Air France-KLM to postpone 777 orders

  • Bloomberg News
  • Friday, December 19, 2014 12:54pm
  • Business

TOULOUSE, France — Air France-KLM Group will push back aircraft deliveries to contain costs after announcing a third profit revision this year that sent its stock tumbling 8.3 percent.

Europe’s biggest airline will not take some Boeing 777 wide-body jets due in the next two years after saying 2014’s earnings before interest, tax, depreciation and amortization will be 200 million euros ($246 million) lower than expected. Poor sales on long-haul routes and a two-week pilot walkout in September are largely to blame for the shortfall, it said.

The revision in the final days of 2014 caps a tough 12 months for Air France-KLM, which had set out to reap the rewards of a five-year recovery plan. Instead, the longest strike in the Paris-based company’s history crippled traffic for weeks and leaves it on the defensive as the wider industry reaps the benefits of the oil-price drop’s impact on fuel bills.

“We’ll have to look again at cutting our investments, and clearly that may involve our fleet,” Chief Financial Officer Pierre-Francois Riolacci said on a conference call late Thursday after announcing the earnings revision, with this year’s Ebitda now seen at 1.6 billion euros at best.

Air France-KLM stock has gained 2.4 percent this year, valuing the company at 2.33 billion euros.

The carrier had earlier planned to take about 10 Boeing 777s in 2015 and 2016 and will now look to postpone those deliveries, the CFO said. One reason the airline can afford not to take the new planes is that the lower oil price reduces any gains from having more fuel-efficient aircraft, Riolacci said.

Airlines are set to post higher earnings for 2014 and reap a further 25 percent gain in 2015 amid economic growth and cheap fuel, the International Air Transport Association said on Dec. 10. Jet fuel that previously accounted for as much as 40 percent of total costs will comprise a much lower proportion in 2015, the Geneva-based group said.

Riolacci didn’t indicate whether the airline will be able to benefit at all from cheaper oil. The company buys jet fuel at an average price in the current and preceding month, the CFO said, creating a lag when Air-France KLM may reap a windfall from the rapidly falling oil price, which has tumbled to the lowest level in more than five years.

The carrier had cut its earnings twice already this year, first in July amid overcapacity on North American and Asian routes and then in October when it said profit could be 500 million euros lower than previously predicted amid lost revenue from the worst strike in its history.

“By significantly stepping up our cost-cutting efforts and adapting the investment plan, Air France-KLM can gain the resources and be well prepared to tackle 2015 despite the difficult competitive environment,” Chief Executive Officer Alexandre de Juniac said in the statement.

In July, Air France predicted earnings before interest, tax, depreciation and amortization at 2.2 billion euros to 2.3 billion euros this year, compared with a previous target of as much as 2.5 billion euros. It later said that it would need to shave about 500 million euros off the target because of the fallout from the strike.

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