Turismo
First quarter 2020 results Air France-KLM
7 May 2020
FIRST QUARTER 2020
A strong performance at the start of the year with passenger unit revenue up +0.8% end of February 2020. March 2020 however was strongly impacted by the expansion of the virus and consequential globally imposed travel restrictions to counter the spread of the Covid-19 virus. This influenced negatively the first quarter 2020 results:
RAPID RESPONSE TO THE COVID-19 OUTBREAK
OUTLOOK
High level of uncertainty on the duration of the Covid-19 crisis and impact on the macro-economic environment. The Group withdraws its earlier 2020 guidance elements.The Group now anticipates:
The Group foresees significantly negative EBITDA in full year 2020 and a significantly higher current operating income loss in the second quarter than in the first quarter 2020.
The Board of Directors of Air France-KLM, chaired by Anne-Marie Couderc, met on 6 May 2020 to approve the financial statements for the first quarter 2020.
Benjamin Smith, Chief Executive Officer of the Air France-KLM Group, said: "The Air France-KLM Group had a promising start to the first quarter in line with the objectives of the strategic plan presented in November 2019. However, the acceleration of the Covid-19 crisis in March had a strong impact on the Group's first quarter results. I would like to thank our teams for their exceptional mobilization in this unprecedented crisis. The Air France-KLM Group has adapted rapidly, by implementing health safety measures essential to our staff and customers, reducing our costs to preserve our liquidity, continuously adjusting our flight schedule, and the many repatriation flights and flights to transport medical equipment.
Uncertainties remain regarding the evolution of Covid-19 and we must be cautious in the assumptions of recovery in the coming months. Nevertheless, the commitment to financial support of the French and Dutch governments to our Group, as well as that our banking partners participating in these schemes, is a strong testimony of their confidence in our ability to weather this crisis and rebuild. We are working on a renewal plan to ensure that the Air France-KLM Group regains its competitiveness in a deeply shaken world and reaffirms its leadership in the sustainable transition of air transport. These new orientations will be presented in the coming months.”
Business review
Network: First quarter 2020 operating result down 468 million euros impacted by Covid-19
First quarter 2020 revenues decreased by 17.7% at constant currency to 4.07 billion euros. The operating result amounted to -729 million euros, a 500 million euros decrease at constant currency compared to last year. Actions have been taken to preserve cash including reduction of investments, cost savings measures, deferral of supplier payments and partial activity measures for employees.
Passenger network: Good start in January and February 2020, the first quarter 2020 is down due to Covid-19 impact in March 2020
Until the end of February 2020 the passenger network activity performance was good with stable unit revenue at constant currency compared to last year:
North America unit revenues slightly down due to high capacity growth, which was mainly an Asian fleet redeployment effect, following Covid-19 outbreak.
Asian network already impacted by the Covid-19, whereby all flights to China were suspended as of 30 January 2020.
Strong performance in Medium-haul network unit revenue thanks to moderate industry capacity growth and ongoing rationalization of the domestic France network
For the entire first quarter 2020 capacity declined by 10.5% and unit revenues at -8.1% at constant currency compared to last year, down in all markets due to Covid-19 crisis impact acceleration during the month of March 2020.
Cargo: Performance in the first quarter 2020 impacted by reduced belly capacity, partly offset by increase in full freighter activity
Unit revenue remained under strong pressure till February 2020, while positive for March due to a rate increase as an effect of the wide body belly capacity crunch, overall first quarter 2020 unit revenue was down 10.0% compared to last year at constant currency.
Cargo industry capacity is impacted by the Covid-19 crisis and is approximately 35% lower compared to last year with wide-body belly capacity down 85% and full freighter capacity up 14%.
On the demand side, world-wide air freight volumes are down due to Covid-19 crisis and supply-demand balance is foreseen to remain volatile in the next months with production lines opening up and limited belly capacity. The Group anticipates to the strong demand on certain Cargo routes, particularly Asia to Europe by adding production by means of increasing utilization of its full freighters, temporarily redeployment of phased-out 747-combi aircraft and is testing with Cargo in passenger aircraft cabins.
The Group has in close cooperation with the French and Dutch governments setup an “air bridge” between its home markets and China for relieve goods and medical supplies.
