In a July research note, HSBC Bank lowered its target price for Air Berlin from €0.10 per share to €0.01. The price has over the past year fluctuated between a low of €0.53 and high of €1.53.
First-half results issued by the German carrier earlier in August do little to foster an optimistic outlook. They indicate that Air Berlin's liabilities far outweigh its assets, and that the airline is struggling to generate cash from its operations.
The Oneworld carrier gives a figure of €987 million ($1.1 billion) for negative equity, a measure of how much assets' value compares with the balance left on debt used to purchase them.
Air Berlin's liabilities, including debt, stood at around €2.6 billion as of 30 June.
Over the first half of 2016, the airline's net debt grew 5.6% to nearly €927 million.
This increase, the first-half report indicates, includes two deals agreed on 24 April – a €75 million revolving credit facility with National Bank of Abu Dhabi and a loan of roughly $200 million from Abu Dhabi Commercial Bank. Linchpin shareholder Etihad Airways is guaranteeing both deals.
The first-half report also reveals not only that Air Berlin is taking on fresh debt to pay off old debt but also that cash from asset sales is being used.
"Repayment of financial liabilities in the amount of €170.9 million was made possible by the proceeds of €41.7 million from the sale of aircraft and the resulting reduction in loans for these aircraft and the assumption of new financial liabilities in the amount of €414.1 million," says Air Berlin.
Of course, meeting liabilities – including debt – generally requires strong and steady cash flow.
The German airline had €398 million of cash and cash equivalents as of 30 June.
There are also roughly €1 billion of current assets – items that can usually be turned into cash within one year of being reported – on the balance sheet. This is a near-50% increase from current assets reported on 31 December 2015.
However, the carrier's earnings before interest and tax – an indicator of operational profitability – was negative to the tune of €235 million in the first half.
The second half of 2015 had produced a negative EBIT of €176 million.
"Net cash flows from operating activities after interest paid/received, and taxes after the first six months of the financial year totaled -€109.8 million (comparable previous-year period: -€121.2 million). The improvement over the previous year's comparable period is mainly the result of lower working capital," says Air Berlin in the first-half report.
Total sales dropped 8.4% in the first half, to €1.71 billion, compared with the same period of 2015.
Capacity cuts, along with "adverse geopolitical events in the competitive European market during the second quarter of 2016", are cited by the airline.
"We are in the midst of a restructuring process," stated Air Berlin chief executive Stefan Pichler as the results were issued. "So despite the challenging geopolitical and competitive environment we face in Europe and general global uncertainly, Air Berlin will continue to build a strong network carrier with two hubs in Berlin and Dusseldorf, enhancing its long-haul flying to the US, and focusing its customer proposition to suit the needs of the high-yield passenger segment."
He adds: "Thanks to our growing global network and our strong partnership with Etihad Airways and our partners, we are confident that we will successfully navigate Air Berlin through the current challenging market conditions, although it will necessitate considerable changes throughout the whole business."
Meanwhile, the airline is warning that "ongoing pressure on RASK [unit revenue] caused by the highly volatile and weak market environment will impact the third quarter", and that "it remains uncertain how global instability will affect general consumer behaviour".
While forward ticket bookings thus far "look promising", Air Berlin foresees competition increasing and yields declining. It adds that the second half of 2016 is "subject to greater risks" than it previously expected.
"Air Berlin will counter these risks by ensuring that it rigorously continues its current restructuring programme to improve efficiency and reduce costs – particularly in the operating areas and in the organisational structure," says the carrier.
Source: Cirium Dashboard
