Interim Update

7 November 2019

 DP AIRCRAFT I LIMITED (the "Company")

 

INTERIM UPDATE

 

The Company is issuing this report for the period from 1 May 2019 to 31 October 2019 as an investor update. It should not be relied on by Shareholders, or any other party, as the basis for an investment in the Company or for any other purpose.

 

Overview

 

DP Aircraft I Limited, a Guernsey based company, was launched in October 2013. To date the Company has acquired four Boeing 787-8 aircraft, with two leased to Norwegian Air Shuttle ASA and two leased to Thai Airways International PCL. The Company took over the Norwegian aircraft, LN-LNA (previously EI-LNA) and LN-LNB (previously EI-LNB), on 9 October 2013 and the Thai aircraft, HS-TQC and HS-TQD, on 18 June 2015. Since these dates all lease obligations have been met in full by Norwegian and Thai, an update on the current status of the aircraft is noted in the update below.  

 

To date the Company has, paid out 23 dividends of 2.25 cents each. The Company pays out dividends on a quarterly basis and targets a yearly distribution of 9 per cent. The last interim dividend payment was paid on 15 August 2019. The quarterly distributions are targeted for February, May, August and November in each year.

 

Company Information

 

Ticker	DPA
Company Number	56941
ISIN Number	GG00BBP6HP33
SEDOL Number	BBP6HP3
Traded	SFS
SFS Admission Date	4 October 2013
Share Price	USD 0.785 (30 October 2019)
Country of Incorporation	Guernsey
Current Shares in Issue	209,333,333 Ordinary Shares
Administrator and Company Secretary	Aztec Financial Services (Guernsey) Limited
Asset Manager	DS Aviation GmbH & Co. KG
Auditor and Reporting Accountant	KPMG
Corporate Broker	Investec Bank Plc
Aircraft Registration (Date of Delivery)	LN-LNA (28 June 2013) LN-LNB (23 August 2013) HS-TQC (29 October 2014) HS-TQD (9 December 2014)
Manufacturer Serial Number	MSN 35304 MSN 35305 MSN 36110 MSN 35320
Aircraft Type and Model	B787-8
Lessees	Norwegian Air Shuttle ASA Thai Airways International PCL
Website	www.dpaircraft.com

 

The Aviation Market - Overview and Development

In June 2019, the International Air Transport Association (IATA) downgraded its expectations of global net profits from USD 35.5 billion to USD 28.0 billion for the current year. Nonetheless, the organisation expects 2019 to be the tenth year in a row of airline profits. The change mainly results from slower growth in world trade as well as increasing costs, particularly of fuel but also of labour and infrastructure. Overall costs are anticipated to increase by 7.4 per cent whereas overall revenues are expected to grow by 6.5 per cent. Passenger numbers are expected to increase from 4.4 billion to 4.6 billion. According to IBA (International Bureau of Aviation; specialised in aircraft valuations, market research and advisory services) global GDP will increase by 3.2 per cent in 2019 and by 3.5 per cent in 2020 respectively. Economic growth has been impacted, amongst others, by trade tensions such as the trade war between the US and China, tightened financing conditions and moderate industrial production. The global average load factors in July 2019 was 85.7 per cent, a slight increase by 0.3 percentage points compared to the same month 2018. Europe was leading with an average load factor of 89.0 per cent. According to IBA, demand, measured in RPKs (Revenue Passenger Kilometres), increased by 5.3 per cent compared to the same month in the previous year and it appears that yields are stabilising. Overall leasing activities are expected to be slightly above 2018 levels.

 

According to IATA, European carriers are expected to generate a total net profit of USD 8.1 billion in 2019 compared to USD 9.4 billion in 2018. Break-even load factors are the highest amongst all regions and are anticipated to be 70.2 per cent on average. Capacity, measured in ASK (Available Seat Kilometres), is assumed to increase by 5.6 per cent and therefore outperform demand which is anticipated to increase by only 4.9 per cent. The operating profit margin of European carriers in the second quarter 2019 was 7.4 per cent compared to 8.9 per cent in the same quarter in the previous year. Carriers of the Asia-Pacific region are anticipated to deliver a total net profit of USD 6.0 billion compared to USD 7.7 billion in 2018. Demand is assumed to increase by 6.3 per cent, being the strongest growth amongst all regions, and to outperform capacity growth of 5.7 per cent. The operating profit margin slightly decreased from 3.6 per cent in the second quarter 2018 to 3.3 per cent in the same quarter 2019. For most airlines in the Asia Pacific region, the second quarter is not high season for leisure tourists.

