Aug
12
Sales of Aeroflot in 2008 grew by 21% by IAS to the level of 4.6 bn USD. Expenses of the company were upping by anticipatory rates – 32% versus the level of 2007. At the same time the principal growth belonged to the self cost of shipping, particularly, the expenses of aviation kerosene. The costs of aviation fuel within the group increased in 2008 by 51% and totaled 1.5 bn USD. As a result, EBITDA margin reduced significantly to 10.8% versus 19.0% in 2007. Besides, the negative currency exchange rate when overestimating the liabilities on the financial leasing, affected the net profit of Aeroflot negatively – it declined by 81% versus the estimate of the previous year to 56 mn USD. Net profit margin totaled 1.2% (8% in 2007).
The positive moment of the report is the debt load of Aeroflot. Despite the net debt of the company having upped by 58% the debt / EBITDA ratio totaled 1.5 in 2008 versus 0.7 a year earlier, which is not a high estimate. Credit portfolio of Aeroflot as of the beginning of the year totaled 737 mn USD versus 511 mn USD in 2007. At the same time 80% of debts are the long-term ones. The lions share of them is formed by liabilities on financial leasing, the rate of which is not high – 3.8% in 2008.
We have revised our financial model Aeroflot considering the new data. Our estimation accounts the updated schedule of airliners supply, and also the liabilities that appear due to purchasing the jets. Mainly the airplanes will be taken for lease. By the time of the last B787 and A350, which are to come in 2019, are supplied, the ratio of financial and operating rent might form 1:1. We have also considered the decommissioning of Tu-154. The renewed aviation fleet will be more fuel-effective, which in future will support significant savings on the aviation fuel and will reflect on the company’s profitability rather positively. At the same time the affect on the profitability will be significant due to the aviation fuel is the principal expense item for Aeroflot, which forms 36% of the entire expenses of the company (data of 2008).
Our estimation has been made considering royalty, which totaled more than 470 mn USD last year (more than 10% of sales). We would like to outline that without the “transfer” cash Aeroflot would have been losing last year. Also the loss might have been indicated in 2009-2010. However, we assume Aeroflot will unlikely lose its royalty. According to our forecasts in 2009 the passenger transfer might reduce by 13%. However, two times drop of aviation fuel price might reflect positively on the finance of the company, which might even lead to increase of group’s profitability by the results of 2009.