* Finland's airline returned to profit in 2012
* More outsourcing deals needed -analysts
* New CEO to face political pressure
By Jussi Rosendahl
HELSINKI, Feb 8 Finnair's departing
CEO Mika Vehvilainen will leave the flag carrier in stronger
financial health than when he took over four years ago, but he
will also be leaving his successor the toughest part of the
turnaround: finding partners.
The airline posted its first annual profit in four years on
Friday but is still far from stable and needs to share costs on
its unprofitable European short-haul flights in order to focus
on more profitable long-haul, analysts said.
"Cutting costs in a substantial way is extremely difficult
in Finnair, and it will not be any easier for the upcoming CEO,"
said Nordea analyst Pasi Vaisanen. "If there was an
attractive-looking deal, Finnair would already have that
Vehvilainen announced his resignation at the end of January.
The company has yet to announce his replacement.
Stiff competition from discount carriers and high fuel
prices have put pressure on airlines like Finnair as well as
Nordic rival SAS, whose survival was in doubt until
cost-cutting plans received union backing last year.
Finnair launched a cost-cutting programme in 2011 targeting
annual savings of 140 million euros ($187 million) by
outsourcing operations and cutting jobs. Last year it said it
would cut an additional 60 million euros in costs.
It also handed over a third of its European routes to
low-cost British airline Flybe.
Analysts said more partnerships for the remaining short-haul
routes would help it outsource jobs and focus on more profitable
flights. Without deals enabling it to reduce its exposure to
unprofitable routes, the company could slip back into the red,
particularly as it buys new planes for long-haul flights.
Finnair was barely profitable in 2012 with an underlying, or
"operational" profit of 45 million euros. It hopes to achieve an
operational profit margin of around 6 percent from 1.8 percent
last year, requiring a profit boost of around 100 million euros.
As with many European airlines, Finnair's major challenge is
The state owns 55.8 percent of the airline and lawmakers are
exerting pressure on the company to appease powerful unions who
want to maintain the status quo.
In his last presentation to Finnair investors on Friday
before heading to a new job at Cargotec, Vehvilainen
said the company's labour contracts were unsuitable for
competing in the current open market.
"With regard to personnel costs, we are still more expensive
than our competitors, and this problem has to be solved," he
Two of Finnair's top executives have resigned in the last
three years after continuous disputes with the unions and public
anger about proposed changes.
However some members of the current government, led by the
right-leaning National coalition, are willing to lower its stake
in Finnair to give it more leeway. The most likely scenario
would be for the government to dilute its stake by standing back
if the company issued new shares.
Analysts said lower state ownership would allow the new CEO,
as well as newly-appointed board chairman Klaus Heinemann, to
focus more on investor returns rather than local politics, and
could also attract more international investors.
But left-leaning members of the government's six-party
coalition may not approve such a move.
The small Nordic economy is seen as one of the healthier
members of the euro zone, but its exports have been hit by the
region's crisis and voters are worried whether the government is
doing enough to promote its industries.
"With the unemployment rising, the state's role in the
economy is picking up. With that, a nationalistic, even
protectionist tone is getting more attention," said Ville
Pernaa, Director of the Centre for Parliamentary Studies in