 

The latest published Boeing Outlook (Current Market Outlook 2019-2038) expects deliveries of 44,040 aircraft with a market value of USD 6,810 billion within the next 20 years. Widebody aircraft and freighter deliveries will account for more than 40 per cent of the total market value. 17,390 aircraft deliveries are expected to be for airlines in the Asia Pacific region and 8,990 deliveries for European airlines. Annual global fleet growth is anticipated to be 3.4 per cent on average. Both Boeing and Airbus (Global Market Forecast 2019-2038) forecast that the global passenger and freighter fleet will double within the next 20 years. According to Airbus, demand will increase by 4.3 per cent on average within the next 20 years. In the last twenty years (1998 - 2018) airlines significantly increased their profitability; daily aircraft utilisation increased by two block hours per day and load factors improved by 13 percentage points. Besides, 10 per cent of global GDP is generated by tourism with airlines transporting more than half of these tourists today. In 2019, 1,770 new aircraft will be delivered with a value of USD 80 billion according to IATA. About half of these deliveries will replace older, less fuel-efficient aircraft. The global fleet would consequently increase by 3.6 per cent to more than 30,500 commercial aircraft until year´s end. According to IBA, the Boeing 787 and Airbus A350 families show the strongest performance in the wide-body market.

Discussions regarding climate change intensified recently in some European countries. Aviation accounts for about two per cent of global CO2 emission. The airline industry, represented by IATA, agreed on three main objectives to minimise CO2 emissions: To improve fuel efficiency from 2019 to 2020 by 1.5 per cent, stabilise CO2 emission on 2020 level (carbon neutral growth) and to reduce CO2 emission to 2005 levels by 2050. In 2016, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) had been adopted by the UN specialised agency ICAO (International Civil Aviation Organization), which is based in Montreal (Canada). Consequently, aviation is the first single industry agreeing to a global market-based measure in the climate change field. The objective of CORSIA is not to slow down any technological, operational or infrastructural progress but to additional support to mitigate CO2 emissions and to freeze them at 2020 levels. Since 1st January 2019, all airline operators are obliged to report emissions for international flights. From 2021 on, all flights between countries which are volunteering to take part, and from 2027 on, all international flights (there exist some few exceptions, such as for example small island developing states) will become subject to the offsetting requirements

 

The Assets - Four Dreamliner Boeing 787-8s

Boeing has delivered 894 Boeing 787 Dreamliner aircraft, of which 364 aircraft are B787-8s, 492 aircraft are B787-9s and 38 are B787-10s (as of 30th September 2019). These deliveries had been made to 54 customers consisting of airlines and lessors. In 2019, two new customers of this aircraft type placed orders: Bamboo Airways (Vietnam) and Lufthansa (Germany). The customer Korean Air placed an order for further 20 B787s (ten B787-9s and ten B787-10s). The number of total orders for the B787 family amounts to 1,450 aircraft from a total of 73 customers, of which 425 are for the B787-8 model.

A bottleneck by Rolls-Royce regarding spare engines and shop visit slots and the engine manufacturers´ engine shops being busy with upgrades on the Trent engines, had certain effects on airlines´ Boeing 787 fleets. Some of the aircraft, including the aircraft TQC and TQD operated by Thai Airways, had been temporarily parked. Aircraft TQC returned into service at the end of March 2019 and TQD returned into service end of May 2019. Aircraft TQC had been parked again end of September 2019 due to the same reason. Our technical inspector completed an interim storage inspection on 24th October 2018 at Bangkok International Airport and concluded that both aircraft had been stored in accordance with the applicable storage requirements. The next annual inspection is scheduled for autumn 2019. The temporary storage does not release the airline to pay lease rentals. Thai Airways´ B787-8 offers a total of 264 seats, of which 24 are business and 240 economy class seats. The carrier operates this aircraft type to destinations such as Vienna, Seoul and Hanoi.

