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Aviation History
1994
1994 - 0013.PDF
BUSINESS Strings attached to Aer Lingus state aid BY KEVIN O'TOOLE Aer Lingus has won ap proval for a IR£176 mil lion ($250 million) capital injection from the Irish Gov ernment, but, for the first time, the European Commission has imposed a freeze on a flag- carrier's capacity. The Commission has ruled that the state-owned Irish car rier will not be allowed to extend its operating fleet or to raise the number of seats of fered on routes to the UK as a condition for receiving the aid. In practice, Aer Lingus be- 1995 break-even forecast for EVA Taiwan's EVA Air is predict ing that it will start to break even by 1995, after los ing money consistently since it started operations in mid-1991. The privately owned airline, part of the huge Evergreen shipping group, lost NTS 1.4 billion ($52 million) during 1992, its first full year in oper ation, and expects to report a similar loss for 1993. The losses since 1991 have been caused by its rapid fleet expan sion, plus training and route- start-up costs. The overseas travel boom from Taiwan means that sales during 1993 are expected to be more than double the previous year's NTS4.2 billion. Passen ger volume is also expected virtually to double, from 600,000 to around 1.2 million, the airline says. EVA says that it should make a small loss during 1994, but that passenger volume will double once again over the 1993 figure. EVA now flies to 18 cities, using five Boeing 747-400s, five 767-300ERs and two 767-200ERs, and plans to introduce another five Boeings and three McDonnell Douglas MD-lls during 1994. • lieves that it is unlikely to be constrained by the ruling. The base figure used for the capac ity freeze dates from July 1992, when the airline was offering 1.43 million seats between London and Dublin. Since then, with the winding down of London Gatwick oper ations, capacity has fallen by 3%, giving Aer Lingus some room for manoeuvre within the Commission's limit. Overall ca pacity to the UK is also now 7% below the set limits. The carrier says that it had already taken the strategic deci sion to look for financial im provement rather than "chasing market share" as part of its re-structuring effort. The freeze will run until the third and final tranche of Government cash is received during 1995. Aer Lingus believes that plans to replace its three ageing Boeing 747-100s on the trans atlantic route will not be af fected by the ruling. The airline is understood to be close to a deal with Airbus over the ac quisition of two A330s as a partial replacement. These could eventually be exchanged for longer-range A340s. Initial reaction from Aer Lin gus' competitors on the UK routes suggests that their fears over unfair competition have largely been satisfied by the capacity condition. Ryanair has welcomed the decision. Although the European Commission's guidelines on state aid allow for rulings on capacity constraint, it is the first time that they have been applied, says John Balfour, an aviation lawyer with Frere Cholmeley Bischoff. Previous state-aid applica tions by Sabena and Iberia had been approved on the condition that the airlines re-structure and do not ask for further cash. Balfour adds that the guide lines, originally produced in 1984, are being rewritten and will probably be released early this year. • FOCUS US aerospace industry profit margins 76 77 78 79 81 82 83 84 85 86 87 88 89 90 91 92 93 Year <P> Source: Aerospace Industries Association US industry profits up despite decline Despite falling sales and a dwindling workforce, the US aerospace industry can take some cheer from record profits in 1993. If early estimates from the Aerospace Industry Association (AIA) are accurate, then the industry ended the year showing nearly $5.5 billion of net earnings. The recovery is not quite as dramatic as it looks. Figures for the previous two years had been hit by heavy balance-sheet provisions to cover re-structuring and accounting changes for retiree benefits. These mounted to a massive $8.7 billion charge in 1992, which pushed the industry into a $1.8 billion net loss. Even so, the 1993 profit figure is encouraging. The industry's profits as a percentage of sales rose to 5.1%, out-performing the general US manufacturing sector by a clear percentage point. With sales on the decline, the improvement has only come thanks to deep cost cutting, however. The AIA estimates that in 1993 employment fell by 13% to below the psychologically important 1 million mark. Employment is expected to slip by a further 5% over the coming year as sales, too, fall by another 7%, led by plummeting volumes of civil aircraft and missiles business. Ferranti managers lead buy-out bid Senior managers at Ferranti are holding talks with po tential UK and foreign backers about putting together a con sortium to bid for the UK defence company, which is in receivership. The management team, headed by marketing director Phil Burton, says that it is close to making decisions about which partners will be included in the consortium. The receiv ers, called in after GEC with drew its bid for the company last November, have had ex pressions of interest from more than 100 companies. "We would like a trade backer with balance-sheet strength which is in the same marketplace as we are," says one of the initial core of seven managers in the team. He adds that any backers "...may not necessarily be from the UK". Institutional investors are also likely to be brought into the consortium. The aim is to bid for all of Ferranti's "principal busi nesses", including the com pany's core air and naval defence-systems division, al though there is a possibility that the receivers could find a separate buyer for stand-alone operations such as simulation. The management team points out that Ferranti still has a series of long-term con tracts from the UK Ministry of Defence and stands a better chance of gaining key export orders now that it is freed of the cash constraints which have dogged the company since the discovery of a major fraud in 1989. -Delays in the key Delmon Eye contract for the Bahrain air-defence system are in part attributed to uncertainties over Ferranti's future. • FLIGHT INTERNATIONAL 5-11 January, 1994 1
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