Air France dismisses report of a "black year" in 2010

Air France executives have dismissed a report in the French financial newspaper Les Echos which claims that the airline could face a "liquidity problem" in 2010. The report, published under the headline "Air France: les risques d'une année noire" (the risks of a black year) says that accountants from the accounting firm Secafi, hired by Air France's works council, have painted a couple of pictures regarding the airline's financial strength, none of them very pretty.

Under the first scenario, an upswing in traffic occurs at the end of the 2009-10 financial year and oil stays around $61 a barrel, and Air France, taking advantage of reduced costs, could keep its losses to a minimum, or even break even.

More realistic, says the report, is the second scenario, in which traffic numbers stay sluggish, revenue declines 9%, but oil stays low (around $58 a barrel), which is "more or less" what the airline faced in late May. But the airline would still post a loss that's much higher than the 184 million euro loss posted in the 2008-2009 financial year, and revenue declines in the past month have approached 20%, not 9%.

Then there's the worst scenario, which a decline in revenue of over 9% but oil reaching $70 a barrel. "In this scenario, the operating loss would cause us to consume more than 1.5 billion euros in cash in 2009... this means that it wouldn't be a year before the company runs out of cash," says the report. A "black year" indeed.

Pretty serious stuff, especially as oil is currently trading in the low sixties. Even if oil sticks around $61-63 a barrel, scenario #1 isn't likely, as air traffic probably won't rebound for the airline before the end of the 2009-10 financial year. And it's unlikely that oil prices will be around $58 a barrel for a long period, as they are in scenario #2. Still, it might be taking things too far to say that the airline could run out of cash within a year; the airline issued over 600 million euros worth of bonds last month to finance new aircraft purchases, and perhaps they could do the same in the future if needed.

Unsurprisingly, Air France management isn't buying the gloom-and-doom forecasts. In a statement, the airline said that "the Executive Management of Air France-KLM wishes to make clear that in no respect does it validate any of these imaginary scenarios [and] that its financial position is, and will remain, extremely healthy in the coming years." The statement went on to say that Air France had 4.5 billion euros on hand at the end of June, along with 1.2 billion euros in available credit lines.

photo by caribb from Flickr, licensed under the Creative Commons

0 comments: