Tough Conditions Bring Airlines Down to Earth

PRESSURES on the airline sector were thrown into relief yesterday with the news that one company’s profits almost halved last year and another had trading in its shares suspended.

Privately-owned bmi, which is Heathrow’s second biggest user after British Airways, reported pre-tax profits of Pounds 15.5m during 2007, down from Pounds 29.7m the year before.

Soaring fuel costs and a Pounds 17m hit from merging the operations of recently-acquired BA subsidiary BMED were mainly to blame for the decrease.

Shares in business class airline Silverjet were suspended after the group revealed that a vital cash injection had failed to come through.

The group, which started in January 2007 and flies from Luton to New York and Dubai, said it had not received money agreed under a Pounds 12.7m deal recently signed with a Middle Eastern investor.

Bmi chairman and co-founder Sir Michael Bishop said the difficult trading conditions meant the airline’s prospects for any “significant immediate improvement remain unlikely”. Revenues for Derby-based bmi – which comprises the main bmi operation as well as low-cost carrier bmibaby and UK-operator bmi regional – topped Pounds 1bn for the first time during 2007, coming in at Pounds 1.02bn compared to Pounds 905.4m for the year before.

But last year’s results included Pounds 112.9m of revenues from BMED, which was bought for Pounds 30.5m from British Airways last year.

BMED, which operated more than a dozen routes to the Mediterranean and Middle Eastern destinations including Cairo and Tehran, cost BMI Pounds 4m last year in integration and redundancy and Pounds 13m in trading losses. It is now trading profitably, bmi said.

Sir Michael said: “Our underlying trading performance continues to be resilient against a background of difficult trading conditions throughout the aviation industry.

“The prospects for any significant immediate improvement remain unlikely, but we continue to invest for future growth and are well equipped to achieve it.”

Bmi flies to several dozen destinations including Las Vegas, Sierra Leone in West Africa and Barbados.

Its passenger numbers increased one per cent to 10.6 million during 2007, and it operated 70 aircraft, four extra than the year before.

Bmi increased its fuel surcharges in November last year as oil prices rose.

Meanwhile, Silverjet stressed that it was continuing to fly, but was in talks to raise alternative funding “as a matter of urgency”.

The company is also continuing discussions with the investor, Viceroy Holdings – a luxury development fund based in the United Arab Emirates and the United States.

A Silverjet spokesman said: “Viceroy Holdings are still committed to investing in the airline, but they have not been able to access the funds required to give to Silverjet.”

Silverjet, whose UK base is at Luton Airport, asked Viceroy for around $5m (Pounds 2.5m) as an initial instalment earlier this month.

The airline has been hit by soaring fuel costs.

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