RNS Number : 1017G
Aer Lingus Group PLC
26 January 2010
Aer Lingus Group plc
ISE/ LSE: AERL
Investor Day
Dublin, 26 January 2010: Aer Lingus Group plc ("Aer Lingus" or the "Group") is today holding an Investor Day for shareholders and equity analysts.
A number of statements will be made by Christoph Mueller, Chief Executive Officer and Andrew Macfarlane, Interim Chief Financial Officer at the Investor Day, which require disclosure and are set out in this announcement.
The Investor Day presentation will be available on www.aerlingus.com from the commencement of the live presentation at 9.30a.m. on Tuesday 26, January 2010. An audio webcast of the event will also be available on www.aerlingus.com.
Enhancing the Aer Lingus Business Model
Aer Lingus' management has undertaken a detailed review of its business to ensure it best serves the market and the requirements of its customers. Based on this review the Group intends to enhance its demand-led business model to ensure that it continues to reflect the cost sensitive requirements of the majority of its customer base but offers the appropriate additional optional service enhancements to customers in a modular way. Aer Lingus will manage its competitive cost position and revenue model to drive profitable growth, and leverage its substantial product and service strengths while generating a premium to the lowest fare in the markets in which it operates.
The Group expects to adjust its revenue management model through a combination of:
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Enhancing the existing partner network: in the longer term, to improve long haul connectivity, particularly to Asia; and,
Adjustments to the revenue management model will be supported by investment in a streamlined, integrated information technology ('IT') platform capable of supporting the evolving Aer Lingus business model. This IT investment will support both revenue enhancement and cost savings initiatives.
Cost Restructuring Programme
In October 2009, Aer Lingus announced a plan to reduce significantly its operating costs and, specifically, to deliver €97 million of sustainable annualised costs savings. The cost reduction programme is known within Aer Lingus as "Project Greenfield" - hereinafter referred to as the "Cost Reduction Programme".
In December 2009, Aer Lingus announced that, as part of the objective to deliver the required savings under the Cost Reduction Programme, the Group had accepted an invitation to conclude negotiations with representatives of its pilots under the auspices of an independent arbitration panel. The arbitrator published his decision on 8 January 2010. The Group is prepared to accept the arbitrator's recommendations and the pilots' representatives have indicated (in a press release dated 15 January 2010) that they accept the majority of the arbitrator's recommendations. Discussions continue on the outstanding matters. Aer Lingus has already reached agreement in principle on the staff-related aspects of the Cost Reduction Programme with the unions representing its other employees. The Group's expectation is therefore that, when balloted, staff will approve the proposals, which will start to be implemented within the next two to three months.
On this basis, the Group currently expects the 2010 in-year benefit of staff cost savings under the Cost Reduction Programme will be approximately €40 million, with a 2010 exit run rate of approximately €50 million. Further staff savings are expected in 2011 and 2012 as the head office is restructured. Aer Lingus expects to deliver total annual staff cost savings of €74 million from the Cost Reduction Programme by the end of 2012.
In addition, the Cost Reduction Programme is expected to deliver significant non-staff cost savings. Aer Lingus currently expects to achieve a benefit of approximately €4 million from non-staff cost savings in 2010 and to achieve the full exit run rate of €23 million by the end of 2011.
Overall, the Group expects the one-off costs associated with each phase of the Cost Reduction Programme to be recovered in around 10 months. The cash cost of redundancies is expected to be approximately €40 million in 2010.
Strong Financial Position
During 2009, Aer Lingus' gross cash fell by approximately €400m. There were four main contributors to the outflow:
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the 2009 operating loss;
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restructuring costs relating to cost saving initiatives announced in 2008 and provided for at the end of that year;
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capital expenditure on aircraft, net of new lease finance; and
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the repayment of maturing debt.
Nonetheless, Aer Lingus has a strong balance sheet. As at 31 December 2009, Aer Lingus had gross cash and deposits of €825 million. Approximately €55 million was charged or restricted, relating to certain lease obligations. The remaining €770 million was unencumbered.
Aer Lingus had lease debt of €493 million as at 31 December 2009. The lease debt does not carry financial covenants and the leases do not contain financial conditions that act as any constraint on operations. The Group's debt maturities are spread out over the next 12 years, while 79% of Aer Lingus's substantial cash deposits mature within the next 12 months.
In fiscal years 2010 to 2014, Aer Lingus expects to have gross capital and lease repayment expenditure of approximately €650 million. This figure ignores any proceeds from the sale of surplus owned aircraft over the period and assumes that, unless replaced by a new aircraft, Aer Lingus will extend existing leases as they expire to keep the fleet at approximately the same size as it is today. In practice, the Group will review the range of financing methods available for the purchase of new aircraft, and it is unlikely to use cash deposits to fund the entirety of capital expenditure.
The Group has more than sufficient liquidity to meet both its short-term and medium-term capital expenditure and lease repayment requirements.
Hedging
At 31 December 2009, the Group had hedged 67% of its estimated 2010 fuel purchases at a rate of US$772 per tonne and 16% of the estimated 2011 requirements at a rate of US$762 per tonne. Both prices exclude in-to-plane costs of typically US$50-60 per tonne. Over the course of the second half of 2009, Aer Lingus has adopted a systematic approach to fuel hedging, which should contribute to a reduction in underlying fuel cost volatility. The total fuel cost for 2009 was €332 million.
At 31 December 2009, the Group had hedged 72% of its estimated 2010 US Dollar exposure at a rate of US$1.48/ €1 and approximately 50% of the estimated 2010 Sterling exposure at a rate of £0.88/ €1.
Outlook and Guidance
While it remains too early in the year to provide meaningful guidance for the Group's 2010 full year financial performance, Aer Lingus anticipates that market conditions will remain extremely challenging in 2010. The Group currently expects 2010 full year revenues to be lower than 2009, with the first half of 2010 being particularly weak. In addition, the severe weather conditions of January 2010 have resulted in a lower than expected level of bookings for the first quarter of 2010. The Group will, therefore, maintain its focus on tight capacity management to continue to improve yields against the backdrop of difficult market conditions.
Fuel costs should be lower in 2010 than 2009. A reduction in fuel costs will be partially offset by an increase in airport charges which are likely to be approximately €20 million higher year-on-year, primarily due to the significant increase in charges at Dublin Airport.
Aer Lingus currently expects the Cost Reduction Programme to deliver approximately €44 million in benefit to the Group in the 2010 financial year as set out above.
The Group will announce its 2009 full year results on 10 March 2010.
Further Enquiries:
Financial information presented for 2009 in this statement is unaudited and is based on judgements made by management applying the Group's accounting policies.
Certain information included in this statement is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward looking statements.
Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and the Group's plans and objectives for future operations, including, without limitation, discussions of the Group's Business Plan programs, expected future revenues, financing plans and expected expenditures and divestments. All forward-looking statements in this report are based upon information known to the Group on the date of this report. Due to such uncertainties and risks, you should not place undue reliance on such forward-looking statements, which speak only as at the date of this report. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law or by any appropriate regulatory authority.
It is not reasonably possible to itemise all of the many factors and specific events that could cause the Group's forward looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of an airline operating in the global economy. Among the factors that are subject to change and could significantly impact the Group's expected results are the fuel costs, competition from new and existing carriers, costs associated with environmental, safety and security measures, actions of governments and regulatory authorities, fluctuations in currency exchange rates and interest rates, airport access and charges, industrial relations, the economic environment of the airline industry and the general economic environment in the markets to which the Group operates.
This information is provided by RNS
The company news service from the London Stock Exchange
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