While some European airlines have released results for their staggered financial years, it was actually Icelandair to be the first one to report on its full-year 2020 results on February 9. Like we have done with US airlines, here is a rolling story on the results of the most significant European airlines: Lufthansa Group, IAG, Air France KLM, Norwegian, Finnair, Icelandair.
Lufthansa Group (March 4):
Lufthansa Group reported a EUR -6.725 billion net loss for 2020, compared to a EUR 1.213 billion profit in the previous year. The airline remains focused on further cost reductions that include both staff and assets, as permanently retiring more of its oldest aircraft, Lufthansa said on March 4.
The Group’s operating loss was EUR -5.451 billion compared to a EUR 2.026 billion profit in 2019. Total revenues were down by -63 percent to EUR 13.589 billion. Adjusted free cash flow ended at EUR -3.669 billion. In Q4, cash burn was down to EUR 304 million or EUR 10 million per day. The airlines operated at just 31 percent capacity compared to 2019 and carried 36 million passengers, a quarter from the previous year.
By airline, Lufthansa reported an Adjusted EBIT of EUR -3.386 billion (previous year EUR 1.227 billion profit) on revenues down -75 percent to EUR 4.104 billion. The adjusted EBIT of SWISS/Edelweiss was EUR -669 million compared to EUR 558 million on revenues of 1.732 billion (-66 percent). Austrian Airlines, which was grounded for three whole months, reported a net loss of EUR -321 million (EUR 19 million in 2019) on revenues of EUR 460 million (-78 percent). Adjusted EBIT for the combined network airlines was EUR -4.674 billion, with revenues -74 percent down to EUR 6.622 billion.
Brussels Airlines’ Adjusted EBIT was EUR -293 million (-27 million) on revenues of EUR 414 million (-72 percent). Low-cost Eurowings reported an Adjusted EBIT of EUR -703 million (-122 million), with revenues -74 percent to 598 million.
Lufthansa Cargo was the only segment to produce a positive result, reporting a record Adjusted EBIT of EUR 772 million up from EUR 1 million the previous year. This despite operating at 36 percent lower capacity. Lufthansa Technik booked a EUR -383 million Adjusted EBIT, while the result at catering group LSG was EUR -284 million.
Lufthansa Group slashed fixed costs by 35 percent or EUR 3.1 billion, of which 2.3 billion in personnel costs thanks to short-time government subsidies. The group has reduced staff numbers by twenty percent or 28.000 to 110.000 and introduced short-time schedules for most of the remaining employees, for which the German, Austrian, Swiss, and Belgium governments granted financial support. Variable costs declined by 72 percent.
During the year, all governments provided significant funding. EUR 9.0 billion in loans came from Germany’s Economic Stabilization Fund in May and include a silent share from the government. The Swiss government provided EUR 1.4 billion in loans, the Austrian package covered EUR 600 million, while the Belgian government assisted with EUR 290 million.
By the end of December, the Group had EUR 10.6 billion in liquidity, of which EUR 5.7 billion was from stabilization funds. In total EUR 3.3 billion in stabilization funds have been drawn down, but EUR 1.0 billion of the KfW credits has already been paid back as Lufthansa wants to use as little of the funds as possible.
In the final quarter of 2020 and in February, Lufthansa raised a combined EUR 3.7 billion in bonds on capital markets. This reflects the renewed confidence markets have in the airline group after Lufthansa had found great difficulties attracting investor’s a year ago. CEO Carsten Spohr said probably not all government funding will be needed as he prefers to borrow from capital markets, according to new CFO Remco Steenbergen potentially before the end of the year. As a result, net debt increased by 43 percent to EUR 9.922 billion.
Among the cost reductions, a large part has come from the retirement of 115 aircraft, on which an impairment of EUR 1.475 billion was made. Lufthansa Group continues to review its fleet plans and intends to early-retire all aircraft over 25 years for financial and environmental reasons. The total fleet should be reduced by 150 aircraft until 2023, down from 757 on January 1, 2021. Half of them or 350 were temporarily decommissioned in 2020.
The fourteen Airbus A380 and ten A340-600s will remain in deep-storage and are unlikely ever to return to service, Spohr confirmed. Austrian will retire twenty airliners, with its seven A319s to be transferred to Lufthansa CityLine. In the coming years, aircraft types will be reduced from fourteen to eight as 747-400s, A340s, A330s, 767-300ERs, 777-200s, and MD-11Fs will be or have been phased out, resulting in significant savings in crew training and maintenance costs.