Transavia operating result –12 million euros compared to last year as impacted by Covid-19 crisis
The second half of March was severely hit by the Covid-19 outbreak with consequential reduction in activity due to Covid-19 flight cancellations. Transavia France and the Netherlands have temporarily fully grounded their fleet. Actions have been taken to preserve cash including reduction of investments, cost savings measures, deferral of supplier payments and partial activity measures.
The increase in unit revenue by 13.1% in the first quarter 2020 is explained by a good performance until end of February with unit revenues 10% above last year combined with high level of ferry flights for passenger returns in month of March 2020.
The Transavia unit cost for the first quarter increased by 15.1% at constant fuel and currency, explained by the reduction in capacity at the end of the quarter.
Overall the impact of Covid-19 crisis on the month of March is fully causing the first quarter 2020 operating result decline of 12 million euros compared to last year.
Maintenance business margins for first quarter 2020 at -0.3%, impacted by Covid-19
The first quarter operating result stood at -3 million euros, a decrease of 48 million euros, highly impacted by the Covid-19 crisis with the borders closures starting from mid-March in Europe and since January with Chinese clients.
Even if the PBH contracts for engines and components allow to maintain certain activity flows, the Covid-19 crisis has a major impacts on the maintenance business and difficulties encountered by the maintenance clients are a risk for the business.
The Maintenance order book stood of 11.5 billion dollars at 31 December 2019, is not yet updated as there is not yet clear visibility on expected client fleet and activity reductions. The Maintenance business is carefully managing its external business including agreements with clients on payment terms.
Actions have been taken to preserve cash including reduction of investments, cost savings measures, renegotiation of payment terms with suppliers and partial activity measures.
Air France-KLM Group: First quarter 2020 revenues down 922 million euros and operating result down 529 million euros
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
In the first quarter 2020, the Air France-KLM Group posted an operating result of -815 million euros, down by 529 million euros compared to last year, entirely caused by March 2020 with an operating result at -560 million euros.
Net income amounted to -1,801 million euros in 2020, a decrease of 1,477 million euros compared to last year, of which exceptional accounting items due to Covid-19 for impairment on 8 Boeing 747s -21 million euros, accelerated depreciation on Airbus 380 -25 million euros, fuel “over hedge” -455 million euros and reduction of deferred income tax asset -173 million euros.
Deferred income tax asset -173 million euros:
Following the current COVID-19 crisis, the perspectives of recoverability within the seven years horizon have been downward revised leading to a write-off of €311 million of deferred tax assets for tax losses compared to the opening position of the fiscal year 2020 at the level of the French Tax.
Fuel “over hedge” -455 million euros for the remainder of 2020:
As a result of capacity reductions and lower fuel consumption forecasts, the Group is in a position of over-hedging. The change in fair value, initially recognized in equity, has been recycled to “Other financial income and expenses”
The first quarter 2020 fuel bill including hedging stood at 1,185 million euros.
Currencies had a positive 71 million euro impact on revenues and a negative 32 million euro effect on costs (ex-fuel) including currency hedging in the first quarter of 2020.
The first quarter 2020 unit cost increased by 3.5%, primarily caused by Covid-19 related capacity reductions
On a constant currency and fuel price basis, unit costs were up 3.5% in the first quarter 2020.
Group net employee costs were down 2.8% in 2020 compared to last year, supported by partial activity implementation at Air France in last 2 weeks of March 2020, release of hired staff and no profit sharing provisions to be made at both airlines. The average number of FTEs (Full Time Equivalent) in first quarter 2020 increased by 600 compared to last year, including an additional 450 Pilots and 450 Cabin Crew.
Net debt up 437 million euros and leverage ratio at 1.8x
* Sum of 'Purchase of property, plant and equipment and intangible assets' and 'Proceeds on disposal of property, plant and equipment and intangible assets' as presented in the consolidated cash flow statement.
** The “Adjusted operating free cash flow” is operating free cash flow after deducting the repayment of lease debt.
The Group generated adjusted operating free cash flow of -825 million euros, a decrease of 1,066 million euros compared to last year, mainly explained by an operating cash flow decline of 907 million euros.
