Bonfire of the Irish carrier | FT Alphaville

Bonfire of the Irish carrier

Just how badly is Irish flag carrier Aer Lingus doing?

Stinkingly. The Irish airline posted a €93m operating loss in the first-half of 2009 — up from a €23mm loss last year. More importantly, however, the carrier is burning through its cash reserves like a KPMG wife goes through her husband’s money.

From Aer Lingus’s results statement released on Thursday:

Gross cash of €1,051.7m (30 June 2008: €1,328.4m) and net cash of €439.6m at 30 June 2009 (30 June 2008: €802.6m)

Cash is truly king for airlines during a recession. Given the extremely cyclical nature of the industry, it helps them survive downturns in which they may be experiencing long periods of operating losses. However, cash burn of this magnitude — a 45 per cent decrease in a year — is a truly worrying thing. By way of context, British Airways, which is also burning through its cash, saw ‘just’ a circa-37 per cent drop in its reserves in the same period.

What’s more, cash-burning like this tends to lead to a vicious financing cycle. As the airline eats up more cash, the less interest it earns on its reserves, and the less interest banks have in providing it with further liquidity. From the results statement, again:

Net finance income decreased by 42.6% on 2008 to €11.3m (2008: €19.7m). Finance expense increased slightly during the period; however, finance income fell by 27.2% due falling interest rates and a decrease in the Group’s net cash balance over the period.

Make no mistake — this Irish carrier needs to find a solution — and quickly. We doubt Ryanair, which owns a circa 30 per cent stake in Aer Lingus and has already made a couple of takeover attempts for the airline, will at this stage throw its hat back into the ring.

Aer Lingus needs a knight in shining armour — and very soon.

Related links:
Aer Lingus needs a pot of cash – FT Alphaville
British Airways’ cash conundrum – FT Alphaville