intuition

A few days ago Eero Heliövaara was quoted saying Finnair lacks the funds to pay for the A350s. I was quite surprised to read this, as I believe seeing Finnair announcing several deals liquidating cash for the fleet renewal. OTOH, being the Finnish government's man in state ownership as Heliövaara is, one would think there is substance to such a statement.

So according to this, there is not enough money and government is now paving the way for a sale. Heliövaara says state would accept to become third largest owner (which would mean a stake somewhere between 4,14% and 18,5%) and after that asking shareholders to add new money to the comapny.

http://suomenkuvalehti.fi/jutut/koti...i-yksityistaa/

Benzin

Heliövaara did not say the third largest owner but owning a third would still keep the state as the largest owner.

http://yle.fi/uutiset/omistajaohjaus...hentaa/7101106

Pekka Haavisto says he is not bringing up such plans.

Will Finnair buy the A350s and then sell them and lease them back?

intuition

OK, thanks for correction (actually svenska.yle.fi attributed Heliövaara saying "third largest owner" - they must have confused that with "own a third").


AY has recently sold&leased back A330s to get cash. No idea if that is the plan for the new birds.
Current list price of A350 is 210 MEUR. Times 8, minus a decent discount is still probably around 1000 MEUR. AY holds 459MEUR in cash and cash equivalents.
When government says "only way is to privatize and then ask the shareholders to do the investment" it indicates they want more cash to be able to at least own some of the planes.


I also saw somewhere AY was disappointed that used A340s does not hold any great value on the market today - I guess that was a planned source of some cash that went pear-shaped.

intuition

(del)

SPBanker

Heliövaara's statement was somewhat strange. He is civil servant in the prime minister's office, heading the department in charge of government's various assets. He was immediately contradicted by Pekka Haavisto, the minister in charge of those ownings.

While Finnair's debt level is pretty high, it is not self-evident that issuing new shares would be the best way to finance the new planes.

intuition

Aha, that sound like someone is trying to use outside pressure to win an internal fight.

mosburger

Not hard to guess this being about the privatization issue, namely the government giving up the share majority or not.

oliver2002

All you need is about 100-150 million €. The airline usually pays 5-10% deposit when ordering the aircraft and AY probably got a 30-45% discount on list price. So they have to pay 100 mio to take delivery of one aircraft and then do a sale and lease back transaction shortly afterwards. Rinse and repeat for the next 7 aircraft deliveries.

The residual value of the 343 must have been written off already. They had 10% of residual value if you use the FR2012:

In 2012, they did a depreciation for aircraft of aprox 100 mio, and only had aircraft lease costs of 66 mio, so AY probably still owns most of their aircraft. The book value shows 1.9 bio for aircraft at the end of 2012.

Sale and lease back is very attractive, but your leasing costs go very high and your credit rating has a very direct effect on the running costs.

intuition

Maybe official's statements should be seen in the light of the need for the government to fund Talvivaara and Outokumpu (the latter alone needing 650MEUR). Even if a sale of AY isn't ideologically driven, the government just has not enough funds to keeping all state part owned companies afloat. Government sold a 2,3% stake in Sampo today to get some cash.

intuition

Thanks, interesting.

I found the stock market message (2013-12-17):
So they only plan to sell and lease back 2 of the A350s. The A330s are already a done deal by now.

They also claim leases will not significantly impact earnings, just wondering if there is a ramp-up in leasing costs, since they only state this for 14/15.

Couldn't find the quote about the A340s, maybe they only said it was difficult to even find a buyer (at any price).

intuition

Centreforavation had the 340 quote:

SPBanker

On Thursday's annual shareholder meeting Klaus Heinemann (http://www.finnairgroup.com/mediaen/...l_1568158.html) talked about new ownership structure for Finnair.

"Heinemann says he believes that Finnair will in the coming years need closer partnerships with the largest players of the industry. - We want to ensure that such changes are implemented so that Finnair has a strong role in them. The Board does not want Finnair to become market driftwood. We want to find a structure that protects Finland's vital interests in the Helsinki-Vantaa hub and its global non-stop connections.

- We must also ensure that Finnair can find sensible financing for its future investments. Finnair must be able to invest in a next-generation, energy-efficient fleet in a cost-effective way. To get such financing it is imperative that we are in a credible shape financially, and our shareholders support Finnair in its investment efforts."

There is talk of selling 10-20% to another airline, possible share swaps etc. Today's Helsingin Sanomat has minister Pekka Haavisto talk about the possibility of lowering the government ownership to under 50%, "if majority of ownership is still in Finnish hands". In practice this means pension insurance funds. Two months ago (and upthread!) Haavisto was still opposing any such move...

I am sure there are many investment bankers working on offers to the Finnish government at the moment!

oliver2002

Sad to see people still clinging on to former ideas of legacy airlines.

intuition

Well, as a state owned legacy airline, there are more factors to consider.

(my bolding)

The market will not provide domestic air connections and if a government wants that, right or wrong, they need to keep some control of the comapny.

oliver2002

Sorry, thats not an argument. DY is nicely operating the domestic routes that make financial sense, and the KF/FC/BE experiment(s) show that there is no money to be made flying the remaining routes. So just do it like Norway does: let the government auction the operation of critical domestic routes need to maintain infrastructure with tax money and let the free market serve the rest. That will be much cheaper than raising money in the open market with government guarantees to buy shiny new A350.