Published on January 8th, 2016 | by Jim Lee0
Finnair implementing its growth strategy with increases in short haul capacity
In November, Finnair had announced the temporary damp-lease of two A321 aircraft, from summer 2016 onwards, for a period of one-year. The first aircraft is due to arrive in May 2016 and their lease is intended to cover the transitional period, until the delivery of the four A321 aircraft, being acquired in the longer term. On 30th December, it was confirmed that the airline had entered into a Memorandum of Understanding with BOC Aviation Pte Ltd (‘BOC Aviation’), to lease the four new Airbus A321-200s. BOC Aviation is a Singapore-based subsidiary of Bank of China, specialising in aircraft leasing. The aircraft are scheduled for delivery to Finnair during the first half of 2017 and the lease agreements have a minimum term of eight years.
The transactions are part of Finnair’s fleet renewal programme, which we previously looked at in detail, in our item posted on 6th December, (Finnair prepares for future growth).
To recap, the first phase of this fleet renewal consists of replacing aging long-haul A340 wide-body aircraft with modern A350s. The second of these aircraft, OH-LWB (c/n 19 in OneWorld c/s), which first flew on 22nd October, was delivered on 14th December, while a third aircraft, OH-LWC (c/n 20), was ferried TLS-HEL on delivery on 31st December.
Finnair had been forced to lease in additional capacity during December to cover for delays in the A350 delivery schedule. It had planned to wet-lease a Boeing 777-200(ER) from Privilege Style, to cover its Helsinki Vantaa-New York JFK operations, over the period 7th to 29th December. However, it was only used from 14th to 29th December, while the period 7th to 13th December, was covered by a Boeing 777-200(ER) leased from Portugal’s EuroAtlantic Airways.
According to the currently anticipated delivery schedule, Finnair will have five A350-900 aircraft at the beginning of the second quarter of 2016, seven by the end of 2016, 11 by the end of 2017, and it full complement of 19 by the end of 2023.
Finnair has also entered into a memorandum of understanding with GE Capital Aviation Services Limited (‘GECAS’), on the sale and leaseback of a further two Airbus A350 aircraft. The financing will cover Finnair’s 6th and 7th A350 deliveries, which are currently scheduled to enter the Finnair fleet in July 2016 and February 2017, respectively. The value of the transaction at present foreign exchange rates is approximately €265 million. The lease period is 12 years, and it includes extension options.
Calculated at current foreign exchange rates, the arrangement, including the gain on sale and currency gains on pre delivery payments and currency hedges, is expected to have a positive, non-recurring effect of approximately €90 million on Finnair’s operating profit. The actual financial impact will fluctuate depending on the EUR/USD rate prevailing at the time of each delivery. The income will be recognised in connection with each delivery, which given current delivery schedules will be reflected in the Q3 2016 and Q1 2017 financial statements, respectively.
Finnair is also increasing feeder capacity is by adding seats to existing narrow body fleet to improve the space efficiency of its Airbus family aircraft, operating mainly on its European routes. According to the plan, seats will be added to the aircraft, primarily without changing the leg room available to the passenger, so as to preserve travel comfort. ‘Space efficiency’ will be improved by modifying storage and technical space at the front and rear of the aircraft.
The value of the investment is approximately €40 million, and it includes 22 narrow-body Airbus aircraft in Finnair’s fleet. The cabin layout change excludes five A321ER aircraft (OH-LZG/H/I/K & L), which are already configured according to the plan, having 209 seats. The cabin reconfiguration is estimated to take two weeks per aircraft during 2017. The reconfiguration adds six to 13 seats depending on the aircraft type, increasing the passenger capacity of Finnair’s Airbus narrow-body fleet, as measured by available seat kilometres, by close to 4%.
As previously indicated, Finnair is selling surplus aircraft in accordance with its fleet plan to various buyers. The agreements or MoUs concern one ATR turboprop aircraft operated by Nordic Regional Airlines (Norra) and used in regional traffic, and two Embraer E170 regional jets, which will be retired from Finnair and Norra’s traffic in January-February 2016 and subsequently delivered to the buyers. In addition, Finnair will sell an old A340 wide-body aircraft for part-out in the first half of 2016. The sale transactions do not have a significant impact on either profit and loss.
Finnair to increase capacity on service to Dublin by 50% this summer
Central to Finnair’s recently unveiled long-haul expansion plans is adequate feeder traffic to ensure profitability. As part of this strategy, Finnair will add three extra return flights per week between Dublin and Helsinki from the start of the summer season. This will mean a 50% increase as the airline will operate nine flights per week with double daily services on Wednesday and Sunday.
Welcoming Finnair’s announcement Dublin Airport Managing Director, Vincent Harrison, said that they were delighted to see Finnair expand for a second time since it started operating services from Dublin Airport. “This increase in capacity is testament to the strong demand and success of this route and the onward connections that it offers” he added.
Fredrik Charpentier, Finnair Sales Director, United Kingdom and Ireland said, “We are delighted that due to customer demand we are able to offer even more flight options for our passengers travelling to and from Ireland. Our customers value the exceptional Nordic on board experience and the quick and convenient transfers through our Helsinki hub. With the arrival of our new long haul Airbus A350s into the fleet customers can now experience the latest in technology and comfort while travelling to Asia’s leisure and business destinations.”
Finnair currently operates six services between the two capital cities, using 100-seat Embraer 190 aircraft and offering a convenient schedule timed to connect with the airline’s flights to Asia.
The airline’s hub, Helsinki Airport, offers convenient and fast connections to the Far East and beyond with short transfers. The total flying time to Beijing from Dublin Airport is just 14 hours, Dublin to Tokyo and Hong Kong is just over 15 hours and Dublin to Bangkok takes 14 hours.
Finnair to start repurchases of own shares
On 19th December, it was announced that Finnair’s Board of Directors had decided to utilise the authorisation given by the Annual General Meeting held on 25th March 2015 to repurchase the company’s shares. The maximum number of shares to be acquired is 800,000 corresponding to about 0.62% of the total number of Finnair’s shares and votes. Finnair currently holds a total of 325,205 of its own shares, corresponding to approximately 0.25% of the total number of the shares and votes. The closing price of Finnair share on 17th December 2015 was €4.98, at which 800,000 shares would cost approximately €4.0 million.
The share repurchases was due to start on 28th December 2015 and is scheduled to end no later than the end of May 2016. The shares shall be acquired through public trading on the Nasdaq Helsinki exchange at the market price prevailing at the time of repurchase.
Repurchased shares will be used primarily for implementation of Finnair’s Employee Share Savings Plan (FlyShare) and long-term share-based incentive scheme for key personnel. The terms of the share plan and incentive scheme can be viewed on Finnair’s website at www.finnairgroup.com under section Governance/Remuneration.
Finnair’s Board of Directors has an authorisation to acquire 5,000,000 of the company’s own shares, which is valid until 25th September 2016.