Lufthansa is committed to orders for 26 A350s, twenty Boeing 787-9s, and twenty 777-9s, of which the first is expected in 2023. The Group has also orders for 69 Airbus A320neo and forty A321neo’s. While Capex has been reduced to EUR 1.3 billion and deliveries have been deferred, Lufthansa still will receive twelve new aircraft this year.
Spohr thinks that post-Covid, his Group will lose some ten percent of business travel. This could later translate into a reduction of Business Class seating across the fleet and an increase in the number of Premium Economy seats, but this is a complicated puzzle with different factors like routes and demand coming into play.
On the financial priorities, Remco Steenbergen stressed that further reductions of fixed costs are key to return to profitability in 2024 when it hopes to have repaid all stabilization measures. This means cuts of an additional 10.000 jobs across the Group, including 1.100 Austrian, 1.000 at SWISS spread over two years, and 1.000 with Brussels Airlines. Lufthansa has agreements with all unions to protect jobs through short-time programs while at the same time generating EUR 0.5 billion in savings in 2023. Further reductions of cockpit and cabin crew will be inevitable, Spohr said. The company wants to regain an investment-grade rating from all rating agencies and have at least EUR 6-8 billion available in liquidity. The net debt to Adjusted debt ratio should return to less than 3.5 percent.
Steenbergen said Lufthansa expects to return to ninety percent capacity in 2024. For this year, it hopes to ramp up to 40-50 percent in the second half of this year compared to 2019 levels, although this Q1 it is still at only 20 percent. If demand recovers quicker, Lufthansa could ramp-up capacity to a maximum of seventy percent, but Spohr stressed this will be only done if each flight is cash positive.
Austrian CEO Alex von Hoensbroech says this summer will be decisive for the future of his airline, although initial bookings seem positive. Austrian also hopes to have capacity back at 50-70 percent but is preparing for additional measures if the situation changes for the worse.
SWISS too is worried, as demand has dropped since the start of this year and losses have mounted to CHF 2 million per day. This requires additional cost reduction measures, including COO Thomas Frick stepping down. SWISS is considering a more radical resizing than previously anticipated, including the fleet. No decisions have been taken yet.
In its guidance for 2021, Lufthansa expects EBIT to be less negative than in 2020 and return to a positive cash flow when it can operate at fifty percent capacity. The monthly cash burn is expected to remain at EUR 300 million per month. Despite the difficulties, Lufthansa will start this summer with Eurowings Discover, which will deploy three aircraft on long-haul routes. Coming Winter, this number will grow to seven and later to eleven.
IAG (February 26):
While the EUR -7.0 billion net loss of Air France-KLM came as a shock, International Airlines Group (IAG) hasn’t fared much better in 2020. On February 26, it reported an almost identical loss after tax of EUR -6.923 billion compared to a EUR 1.715 billion profit in the previous year. With the outlook beyond Q1 of this year highly uncertain, IAG isn’t ruling out further restructurings, furloughs, and debt funding actions.
The operating loss for 2020 was EUR -7.426 billion compared to a EUR 2.613 billion profit. This includes a EUR 3.061 billion exceptional charge on the discontinuance of fuel and foreign exchange hedge accounting, employee costs, and impairment of EUR 837 million on the fleet. In Q4 alone, the charge was EUR 306 million. Revenues were down -69.4 percent to EUR 7.806 billion with cargo the exception at plus 16.9 percent. Thanks to belly-hold cargo, long-haul services had become viable. The Group’s airlines operated just over 4.000 cargo-only flights.
By airline, the pre exceptional operating result of British Airways was EUR -2.327 billion (down by 4.2 billion), Iberia EUR -759 million (down by 1.2 billion), Vueling EUR -623 million (-823 million), and Aer Lingus at EUR -361 million (-637 million). Not included in these results is LEVEL, which discontinued its European short-haul operations and only operates long-haul out of Spain and France now.
