ryanair
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I apologise for not trawling through the whole thread for an answer. What is the truth about RYR hedging fuel at U$129; for how long? If true, what medium term effect will this have on profits and share price? With oil at <U$80the business model must not be functioning in the way it was envisaged.
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The issue on the fuel hedging depends on the nature of the contracts. If they are options to buy at $129 or whatever, they do not have to take up the options, as they just fall away unused (though there would be a cost to writing the option in the first place). On the other hand, if they are forward contracts whereby the airline is contracted to take delivery of the oil, they are screwed, unless they can sell those contracts onto another party, or otherwise sell their way out of such deals.
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Agree with 3* - all is not well. Note TPG / David Bonderman are significant inestors in RYR and they (TPG) have taken some awful hits lately - one loss alone in the last few weeks was $1b on one of the trashed American Banks. They may be unloading shares or something else is at work at RYR. Note that the shuffling of aircraft on and off the balance sheet will almost certainly have to come to an end and RYR's own $'s will have to be used to pay for the aircraft from Boeing and not some 'Icelandic' style lessors
Keeping Danny in Sandwiches
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Note that the shuffling of aircraft on and off the balance sheet will almost certainly have to come to an end and RYR's own $'s will have to be used to pay for the aircraft from Boeing
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The profits on a sale and leaseback are like any other profits the company earns, and they just go back into the business to finance expansion and/or working capital, as they see fit or as needs arise (minus amounts paid out for dividends). It's a perfectly legitimate activity, especially if (assuming what I read on this forum is true) the airline acquired the aircraft at a good price (post-9/11 ?) and feel able to take advantage of the rise in the strong asset price of used 737-800s worldwide as new airframes are delivered to Ryanair. At the same time, leasing the aircraft offers several useful tax advantages and strengthens the balance sheet (eg. reduces net debt, other things being equal). The risk is that if they come to depend on the income/cash/profit from these transactions, their luck could run out eventually if residual values worsen or demand levels change around the world, and it might expose a poorer quality/profitability of the underlying core business at Ryanair than we might think. I stress, I have no axe to grind here on any side of the argument, and I don't know Ryanair's financial position other than what is publicly available and/or what I read here.
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The risk is that if they come to depend on the income/cash/profit from these transactions, their luck could run out eventually if residual values worsen or demand levels change around the world, and it might expose a poorer quality/profitability of the underlying core business at Ryanair than we might think.
1.90 and sinking........
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Ryanair Finances - the facts
There has been a lot of pure speculation on this thread about Ryanair's cash pile, the possibility of asset stripping it, etc.
I thought I would go and find some facts. Here they are:
Market capitalisation EUR 3.4 bn - as at 17/10/08
Cash EUR 1.4 bn - as at 31/3/08
HOWEVER, borrowings EUR 1.8 bn - as at 31/3/08
(the company is highly geared, not cash rich at all overall).
Net assets per share EUR 1.67 as at 31/3/08 (likely to be lower now)
Share price EUR 2.31 as at 17/10/08
So RYA is still trading well above the value of its assets and as some of those assets are likely to be aircraft, they are probably not worth as much today as they are valued at on the books.
Also, some of that cash in the bank is only there in the form of a "loan" from its customers. Like most retail businesses, Ryanair benefits from the fact that customers pay up front, yet the company gets credit from many of its suppliers, often 30 days. This means it should always be sitting on at least 30 days' worth of its customers' cash.
I thought I would go and find some facts. Here they are:
Market capitalisation EUR 3.4 bn - as at 17/10/08
Cash EUR 1.4 bn - as at 31/3/08
HOWEVER, borrowings EUR 1.8 bn - as at 31/3/08
(the company is highly geared, not cash rich at all overall).
Net assets per share EUR 1.67 as at 31/3/08 (likely to be lower now)
Share price EUR 2.31 as at 17/10/08
So RYA is still trading well above the value of its assets and as some of those assets are likely to be aircraft, they are probably not worth as much today as they are valued at on the books.
Also, some of that cash in the bank is only there in the form of a "loan" from its customers. Like most retail businesses, Ryanair benefits from the fact that customers pay up front, yet the company gets credit from many of its suppliers, often 30 days. This means it should always be sitting on at least 30 days' worth of its customers' cash.
Last edited by marchino61; 18th Oct 2008 at 04:24. Reason: Typo
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Market capitalisation EUR 3.4 bn - as at 17/10/08
Cash EUR 1.4 bn - as at 31/3/08
HOWEVER, borrowings EUR 1.8 bn - as at 31/3/08
(the company is highly geared, not cash rich at all overall).
Net assets per share EUR 1.67 as at 31/3/08 (likely to be lower now)
Share price EUR 2.31 as at 17/10/08
Cash EUR 1.4 bn - as at 31/3/08
HOWEVER, borrowings EUR 1.8 bn - as at 31/3/08
(the company is highly geared, not cash rich at all overall).
Net assets per share EUR 1.67 as at 31/3/08 (likely to be lower now)
Share price EUR 2.31 as at 17/10/08
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Sounds like we are in good shape.The program on chanel 4, monday evening claimed B A was in debt to the company pension scheme alone by £1.7billion. They also said that this figure exceeded their market capitalisation.
So seems like we are in much better shape than them!
So seems like we are in much better shape than them!
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Anyone else see the Ryanair feature on BBC Watchdog recently? The BBC did their normal trick of just turning up outside the company HQ without an appointment. They forgot MO'L isn't exactly a normal company boss and he agreed to see them on the spot. If the BBC want to play that game with MOL they need to send a better interviewer :-)
Pension scheme
Apologies if this is not strictly on-topic, but this might explain a bit about how pension scheme obligations are reflected in an airline's market capitalisation.