Norwegian has equipped its B787-8 fleet with a total of 291 seats, of which 32 are premium economy and 259 economy class seats. This type of aircraft is used to fly from Europe to destinations in Asia and America, amongst others Los Angeles, New York and Fort Lauderdale. On 26th February 2019 and 27th February 2019 respectively, aircraft LNB and LNA were physically inspected at Copenhagen Airport. Our inspector considers the aircraft and the technical records to be in good condition with no significant defects or airworthiness related issues. Since end of May 2019 and mid-September 2019 respectively, aircraft LNA and aircraft LNB are parked at Prestwick Airport (United Kingdom) due to the above-mentioned bottleneck by Rolls-Royce in providing spare engines. The temporary storage does not release Norwegian to pay lease rentals.

The charts below give a short overview of the utilisation of airframe and engines of each of the four aircraft:

AIRFRAME STATUS (30 September 2019)	Norwegian Air Shuttle
	LN-LNA		LN-LNB
	TOTAL	September 2019	TOTAL	September 2019
Total Flight Hours	29,177	0	30,925	57
Total Flight Cycles	3,386	0	3,652	7
Average Monthly Utilisation since Delivery	388 hours 45 cycles	---	422 hours 50 cycles	---
Flight Hours/Flight Cycle Ratio	8.62 : 1	---	8.47 : 1	8.14 : 1

 

ENGINE DATA (30 September 2019)	Norwegian Air Shuttle
	LN-LNA		LN-LNB
Engine Serial Number	10118	10119	10130	10135
Engine Manufacturer	Rolls-Royce	Rolls-Royce	Rolls-Royce	Rolls-Royce
Engine Type and Model	Trent 1000	Trent 1000	Trent 1000	Trent 1000
Total Flight Hours	22,232	24,272	19,811	24,868
Total Flight Cycles	2,633	2,883	2,212	2,864
Location	In shop	LN-LNF	LN-LNC	In shop

 

AIRFRAME STATUS (30 September 2019)	Thai Airways International
	HS-TQC		HS-TQD
	TOTAL	September 2019	TOTAL	September 2019
Total Flight Hours	16,873	257	14,884	274
Total Flight Cycles	3,814	60	3,477	58
Average Monthly Utilisation since Delivery	286 hours 65 cycles	---	258 hours 60 cycles	---
Flight Hours/Flight Cycle Ratio	4.42 : 1	4.28 : 1	4.28 : 1	4.72 : 1

 

ENGINE DATA (30 September 2019)	Thai Airways International
	HS-TQC		HS-TQD
Engine Serial Number	10239	10240	10244	10248
Engine Manufacturer	Rolls-Royce	Rolls-Royce	Rolls-Royce	Rolls-Royce
Engine Type and Model	Trent 1000	Trent 1000	Trent 1000	Trent 1000
Total Flight Hours	13,436	10,518	11,035	14,907
Total Flight Cycles	3,114	2,583	2,675	3,365
Location	HS-TQD	In shop	In shop	HS-TQA

 

The Lessees

Norwegian Air Shuttle ASA

Norwegian Air Shuttle ASA operates on short-, medium- and long-haul routes. It is the 3rd largest low-cost carrier in Europe and the 5th largest worldwide. As of 30th September 2019, the fleet comprised 161 aircraft, including 37 B787 aircraft. In the third quarter 2019, the carrier received one B787-9 Dreamliner aircraft. In 2018, the airline transported more than 37 million passengers, an increase of 13 per cent over the previous year and took delivery of 11 Dreamliners. The low-cost carrier operates a network of more than 500 routes to over 150 destinations including more than 60 intercontinental city pairs. Passengers can now fly on Norwegian from the world's northernmost airport in Svalbard (Norway) to the world's southernmost airport in Ushuaia (Argentine); although three flight changes and one airport change in Buenos Aires would be necessary. This year, Norwegian Air Shuttle had been awarded "Europe's Leading Low-Cost Airline 2019" for the fifth consecutive year at the annual World Travel Awards. The airline had also been awarded "World´s Best Low Cost Long-Haul Airline" by SkyTrax World Airline Awards.