IAG ended the year with EUR 10.3 billion in liquidity, higher than before the Covid-crisis and expected to be sufficient for the coming year until March 2022. It includes EUR 2.7 billion through a capital increase and EUR 2.0 billion as a loan commitment through UK Export Finance. Net debt increased to EUR 9.7 billion from 7.5 billion. Net cash was down by EUR 766 million to EUR 5.917 billion but still is strong. IAG’s gross net debt increased from EUR 14.3 to 15.7 billion. The UK, Spanish, and Irish governments provided EUR 1.4 billion in Covid payroll support schemes.
As it weathered the Covid-crisis, IAG reduced its cash spending by half. It completed restructuring plans at British Airways and Aer Lingus that include new social contracts with pay cuts and more flexibility. Some 10.000 employees have left BA and 500 at Aer Lingus. No numbers are provided for its Spanish and French subsidiaries. At BA, it agreed on a GBP 450 million deferral in pension contributions until October this year. Total employee costs came down by some EUR 2.074 billion.
IAG slashed its capital expenditures from EUR 2.7 to 1.9 billion, mainly by deferring delivery of seven aircraft by one year until 2021. For this year, Capex is expected to be down to EUR 1.7 billion. IAG plans to take delivery of five short-haul and ten long-haul aircraft and about the same number next year, but this depends on the outcome of negotiations with Airbus and Boeing. BA retired all its 32 remaining Boeing 747s and Iberia 15 Airbus A340-600s, while another 37 aircraft were stood down earlier than planned and will likely be returned to lessors. In 2020, 34 new aircraft joined the Group’s airlines, almost half of the A320neo-family aircraft. This has brought the fleet to 533 down from 598. IAG has 121 aircraft on order, including 64 A320neo-family, 26 A350s, ten 787-10s, and eighteen 777-9s. It has the right to cancel deliveries if significant delays are caused by the OEMs but hasn’t exercised such rights yet.
IAG is given no guidance on FY21, as the outlook remains blurred. With new Covid-cases and the extension of travel restrictions, bookings are weak in Spain but briefly rose sharply last week in the UK after PM Boris Johnson provided some guidance for the remainder of the year. IAG hopes are on a reopening of markets based on vaccine verification and pre-departure testing, with governments agreeing on common standards on data exchange. This Q1, IAG expects to operate at just twenty percent capacity of 2019 levels.
Norwegian (February 26):
The coming month will be crucial for the future of Norwegian. The airline needs to successfully conclude its examinership and reconstruction plan by late Q1 or early Q2, otherwise, it will enter into liquidation and bankruptcy, it said on February 26 during its 2020-results presentation.
Norwegian entered examinership in Ireland in Q4. Its reconstruction plan in Norway includes a significant reduction in its fleet and operations, which (as reported earlier) will focus on a domestic and European network only, a significant reduction of its debts while trying to attract new capital through share offerings in the order of NOK 4-5 billion. This would provide sufficient working capital for the next twelve months.
The share offerings are scheduled for late March or early April but Norwegian is optimistic these will be successful. It is also hopeful about a recovery of air travel from this summer and in 2022, on which its success depends.
“The directors have concluded that, until the conclusion of the examinership and reconstruction process, there is a material uncertainty that casts significant doubt upon the company’s ability to continue as a going concern and that, therefore, the company may be unable to realize its assets and discharge its liabilities in the normal course of business. Nevertheless, considering the uncertainties described above, the directors have concluded that there are realistic alternatives for the company to continue in operational existence. For this reason, they continue to adopt the going concern basis of accounting in preparing these interim financial statements.”
Norwegian ended 2020 at a NOK -23.039 billion loss compared to NOK -1.609 billion in 2019. Its operating loss was NOK -23.768 billion versus a NOK 856 million profit in the previous year. Revenues were down to NOK 9.095 billion from NOK 43.521 billion. The airline carried 6.8 million passengers compared to 36.2 million in 2019 as it remained grounded for most of the year since April, operating only on a limited domestic schedule.
For Q4, it reported a net loss of NOK -16.6 billion, which includes NOK 1.2 billion in reconstruction costs and a NOK -12.8 billion impairment as it will reduce its owned fleet, end lease contracts, and did a NOK 4.8 billion write-down on pre-delivery payments for aircraft that have been canceled. As reported, Norwegian has canceled orders for 92 Boeing MAX 8s and five 787s, for which it is seeking a return of PDPs in a legal procedure. In a court session in Ireland, Norwegian confirmed last week that it has also terminated the contract for 58 Airbus A321neo’s and thirty A321LRs. The airline will pay Airbus $847.000 in PDPs while the airframer will keep pre-delivery payments it has received so far. The cancelation is one of the biggest Airbus has suffered so far as a result of the Covid-crisis.
