.
Garuda total debts consist of $510m owed to the European Credit Agency (ECA), $130m to its medium-term bond and promissory note holders in Singapore and $150m to Bank Mandiri and state airport operators Angkasa Pura I and II.
ECA representatives visited Indonesia in February to discuss the debt problem with representatives of the Office of the State Minister for State Enterprises, which directly oversees the airline.
Embraer gets another boost
Good news keeps rolling in for the Embraer 190. First Bombardier shelved its CSeries and now more customers are cancelling their Airbus A318 orders. ILFC recently converted its ﬁve A318 order backlog into the A319 model.
Iberia added another blow to the A318 programme. The carrier, which ordered 10 A318s one year ago as part of its 32 A320 family aircraft order, is converting them into A319s. At 31 December, A318s accounted for 98 total orders with 28 aircraft delivered. This leaves the A318 programme now at 82, with 56 aircraft on backlog. Air France has a seven aircraft backlog, TAROM has four, but America West Airlines, which signed a 15-aircraft order in 1999, is not expected to take delivery of the aircraft. One A318 customer, LanChile, which ordered the aircraft last October, is rumoured to be in discussions with Embraer for the 190 aircraft.
US Airways Group recently amended its original aircraft order with Embraer. The previous order of 57 undelivered Embraer 170s will be converted into 25 ﬁrm Embraer 190 aircraft and 32 additional ﬁrm Embraer 190 aircraft that are subject to reconﬁrmation by US Airways. The amendment also includes up to 50 options on other aircraft within the Embraer 170/190 family. Deliveries will resume in November 2006. Airbus booked 193 orders for the A318 model but registered 109 cancellations.
The development comes as assembly begins of the last example of one the A318’s rivals, the Boeing 717. AirTran Airways is due to receive the last of the 156 aircraft in May.
Virgin Blue is in discussions with Boeing and Airbus to purchase long-distance aircraft, and seems set to apply to the government for permission to fly from Sydney to Los Angeles, challenging Qantas on its most profitable route.
The low cost carrier is also pursuing a code-share and loyalty programme agreement with United Airlines, according to chief executive Brett Godfrey.
Apart from Qantas, United Airlines services the Sydney-LA route, and the partnership could create a supplier of connecting flights within the US to Virgin Blue.
In earlier reports, Virgin Blue indicated it would be able to start flying the route within two years of approval, but it is now understood that it could begin services sooner.
Godfrey said the carrier would not compete with Singapore Airlines or other non-privatised airlines including Emirates on the route.
“We are not anti-competition ... but we are not going to allow the capital we put in to be decimated because [we are competing with] a guy with deeper pockets who is backed by his government,” he said.
Kingfisher Airlines, which plans an initial public offer this year in India, is envisaging a second listing in the London Stock Exchange in 2007.
Airbus has offered Aeroflot a $100m discount as it competes with Boeing for a $3bn contract to deliver 22 new long-haul planes, according to local reports. The discount was offered on Airbus A350s.
Aeroflot, which tendered for the long-haul aircraft last year, wants to buy 22 aircraft worth $3bn and might sign an option to buy a further 12.
Bulgaria’s government again approved a plan to privatise flag carrier Bulgaria Air ahead of opening its skies to EU airlines later this year. According to sources, the country will offer up to 99.99% of the carrier. The privatisation has had a number of false starts. SAS, Austrian Airlines and Air One have expressed interest.
However, Austrian CEO Vagn Soerensen has said that interest in Bulgaria Air is sinking because talks have gone on for too long and the valuation is too high.
British Airways sold its entire interests in the London Eye to the Tussauds Group. Under the terms of the deal, the carrier received £100.4m for its one-third share and its outstanding loan to the company.
The LCC business model in Eastern Europe is showing some holes. SkyEurope nearly doubled its revenue and reduced unit costs by more than 10% in its first fiscal quarter ended 31 December, but saw little improvement on its bottom line, which showed a €12m loss that was just 0.5% better than the €2.1m deficit in the year-ago quarter.
Operating revenues climbed 42.5% to €26.2m against a 23.8% rise in expenses. Totals were not provided, but the carrier said it spent €12.3m on aircraft and trafﬁc servicing and €11.9m on fuel, the latter an increase of 29%. It has no hedging programme.
SkyEurope has launched a host of new routes and has replaced its Embraer Brasilias with 737s, leading to a year-on-year capacity growth of 38.1%.