Both airlines results negatively impacted in the first quarter 2020
OUTLOOK
High level of uncertainty on the duration of the Covid-19 crisis and impact on the macro-economic environment. Therefore the Group withdraws its earlier 2020 guidance elements.
The Group now anticipates:
·Progressive lifting of border restrictions in 2020, enabling a slow capacity resumption in Summer 2020, with capacity for the second and third quarter 2020 at around respectively
~-95% and ~-80% compared to previous year
The Group foresees significantly negative EBITDA in full year 2020 and a significantly higher current operating income loss in the second quarter than in the first quarter 2020.
As an integral part of the financing packages the Group will build a new transformation plan to ensure economic and financial sustainability over the medium and long term with integration of new ambitious environmental goals. This new plan will be communicated in the summer of 2020.
CASH PROTECTION MEASURES IMPLEMENTED IN RESPONSE TO THE COVID-19 CRISIS
The Group has implemented most stringent cash preservation measures in response to the COVID-19 crisis to ensure operational cash cost savings, including:
Furthermore, the Group has revised its capital expenditure plan 2020 by 1.2 billion euros to 2.4 billion euros compared to 3.6 billion euros in the previous guidance, of which 0.9 billion euros was already engaged. This includes the deferral of 3 Airbus 350s to 2021 and the remaining fleet deliveries in 2020 are expected to be primarily engaged under financing arrangements.
Other Cash protection measures taken include the deferral of 570 million euros of tax and social charges payments beyond 2020 and further deferrals of suppliers' payables and the airlines of the Group have established a customer voucher policy in line with industry practice.
LIQUIDITY REQUIREMENT FORESEEN IN THE THIRD QUARTER 2020
Despite these cash preservation measures the Group has indicated the need for additional liquidity in the third quarter 2020, considering an negative operational cash cost burn around 400 million euros per month in the second quarter 2020, and a high level of uncertainty on the crisis impact in third and fourth quarters. In addition there are the financial and other cash impacts , a capital expenditure plan of 2.4 billion euros for the full year 2020, a working capital risk estimated at around 2.5 billion euros mainly from deferred ticket revenues.
Therefore an initial financing package of 7 billion euros through a bank loan guaranteed by the French state and a direct shareholder loan from the French state is approved by the EU. It will enable the Group to meet Air France's financial obligations and ensure recovery of activity beyond the current crisis. Discussions with the Dutch state and banks are ongoing on financial support directed to KLM.
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The first quarter 2020 accounts are not audited by the Statutory Auditors.
The results presentation is available at www.airfranceklm.com on 7 May 2020 from 7:15 am CET.
A conference call hosted by Mr. Smith (CEO) and Mr. Gagey (CFO) will be held on 7 May 2020 at 08.30 CET.
To connect to the conference call, please dial:
France: Local +33 (0)1 70 72 25 50
Netherlands: Local +31 (0) 20 703 8211
UK: Local +44 (0)330 336 9126
US: Local +1 720 452 9217
Confirmation code: 7621430
To listen to the audio-replay of the conference call, please dial:
Confirmation code: 7621430
Investor Relations Press
Olivier Gall Wouter van Beek
+33 1 49 89 52 59 +33 1 49 89 52 60 +33 1 41 56 56 00
olgall@airfranceklm.com Wouter-van.Beek@airfranceklm.com
Income Statement
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
Consolidated Balance Sheet
Statement of Consolidated Cash Flows from 1 January until 31 March 2020
Key Performance Indicators
Restated net result, group share
Return on capital employed (ROCE)
Net debt
Unit cost: net cost per ASK
* The capacity produced by the transportation activities is combined by adding the capacity of the Passenger network (in ASK) to that of Transavia (in ASK).
Group results
Air France Group
NB: Sum of individual airline results does not add up to Air France-KLM total due to intercompany eliminations at Group level
Group fleet at 31 March 2020
2019 results restated for LLP componentization accounting change and EU passenger compensation reclassification between revenues and external expenses
Passenger unit revenue is the aggregate of Passenger network and Transavia unit revenues, change at constant currency
Including: secured financing & lease debt (principal & interests) payments, hybrid bond in October 2020 0.4 billion euros and a Cargo claim expected in the third quarter 2020 for around 0.4 billion euros
The definition of ROCE has been revised to take into account the seasonal effects of the activity.
Attachment
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