Debt-loaded Norwegian has reduced its net interest-bearing debt from NOK 58.2 billion to NOK 40.2 billion, mainly through conversion of NOK 12.5 billion debt into equity. It targets another reduction of 0.2 billion under examinership. The financial reconstruction resulted in NOK 18.5 billion in new equity, of which 5.2 billion was recognized in the income statement. As it reduced its fleet, equity sank to NOK -6.624 billion.
Norwegian plans to operate 53 aircraft in the coming months, up from just fifteen in Q4. By the end of December, its fleet comprised of 131 aircraft. Another 78 will go under the reconstruction plan, including all Dreamliners of which some have already been returned to its lessors. During 2020, ten 737s have been sold, of which five as sale and leasebacks.
Air France-KLM (February 18):
Air France-KLM recorded its worst-ever result, with a net loss for 2020 of EUR -7.083 billion. This compares to a EUR 293 million profit the previous year. The operating loss was EUR -4.548 billion compared to a EUR 1.141 billion profit in 2019. Group revenues were down by 59.2 percent to EUR 11.088 billion.
At the 2019-results presentation a year ago, Air France-KLM was optimistic that the effects of the Covid-crisis would last only a few months. Today, it described 2020 as “incredibly tough” and the pandemic having an “unprecedented impact”. And there is little visibility on a swift recovery, as the pandemic has entered a second or even third wave and air travel is dictated by restrictions and border closures. For Q1 this year, the Group will operate at only forty percent capacity compared to 2019 levels and expects pre-tax results below those of Q4.
Over the year, Air France-KLM carried 67.3 percent fewer passengers at 34.065 million. In Q4, it was even worse at -75.9 percent compared to the previous year.
By airline, Air France performed worst with a net operating result of EUR -3.389 billion and an operating margin of -52.8 percent. KLM’s operating result was EUR -1.154 billion and a -22.5 percent operating margin.
Low-cost airlines Transavia and Transavia France booked a EUR -299 million net loss on revenues of EUR 606 million, down 65.2 percent. The leisure airlines, which started French domestic services in Q4, carried 68.7 percent fewer passengers or 5.1 million, many of them on repatriation flights.
Cargo was the only segment to benefit from higher revenues at +19.3 percent to EUR 2.568 billion as yields were higher for eight consecutive months until December, but the number of tons flown was actually -20.8 percent to 880 million. Maintenance suffered from the slump in MRO activities and recorded a EUR -543 million loss.
The Group took a EUR 822 million provision on restructuring costs, in particular on the voluntary and forced reductions in staff. KLM alone reduced its workforce by 5.000 and 3.700 at Air France and Transavia, so the Group now employs 76.900 staff. Another 6.000 FTE will depart the Group in the next years, of which 1.000 have been announced at KLM.
Air France-KLM slashed its capital expenditures by EUR 1.7 billion to 1.9 billion, of which 0.8 million in fleet costs by deferring deliveries. The carrier is committed to fleet renewal, as the new generation of aircraft brings savings in fuel and operational costs. Until 2026, Air France will take delivery of 32 Airbus A350s and sixty A220s, while KLM will get eight 787s and two 777s.
A EUR 672 million impairment was made on the retired fleet, of which EUR 553 million at Air France following the early retirement of all remaining Airbus A380s. At the end of December, five were still owned and four on lease. The parent airline also retired four A340s, while HOP! retired 25 Bombardier CRJs and Embraer 145s. At a cost of EUR 19 million, KLM parked all of the remaining seven Boeing 747-400 Combis. Fuel over-hedging cost another EUR 595 million.
By the end of December, the Group had EUR 9.82 billion in liquidity available, of which 2.46 billion in undrawn loans. Air France-KLM has survived thanks to loans and loan guarantees of EUR 3.4 billion from the Dutch government (of which 0.9 billion was drawn by the end of the year) and EUR 7.0 billion in fully drawn loans from the French government. This pushed net debt up to EUR 11 billion, with free operating cash flow negative at EUR -5.661 billion.