If it is generally known that a company owes a large amount of money to a pension scheme this has to come out of future profits and the market cap will be lower to reflect this.
Consider a company that might normally be worth 4 bn pounds based on expected profits.
If it's public knowledge that it's behind in its pension payments to the tune of 3 bn pounds, the share price and thus market cap will be knocked down to somewhere *below* 1 bn. It'll be *below* because a big future liability makes it difficult for a company to run its normal business. In the case of BA in the past the pension debt meant it wasn't able to arrange financing to purchase new planes and grow / renew its fleet of planes.
Of course, the amount that a company is deemed to owe its pension scheme is a complex calculation - and makes a large number of assumptions about stock market returns. The key is that pensions were traditionally defined benefit - meaning your employer promised to put enough cash into the pension scheme so that you were guaranteed e.g. 20,000 pounds income per year - i.e. the employer takes the risk over stock market returns between now and your retirement date.
If the stock market takes a big tumble as has happened recently, the value of the pension pot takes a fall and thus the company is considered liable to cover the shortfall and so owe a lot more money into the pension pot. There are of course techniques to look at long term averages, but this should give the rough idea.
Some of the large legacy carriers have been described as pension schemes that happen to run an airline
If it is generally known that a company owes a large amount of money to a pension scheme this has to come out of future profits and the market cap will be lower to reflect this.
Consider a company that might normally be worth 4 bn pounds based on expected profits.
If it's public knowledge that it's behind in its pension payments to the tune of 3 bn pounds, the share price and thus market cap will be knocked down to somewhere *below* 1 bn. It'll be *below* because a big future liability makes it difficult for a company to run its normal business. In the case of BA in the past the pension debt meant it wasn't able to arrange financing to purchase new planes and grow / renew its fleet of planes.
Of course, the amount that a company is deemed to owe its pension scheme is a complex calculation - and makes a large number of assumptions about stock market returns. The key is that pensions were traditionally defined benefit - meaning your employer promised to put enough cash into the pension scheme so that you were guaranteed e.g. 20,000 pounds income per year - i.e. the employer takes the risk over stock market returns between now and your retirement date.
If the stock market takes a big tumble as has happened recently, the value of the pension pot takes a fall and thus the company is considered liable to cover the shortfall and so owe a lot more money into the pension pot. There are of course techniques to look at long term averages, but this should give the rough idea.
Some of the large legacy carriers have been described as pension schemes that happen to run an airline
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Apologies if this is not strictly on-topic, but this might explain a bit about how pension scheme obligations are reflected in an airline's market capitalisation.
But it wasn't all bad news - the fat cat bosses and shareholders got even bigger bonuses and dividends.
This is the greed that destroyed Capitalism.
Good Riddance to it - and Mr.Brown too.
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'No pension' was the same at RY in good times and bad - a business decision taken by any management who has started any business in the past 20 years. Defined benefit pension schemes are wonderful for those who have one (I don't), hence the favoured ones fight to keep them. Eg BA staff were asked it they wanted to keep theirs, they said yes, but, to make it affordable, BA put nearly £1bn cash in and the staff took slight benefit reductions later on to keep the deficit under control. It hasn't worked, and the pension deficit was £1.7bn in March, and will be much worse now 'cos stock markets are collapsing. So another round of haggling comes if staff want to keep their two-thirds final salary pensions - and who wouldn't? Don't even think what the unfunded public sector defined benefit pension (non-)scheme will cost us all in future years...
On the time-off, we're going into a deep recession, and RY's grounding planes over the winter because it is less loss-making than flying them, plain and simple. The planes will fly again for summer. Better times will follow in due course, everyone will go back to 900 hrs per annum. It's better than the US majors, who routinely 'furlough' (= lay off) thousands of pilots when recession arrives (Gulf Wars 1 and 2, 9/11), and it can take years before the most junior ones get rehired.
I've said this before, but RY and EZ have real financial strength - they may (and probably will) make losses in this recession, but they'll come out the other side and all the pilots will still have their jobs. I'm afraid that can't be said about all airlines - LTE the latest, and, as we go into winter, it won't be the last.
On the time-off, we're going into a deep recession, and RY's grounding planes over the winter because it is less loss-making than flying them, plain and simple. The planes will fly again for summer. Better times will follow in due course, everyone will go back to 900 hrs per annum. It's better than the US majors, who routinely 'furlough' (= lay off) thousands of pilots when recession arrives (Gulf Wars 1 and 2, 9/11), and it can take years before the most junior ones get rehired.
I've said this before, but RY and EZ have real financial strength - they may (and probably will) make losses in this recession, but they'll come out the other side and all the pilots will still have their jobs. I'm afraid that can't be said about all airlines - LTE the latest, and, as we go into winter, it won't be the last.
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... which is all good management and shows a positive, caring attitude towards ones employees - NOT!
I was told years ago that 'you can either be liked or be successful' - well Ryanair management epitomize that edict
Where do these w*****rs get off? Well I suppose they don't - it's a sad reflection on the state of modern business that in order to be successful the workers pay the price. Wasn't that the attitude of Victorian bosses and
haven't workers strived for over a hundred years to abolish that state of affairs?! Obviously not.
FOK
I was told years ago that 'you can either be liked or be successful' - well Ryanair management epitomize that edict
Where do these w*****rs get off? Well I suppose they don't - it's a sad reflection on the state of modern business that in order to be successful the workers pay the price. Wasn't that the attitude of Victorian bosses and
haven't workers strived for over a hundred years to abolish that state of affairs?! Obviously not.
FOK
