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Aviation History
1994
1994 - 1461.PDF
BUSINESS EC questions scale of Air France state help BY KEVIN O'TOOLE The European Commission (EC) has put serious ques tion marks over the scale and scope of the state aid being pro posed for Air France under its latest re-structuring plan. Signalling its intention to start an investigation into the French Government's planned Fr20 billion ($3.5 billion) re capitalisation of its flag carrier, the EC raises concerns that the level of cash could be seen as overkill. The concerns centre on two bond issues launched as part of the previous re-structuring. The first type 'of bond (ORA) can only be converted into shares, while the second bond (TSDI) only has to be repaid in the event of liquidation. In its re-structuring plan, Air France has treated these bonds as debts, but the EC sug gests that they are in reality more like equity, since there is no obligation to repay. On this basis Air France's debt-to-equi ty ratio, a key measure of finan cial health, would be "probably the best of all European air lines" says the EC. After the cash injection, the airline's financial position will be "...far better than what is normally considered as 'accept able' for the capital-intensive aviation sector", it cautions. The EC says that, although the re-capitalisation is aimed at the parent airline, it will also investigate how the availability of fresh cash could "spill over" into subsidiaries. Air Inter's expansion plans will also, therefore, come under scrutiny. Under European guidelines, the state aid will only be per mitted if it is appropriate to the scale of the re-structuring and will not simply allow the airline to compete unfairly. Any acquisitions would therefore be ruled out for Air France until the re-capitalisa tion and re-structuring are completed by the end of 1996. As part of the three-year re structuring, Air France plans to reduce its workforce of 40,000 by 5,000, as well as freezing wages and promotions. These measures are designed to net annual savings of Fr3 billion. The fleet size will be cut by 17 aircraft, to 149, by the end of 1996. The cut will be made by reducing the num ber of new aircraft deliveries, from 22 to 17 (so saving Frll.5 billion), and dispos ing of 34 old aircraft, which should net Fr4.1 billion. Sale of spare-parts stock and the Meridien hotel group will help raise another Fr3 billion. The disappear ance of six aircraft types from the fleet and the use of only one type on each long-haul route, should also help to reduce costs. • See Air Inter, oppo site page. Europe's stamp is on Air France's new look Spiralling losses are Europe's worst Europe's airline industry turned in its worst-ever losses in 1993, as carriers fell prey to a damaging fall in yields, according to latest fig ures from the Association of European Airlines (AEA). The AEA estimates that the region's airlines collectively lost $2.2 billion on their inter national services in 1993, and thus exceeded the record losses of 1992. Although passenger traffic grew by 8%, much of the rise came at the cost of heavy fare discounting, says AEA secre tary-general Karl-Heinz Neu- meister when revealing the lat est figures. He warns that premium traf fic is still weak, with many business travellers opting for upgraded economy seats, while spare capacity has been filled via heavily discounted fares. The proportion of passengers paying full fares has slumped to 28%, from over 37% five years ago. The size of discounts has also been growing, with pro motional fares down to 47% of the full price. Routes within Europe have seen the most alarming fall in yields, says Neumeister, with over 70% of passengers now travelling at a discount. The AEA says that this figure is rapidly approaching the levels on the North Atlantic, where successive fares wars and over capacity have left over 80% of seats being sold at a discount. Carriers continued to make solid improvements in cutting costs and improving productiv ity, with a 2.8% cut in the workforce. These gains, around $4.5 billion, were wiped out by losses of $5 billion because of the lower yields, however. • Airbus to create leasing company Airbus Industrie will this year set up a finance com pany which will be able to lease aircraft in its own right. Head of the Airbus commer cial directorate, Charles Masefield, says that the unit will be called Airbus Finance Corporation (AFC). Financing of AFC "...is still being discussed", but it will be"separate" from the manufac turing group. Masefield says: "The finance companies over the last two or three years have got a bad name and are considered to be a high-risk business. In fact, the reverse is the case. Finance companies are a huge opportu nity and potentially a profitable business." • Pratt/MTU in Japanese engine talks Pratt & Whitney and Deutsche Aerospace engine subsidiary MTU have targeted Japan's Mitsubishi as a poten tial business partner and participant in the Project Blue engine programme. According to MTU, the talks have delayed the planned equi ty exchange between the US and German manufacturers (Flight International, 19-25 January), while the two compa nies examine co-operation pos sibilities in Asia — on which a decision is expected by the end of this year. While MTU says that con tacts have been established with "Japanese and other Asian companies", sources close to the talks indicate that the great est interest is being taken in forming a potential partnership with Mitsubishi. P&W had planned to take a 24.9% share in MTU by mid- 1994, with the German compa ny taking a stake in P&W equal to the value of the shares pur chased in MTU. If the talks are successful, the Asian partner company would enter the Project Blue programme as a risk-sharing partner to develop an engine to rival the BMW Rolls-Royce's BR700 series. To date, the project has involved General Electric and Snecma, working alongside P&W and MTU. Q FLIGHT INTERNATIONAL 15 -21 June, 1994 13
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