Adria Airways reportedly may go into receivership or file for bankruptcy as it struggles to repay debt (Televizija Slovenija, 15-Dec-2010). The Brnik-based carrier reportedly has outstanding loans of EUR86 million and the banks are unwilling to extend their them or approve new ones. The carrier reported a EUR7 million loss in 1H2010 and is seeking a strategic investor or the formation of a regional alliance with other carriers in the Balkan region.
Loss-making Adria may go into receivership or file for bankruptcy
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American, Delta and United's varying approaches to shareholder rewards & balance sheet management
The three large US global network airlines – American, Delta and United – are all at different phases of their respective balance sheet evolutions. Delta is enjoying its newly minted status of reaching investment grade according to two ratings agencies; United has decided to expand its level of shareholder returns after lagging its peers in that metric during its still ongoing merger integration. Even after recently deferring some Airbus widebody orders, American remains in the middle of a significant fleet revamp. The company is also still completing certain facets of its merger integration with US Airways, which is one driver for American’s larger cash balances compared with its global network peers.
Each of the three airlines seems to be striving for the right balance of investment in their businesses – maintaining a robust balance sheet and delivering ample shareholder returns. The difference is in the strategies followed.
CAPA global airline financial outlook
Operating margin to reach new high in 2016, but this may signal a subsequent downturn. CAPA’s global airline operating margin model indicates that the industry was more profitable in 2015 than it has been for almost five decades. Moreover, the model predicts that world airline operating margins will rise further above previous historic peak levels in 2016. These new levels of profitability are mainly thanks to the low oil price environment, coupled with strong demand growth in spite of global economic growth rates that are far from exceptional.
Much of the industry is also benefiting from a period of relative capacity discipline. New revenue sources may also be helping, although their role in airline profitability is still emerging.
The macroeconomic and geopolitical backdrops provide the main risks to this forecast. Beyond that, the biggest challenge for the industry will then be to try to sustain margin levels, rather than to allow a peak to be followed by a rapid downturn, as has always happened in the past. But downturns can play a positive role in industry development, possibly even stimulating consolidation.