Denis O'Brien's aircraft leasing company Aergo Capital has reported a 20 per cent rise in profit but warned that the amount of business it has with cash-strapped carrier Alitalia could reduce the value of the firm.
Aergo, through a subsidiary Aergo Leasing, has over half its fleet leased to Alitalia, the accounts point out. Alitalia, which is up for sale, is described as the company's "largest lessee" in the accounts for 2005.
The accounts make clear that Alitalia, which has accumulated losses over the last decade of €3 billion, has made all its lease payments to date, but says that Alitalia recently completed a restructuring and the success of this could have an impact on the airline meeting all its obligations.
The accounts describe the Alitalia situation as an uncertainty that could affect the net worth of its Aergo Leasing subsidiary. Apart from that uncertainty the results are strong in terms of profit, but sales are down.
Pretax profits rose from $2.4 million (€1.8 million) to $2.9 million, but turnover dropped to $32 million from $38 million. The costs in the business were broadly static at about $19.5 million. The operating profit dropped slightly to $9.4 million from $10.8 million. The company paid out a dividend to its shareholders of $1 million, the same as the previous year.
The directors state they are pleased with the level of business and the year end position. "The group has been successful in keeping its aircraft on lease".
The main risk to aircraft leasing companies relates to the number of aircraft in circulation - too many aircraft and lease rates fall sharply, whereas if there is a squeeze on the number of aircraft lease rates can go up. Most airlines have a mix of leased and purchased aircraft.
Aergo has customer relationships with a range of airlines including: Lanchile, Austrian and Adam Air and Merpati, both of Indonesia. Alitalia is being sold and the transaction is expected to happen in the first half of 2007.
Italy plans to sell a stake in the unprofitable national airline to keep the carrier in business, setting up a possible takeover by Air France-KLM Group.
"The strategic recovery of Alitalia cannot be done without the entry in the company's capital of new industrial and financial partners," the office of Prime Minister Romano Prodi said recently. The Italian government has an almost 50 per cent stake.
Alitalia hasn't reported an annual profit since 2002. Alitalia chief executive Giancarlo Cimoli said in October the airline had cash to last about a year.
French president Jacques Chirac on November 24th called a potential combination of Air France and Alitalia "desirable". The Italian carrier sought to be part of the initial Air France and KLM merger back in 2004.
