Air France-KLM postpones jet orders
By Kevin Done, Aerospace Correspondent in Paris
Published: November 20 2008 07:40 | Last updated: November 20 2008 22:22
Air France-KLM is cutting capital investment in the face of the growing uncertainties in the global economy. Over the next two years, it will reduce capital spending by €1.4bn ($1.8bn) as the airline tries to prioritise saving cash over buying new aircraft.
The move means Europe’s biggest airline will postpone taking delivery of new fuel-efficient aircraft and will, instead, continue flying older, less-efficient models. It underlines the growing threat to the order books of Boeing and Airbus, the world’s duopoly makers of big jets. The Air France-KLM share price has fallen 60 per cent since the beginning of the year.
The airline is delaying planned purchases – mainly by not converting options into firm orders – of as many as 15 Boeing 777 wide-body jets, both freighters and passenger jets, and is choosing instead to keep flying some of its older 747-400 jumbos.
As recently as July, when $147-a-barrel oil was threatening the very survival of many weaker airlines, the priority of many carriers, including Air France-KLM, was to accelerate the pace of investment in new aircraft in order to cut fuel consumption.
In only four months, however, the oil price has collapsed to between $50 and $60 a barrel and, instead, the biggest worry for airlines has become the threat posed to revenues by falling traffic volumes as a result of the global slowdown.
“The concern today is not fuel – it is revenues,” said Philippe Calavia, Air France-KLM’s chief financial officer. Operating the older aircraft longer would have a marginal impact on profitability, he said. “There is a preference to keep cash.”
In the spring, the group said it was planning to replace all 13 of its Air France passenger 747-400s by 2012/13 and 12 Air France 747 freighters by 2011, partly with 777s.
Jean-Cyril Spinetta, Air France-KLM chairman and chief executive, said the group was negotiating with Boeing to delay exercising options on 10 777s, five passenger and five cargo aircraft that it had planned for delivery between 2010 and 2012. Separately the KLM division was planning to delay another five 777 options.
In total, the group said it was cutting capital spending by €600m this financial year and by €800m in the year to March 2010. It added that €1.2bn would come from actions to do with the fleet, including the non-exercise of options, the postponement of aircraft deliveries, and the renegotiation of all deposits, and sale and leaseback deals.
The announcement from Air France-KLM comes only days after EasyJet, the biggest UK low-cost carrier, said it was postponing future deliveries of some of its short-haul jets from Airbus.
Air France-KLM said the huge volatility in the oil price had also forced it to suspend its fuel hedging activities until some greater certainty returned to the crude oil market.
The group has had one of the most extensive hedging programmes among European airlines but the steep fall in the oil price means that many of the hedge contracts are above present spot prices.
Operating profits at Air France-KLM in its first six months to the end of September fell by 44 per cent year on year, chiefly because of high fuel costs.
The group was hit by a €361m non-cash accounting charge for a writedown of the valuation of hedging options at the end of September. As a result, its net profits collapsed by 96 per cent in the second quarter from €736m to €28m. Earnings per share fell by 84 per cent in the second half from €4.13 to 66 cents.
The four-day strike to midnight last Monday by Air France pilots protesting at the raising of the retirement age for pilots had cost between €40m and €50m, said Mr Calavia.
Copyright The Financial Times Limited 2008
By Kevin Done, Aerospace Correspondent in Paris
Published: November 20 2008 07:40 | Last updated: November 20 2008 22:22
Air France-KLM is cutting capital investment in the face of the growing uncertainties in the global economy. Over the next two years, it will reduce capital spending by €1.4bn ($1.8bn) as the airline tries to prioritise saving cash over buying new aircraft.
The move means Europe’s biggest airline will postpone taking delivery of new fuel-efficient aircraft and will, instead, continue flying older, less-efficient models. It underlines the growing threat to the order books of Boeing and Airbus, the world’s duopoly makers of big jets. The Air France-KLM share price has fallen 60 per cent since the beginning of the year.
The airline is delaying planned purchases – mainly by not converting options into firm orders – of as many as 15 Boeing 777 wide-body jets, both freighters and passenger jets, and is choosing instead to keep flying some of its older 747-400 jumbos.
As recently as July, when $147-a-barrel oil was threatening the very survival of many weaker airlines, the priority of many carriers, including Air France-KLM, was to accelerate the pace of investment in new aircraft in order to cut fuel consumption.
In only four months, however, the oil price has collapsed to between $50 and $60 a barrel and, instead, the biggest worry for airlines has become the threat posed to revenues by falling traffic volumes as a result of the global slowdown.
“The concern today is not fuel – it is revenues,” said Philippe Calavia, Air France-KLM’s chief financial officer. Operating the older aircraft longer would have a marginal impact on profitability, he said. “There is a preference to keep cash.”
In the spring, the group said it was planning to replace all 13 of its Air France passenger 747-400s by 2012/13 and 12 Air France 747 freighters by 2011, partly with 777s.
Jean-Cyril Spinetta, Air France-KLM chairman and chief executive, said the group was negotiating with Boeing to delay exercising options on 10 777s, five passenger and five cargo aircraft that it had planned for delivery between 2010 and 2012. Separately the KLM division was planning to delay another five 777 options.
In total, the group said it was cutting capital spending by €600m this financial year and by €800m in the year to March 2010. It added that €1.2bn would come from actions to do with the fleet, including the non-exercise of options, the postponement of aircraft deliveries, and the renegotiation of all deposits, and sale and leaseback deals.
The announcement from Air France-KLM comes only days after EasyJet, the biggest UK low-cost carrier, said it was postponing future deliveries of some of its short-haul jets from Airbus.
Air France-KLM said the huge volatility in the oil price had also forced it to suspend its fuel hedging activities until some greater certainty returned to the crude oil market.
The group has had one of the most extensive hedging programmes among European airlines but the steep fall in the oil price means that many of the hedge contracts are above present spot prices.
Operating profits at Air France-KLM in its first six months to the end of September fell by 44 per cent year on year, chiefly because of high fuel costs.
The group was hit by a €361m non-cash accounting charge for a writedown of the valuation of hedging options at the end of September. As a result, its net profits collapsed by 96 per cent in the second quarter from €736m to €28m. Earnings per share fell by 84 per cent in the second half from €4.13 to 66 cents.
The four-day strike to midnight last Monday by Air France pilots protesting at the raising of the retirement age for pilots had cost between €40m and €50m, said Mr Calavia.
Copyright The Financial Times Limited 2008
