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Thursday, May 15, 2014

Fleet restructure costs weigh on LATAM Airlines earnings

SANTIAGO, May 13 (Reuters) - Latin America's biggest airline LATAM Airlines posted a loss in the first quarter as improved operating results were offset by fleet restructuring costs, a weak Brazilian real and poor performance in its cargo business.

The company, formed by the tie-up in 2012 of Chile's LAN and Brazil's TAM, reported a net loss for the first quarter of $41 million on Tuesday. Excluding the one-off costs of the fleet restructure, it made a net profit of $81 million.

That compared to market estimates for a net profit of around $65 million, according to a Reuters poll, and net profit of $43 million for the same quarter in 2013.

The airline has been cutting capacity on Brazilian routes and deleveraging to improve its margins and debt rating. It is target ting an operating margin of between 6 and 8 percent in 2014, although it said last month that the final figure would likely be at the lower end of that range.

Operating margin in the first quarter was 4.6 percent, excluding restructure costs, it said on Tuesday. Load factor - a measure of how full planes are - reached a record 82.7 percent, the company added.

"Despite the positive outcome we expect from this capacity rationalization strategy, these currently imply higher unit costs as we adapt our cost structure to a smaller operation," it said alongside its results.

The company is also carrying out a fleet restructure which it says will make it more cost efficient in the long-term. It is reducing the number of aircraft models it operates, phasing out Airbus A330s, A340s, Boeing 737s and Q400s.

As LAN the airline enjoyed investment-grade status and was a darling of the market, it has struggled since the merger to get its Brazilian operations in line against the backdrop of a slowing economy and currency headwinds.

It has been reducing its balance sheet exposure to the Brazilian real and said on Tuesday that it stood at $1.3 billion at the end of March and was expected to be $500 million by September.

In March, LATAM had said it expected its real exposure to be down to about $500 million by June. LATAM disappointed the market in 2013, posting a loss for the full year, with the final quarter below market expectations, but has said it expects 2014 results to be better.

Its Santiago-listed shares have risen around 35 percent since August, but are still some way off 2010 highs of over 14,000 pesos per share. They closed on Tuesday at 8,530 pesos per share, valuing the company at around $8.5 billion.

yahoo.com

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