Colin Baker / Edinburgh
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Now that German low-cost player Air Berlin has floated its shares its financial performance has been revealed for the first time.
The financial information that emerged during the initial public offering (IPO) in early May showed that while Air Berlin has grown strongly in revenue terms since 2003, it has failed to make a profit during either of the past three years.
Uncertainty over the carrier’s profit outlook had a bearing on the launch of the IPO. Air Berlin was initially hoping for a launch price in the €15-17.50 ($19-22) range per share, but was forced to delay the IPO by five days and drop the price to €12 after it became apparent that investors had little appetite for the stock at the higher price. After the IPO the original private shareholders have seen their combined holding fall to some 38%, with the rest now traded on the open market.
Air Berlin has told investors that it expects a turnaround this year, with an operating profit of around €70-80 million ($90-100 million). Analysts are not convinced, however. “The original [price] range required a significant turnaround in 2006. That is asking a lot for investors to believe in. The final price still requires a turnaround, and that is still a big ask,” warns Chris Avery at London-based bank JP Morgan.
Juergen Pieper, Frankfurt-based analyst at Bankhaus Metzler, echoes Avery‘s comments. “I’m pretty sceptical. They have not really explained after three years of losses how all of a sudden they are going to return to profit. Fares might be up, but so are fuel prices.”
Piper complains that there was a lack of transparency throughout the IPO process. “The roadshow was a very closed affair, with one-on-one presentations to investors.” He notes, however, that the timing was pretty good. “The stock market has been strong.”
Pieper estimates that Air Berlin will receive around €200 million from the IPO, but that much of this is likely to be swallowed up by large capital spending over the next three years. This includes the first aircraft from a 60-strong order for Airbus A320s. It also has options for 40 more. “If things go well, they could generate cash around 2008-9,” predicts Pieper. “I’m not saying they are in a difficult situation, but if things don’t go well, they could run into trouble.”
Avery says that Air Berlin, which has established itself as the third player in Europe’s low-cost sector behind easyJet and Ryanair, could be at risk from industry mergers. “I don’t see Air Berlin as a consolidator,” he says, pointing to the fact that the proceeds of the IPO will largely go on aircraft. “There is a slight risk that airlines in the 20-30 aircraft range could get together and threaten Air Berlin’s position.”
Air Berlin says that it will use some of the IPO proceeds on route expansion in eastern European and Scandinavia. ■
Source: Airline Business
