Davy Research |
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Air France KLM
(AF FP)
Further details on restructuring programme; reduction in staff targeted
25 May 2012
Joshua Goldman
| Closing Price: | 340c | Rating: | Underperform | 19/01/12 | Previous: | Neutral | 09/09/11 |
FACTS: Yesterday afternoon (May 24th), Air France-KLM released an update on its Transform 2015 business plan. This was presented to the Central Works Council and company executives as part of a progress report. The objective of Transform 2015 is to reduce costs and increase efficiencies. By 2014, the plan targets net debt/EBITDA below 2x and a €2bn reduction in net debt to €4.5bn.
ANALYSIS: The update has given greater detail on reorganisation within the air passenger division. It has also outlined other changes such as a reduction in dedicated air freighters (from 5 to 4), increased efficiencies, reduction in staff numbers and a shift in focus in the maintenance division to become one of the two major global players in the "engines" and "components" segments. One of the keys to a 20% increase in efficiency is the reduction of personnel costs. Air France-KLM has "confirmed that Air France has excess staff". The company seeks to remedy this, and we would expect further details at the end of June.
The re-organisation of the passenger air network will see Transavia France increase in size (currently eight aircraft to 20-22 by 2015-2016) as it operates flights from Paris-Orly and other regional cities (excluding Marseille, Nice and Toulouse) to Europe and the Mediterranean. Due to planned increased short haul aircraft utilisation (by more than 1 hour per day), the group expects to remove 34 aircraft from its short-haul fleet by 2014 (excluding Transavia France) while maintaining the same number of ASKs.
DAVY VIEW: We continue to see the financial targets of the company as ambitious. We would also expect it to continue to face a challenging pricing environment on short haul due to the competition from low-cost carriers. Restructuring the cost base is a necessary component to eventually returning the company to profitability, and we are encouraged to see the group trying to tackle some of these issues. However, at this early stage we believe the restructuring plan still faces significant execution risk. We continue to see the stock as an 'underperform'.