Aer Lingus crawls back up; Aeroflot to buy Blue Wings? Finnair climbs back after negative outlook

Aer Lingus shares (+5.0% yesterday) is gradually clawing its way back towards its level prior to this week’s announcement of a greatly downgraded profit outlook.

Aeroflot (+4.3%) also rose, as negative market sentiment overall helped on the upside (see below for Aeroflot’s possible purchase of Blue Wings.

And Finnair (+3.0%) also moved back up, following its announcement of a pessimistic outlook, stating that its “potential for profitability has run into sand” (see below).

European selected airlines daily share price movements (% change): 30-Apr-09

Blue Wings to be folded under Aeroflot

Russia’s Transport Minister, Igor Levitin, likes the look of Blue Wings. That may be important, because he is also the Chairman of the Aeroflot board and Aeroflot’s largest non-government shareholder, with 29% equity, Alexander Lebvedev, thinks it would be a good idea for the Russian flag carrier to buy his shareholding.

After some - apparently unfounded - dark suggestions of interference by Lufthansa in Blue Wings’ loss of its German operating licence last month, the carrier’s de facto owner Lebedev, is, as we previously reported, seeking to sell his 49% holding in the carrier to Aeroflot .

The LBA revoked Blue Wings’ licence on the grounds that the company had insufficient “assets to ensure its long term viability”, according to a Blue Wings’ media release.  Blue Wings sought to clarify that the ruling had nothing to do with safety: “The LBA’s contention relates solely to its evaluation of our economic viability. We fully guarantee the safety of our operation, and the LBA has never called this into question.”

Mr Lebvedev maintains that withdrawal of the licence cost the carrier EUR25 million. The board of Blue Wings agreed to a capital raising of EUR35 million, with another EUR5 million to be injected by shareholders; neither of these actions has apparently been followed through at this stage.

As Blue Wings concluded its media statement after losing its licence, “We thank you for your faith in us; we expect to be flying for you again shortly.” If Aeroflot invests the EUR1 nominal asking price and effectively underwrites the operation for the future, that may well be the case.

Blue Wings’ main operations connect into Russia, and this is presumably the likely synergy that Mr Lebvedev will be projecting.

Blue Wings’ network prior to cessation of operations

Finnair: Asian markets still a key strategic position

As Finnair President & CEO, Jukka Hienonen, announced this week, reporting the carrier’s 1Q09 operating loss of EUR47.5 million,  “Our results from the first quarter reflect the situation of the entire airline industry regrettably well. The potential for profitability has run into sand due to feeble demand and a collapse in price levels. In these conditions, there is no prospect of a profit for the full year.”

However, Finnair’s cornerstone market of Asia remains. Although Asian traffic in the quarter declined by 3.4%, capacity reductions allowed Finnair to hold passenger load factor “at the previous year's level”.

According to Mr Hienonen “We are adjusting to the present situation by cutting our capacity and costs without, however, jeopardising our Asia strategy over the longer term. We initiated capacity cuts at the end of last year”, but there is more work to be done: the airline’s “cost flexibility, particularly in Scheduled Passenger Traffic, is poor” says the CEO.