August 15, 2012 / 12:05 PM / in 5 years

Air Berlin to sell planes as finances crumble

FRANKFURT (Reuters) - Air Berlin is to sell eight planes to improve its deteriorating finances and help cut debt by 300 million euros by the year-end, it said on Wednesday.

“Cutting debt is our clear aim for 2012,” Germany’s second-biggest airline after Lufthansa (LHAG.DE) said, adding that it expected to improve its performance in 2012 with 230 million euros in savings from a cost-cutting programme.

It also still aims to return to an operating profit in 2013, Chief Executive Hartmut Mehdorn confirmed.

Air Berlin (AB1.DE), which has not posted a full-year operating profit since 2007, has already cut seats, unprofitable routes and postponed plane orders to reduce costs and shrink its way back to profitability after racking up debts to expand.

Despite that, net debt barely changed in the first half, standing at 812 million euros at end-June. Loans from Abu Dhabi-based carrier Etihad Airways, which last year bought a 29 percent stake, accounted for about 163 million euros of the debt.

Air Berlin has reduced its fleet to 152 aircraft by the end of June from 165 a year earlier. According to its website, it owns 26 of its aircraft with the rest leased.

It said on Wednesday it was in talks with potential buyers for the eight planes and expected the sale by the end of this year to result in a profit, improving its debt to equity ratio and liquidity position.

Last week it reported a rise in its second-quarter net loss to 66.2 million euros and said shareholder equity, or net worth, had plummeted by two thirds to 101 million euros as at the end of June.

DZ Bank analyst Robert Czerwensky said the plan to improve the debt to equity ratio made sense but the shares remained a “sell” in his view based on its weak financial profile.

Air Berlin’s share price has lost almost a quarter of its value this year amid concern over its finances. Of 11 analysts covering Air Berlin, according to Reuters data, 10 have a “sell” or “strong sell” recommendation.

    Its shares were down 1.2 percent at 1.906 euros by 1158 GMT.

    Adding to Air Berlin’s woes, passenger numbers fell 5.9 percent in the busy summer travel month of July, as demand fell faster than it could cut capacity. Management declined on Wednesday to provide more detail on bookings for August and the third quarter.

    It has also been hampered by delays to Berlin’s new airport, which should replace the Schoenefeld and Tegel airports that date from the Cold War and was originally supposed to open in 2011. The new airport might now not make its latest opening date of March 2013.

    Mehdorn described the delays as farcical for a country like Germany, usually known for its efficiency, and said Air Berlin was waiting for a new date.

    “We want to be there by next summer, but that’s just our wish. We have to trust that the airport will open as quickly as possible because it’s in their best interests too,” he said. (Editing by Dan Lalor and Greg Mahlich)

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