The French government has already confirmed its willingness to increase its 14.1 percent share in Air France by providing more equity if needed, but the Dutch government is reluctant to further help KLM. With elections next month, any decision is out of the question until a new administration has entered office. Even then, helping KLM with either additional loans or equity isn’t just a very sensitive topic in The Hague but also strains the already tense relations with Paris over governance within the airline Group. Air France-KLM is aware it has a way to go on efficiency, cost control, and transformation before it is in good health again, although the Group targets 2023 as the year to generate positive cash flow again and 2024 to get capacity back to 2019-levels.
Finnair (February 18):
On a different scale, Finnair’s financial results took a severe blow in 2020 too. It recorded a net loss of EUR -523.2 million compared to a EUR 74.5 million profit in 2019. The operating loss was EUR -464.5 million versus EUR 160 million, with revenues -73.2 percent to EUR 829.2 million.
With a much-reduced European network to some fifty destinations and its successful long-haul routes to China and Japan via Helsinki decimated for most of the year, passengers carried dropped by 76.2 percent to just 3.5 million. New travel restrictions in Q4 in Europe didn’t help and resulted in a drop to only 0.3 million passengers. Over 1.300 cargo-only flights partly helped to offset losses on the passenger front.
At the height of the pandemic, the airline furloughed almost all of its staff and by the end of the year had reduced its workforce by 1.100. Costs were reduced by EUR 1.5 billion, of which 140 million permanently.
Finnair ended the year with EUR 823.7 million in cash reserves and benefitted from a successful rights issue that generated EUR 1.8 billion in fresh capital. It helped to restore the airline’s solid financial position, which pre-Covid CEO Topi Manner described as strong and healthy. The airline hopes to get EU approval for a EUR 400 million unsecured hybrid loan from the Finnish government.
The airline is counting on the recovery of air travel only from the coming Summer, so it will continue to operate a limited network in the first quarter and expects its financial results to be on par with those in Q4 last year. Finnair has arranged sale and leasebacks for a number of the sixteen Airbus A350-900s in its fleet, with number seventeen to follow in Q2 2022. The last two on order will arrive in late 2024 and early 2025. The fleet consisted of 59 aircraft after two of the oldest A319s have been retired and are to be parted out by Finnair itself. As a result of the Covid-crisis, Finnair has deferred its decision on the renewal of its short-haul Airbus-fleet until this Autumn.
Icelandair: (February 9):
Icelandair ended 2020 at a $-376.2 million net loss compared to $-57.8 million in 2019. Total revenues were down to $433.6 million from $1.5 billion. It reflects the seriousness of the Covid-crisis, which brought operations almost to a standstill.
The airline operated to forty destinations before the Covid-crisis, only to find itself limited to just four immediately after. Between June and mid-August, travel restrictions were relaxed but then Iceland imposed new restrictions and closed borders. In Q4, Icelandair operated at -95 percent capacity compared to the same period in 2019, with revenues down by -81 percent to $60.2 million. Full-year capacity was down by -81 percent and passenger numbers by -83 percent to 762.905.
In this situation, Icelandair took extensive measures to scale-down its operations and reduce costs. The Group reduced staff by 2.725 to 1.531. As part of its financial restructuring, Icelandair placed a very successful share offering that attracted $167 million in fresh capital from 7.000 new and predominantly local investors. It boosted liquidity to $331.4 million, of which $159.4 million in cash and marketable securities. Net interest-bearing debt was reduced by $36 million to $104 million. The FY20 results include a $136.1 million impairment related to the Covid-situation.
Icelandair is very cautious about the recovery of traffic as the extent of the pandemic and level of vaccinations remain fluid. If progress is made, the carrier is optimistic about a modest ramp-up during Q2 of this year with a focus on key markets in Europe and North America, with a full recovery expected by 2024.
The ramp-up should coincide with the return to service this spring of its six Boeing MAX 8s, which have been grounded since March 2019. Icelandair prepares for their return by modifying the aircraft according to the EASA directives released in January and after extensive crew training. Three more MAX 8s are expected this year, plus another three in 2022. Out will go three 757-200s, of which one has been sold in December and the remaining two to leave this quarter. Icelandair converted eight aircraft to cargo-only specifications for transportation of medical supplies, boosting cargo results by fourteen percent.
Lufthansa Group (March 4)