 

1st Half - KEY FIGURES [million NOK]	1H2019	1H2018	Change
Operating Revenues	20,173	17,221	+ 17 %
EBITDAR	2,297	738	+ 211 %
Operating Result	- 836	- 2,073	- 60 %
Net Result	- 1,407	254	---
Capacity - ASK (million)	50,531	45,628	+ 11 %
Demand - RPK (million)	42,813	39,129	+ 9 %
Load Factor	84.7 %	85.8 %	- 1.1 pp
Passengers (million)	18.09	17.45	+ 4 %

 

Norwegian closed the first half of 2019 with an operating loss of NOK 836 million (USD 98 million) compared to an operating loss of NOK 2,073 in the same period last year. Net loss amounted to NOK 1,407 million (USD 165 million) compared to a net profit of NOK 254 million. Operating revenues increased by 17 per cent to NOK 20.17 billion (USD 2.36 billion). Capacity growth outperformed the increase in demand and the load factor dropped from 85.8 per cent to 84.7 per cent. Passenger numbers increased by 4 per cent to 18.09 million and the average stage length increased to 1,867 kilometres, up 4 per cent. Ancillary revenues per passengers increased by 10 per cent to NOK 177 (USD 21). Unit costs excluding fuel decreased by 2 per cent whereas unit revenue and yield grew by 6 per cent and 7 per cent respectively. Cash and cash equivalents as at 30th June 2019 stood at NOK 1.69 billion (USD 198 million). Receivables are NOK 4 billion above normalised levels due to holdbacks from credit card acquirers. Results benefitted from a gain of NOK 174 million from the sale of shares in Lilienthal to Norwegian Finans Holding ASA (NOFI) including the license to use the name and logo of Norwegian for the period of five years in Europe. Beyond this date, additional license fees will apply. Norwegian announced early 2019, that they had reached an agreement with Rolls-Royce regarding the Trent 1000 issues, having a positive effect in 2019. If comparing first half results of 2019 and 2018, it should be taken into account, that the first half results of the previous year benefitted from a reclassification of the NOFI holding by NOK 1.9 billion

3Q - KEY FIGURES [million NOK]	3Q2019	3Q2018	Change
Operating Revenues	14,404	13,387	+ 8 %
EBITDAR	4,660	3,358	+ 39 %
Operating Result	2,970	1,815	+ 64 %
Net Result	1,670	1,304	+ 28 %
Capacity - ASK (million)	28,482	27,534	+ 3 %
Demand - RPK (million)	25,968	24,927	+ 4 %
Load Factor	91.2 %	90.5 %	- 0.7 pp
Passengers (million)	10.53	10.86	- 3 %

 

Third quarter results 2019 indicate that the strategy to move from growth to profitability makes a positive impact. Operating revenues increased by 8 per cent to NOK 14.40 billion (USD 1.59 billion) although passenger numbers decreased by 3 per cent to 10.53 million compared to the same quarter in the previous year. The average stage length increased by 3 per cent. Revenues from travel originating the United States are the largest share of the company´s revenues. While capacity grew by 3 per cent, demand was up by 4 per cent. Therefore, the load factor improved by 0.7 percentage points to 91.2 per cent. Both unit costs excluding and including fuel decreased by 6 per cent and unit revenue and yield improved each by 3 per cent. Ancillary revenues per passenger increased by 11 per cent. Operating profit increased by 64 per cent to NOK 2.97 billion (USD 327 million) and net profit grew by 28 per cent to NOK 1.67 billion (USD 184 million). While the operating profit was positively impacted by NOK 158 million, the net profit was negatively influenced by NOK 285 million through the implementation of IFRS 16. Results had further been impacted, amongst others, by additional costs of around NOK 300 million due to disruptions of the fleet (Boeing 737MAX grounding and Rolls-Royce Trent 1000 issues) but also by gains of NOK 23 million from jet fuel hedge contracts and NOK 238 million from favourable currency effects. 

During the third quarter 2019, Norwegian sold two B737-800s having an anticipated cash effect of USD 21 million. Aircraft utilisation in the third quarter remained relatively stable at a daily average of 13.2 block hours per aircraft. As at 30th September 2019, cash and cash equivalents stood at 2.93 billion (USD 323 million) and the equity ratio was 5.7 per cent. Excluding the effects of IFRS 16, the equity ratio would have been 11.2 per cent. Norwegian also agreed to sell its entire shareholdings in NOFI until the end of 2019 for a sales price of NOK 68 per share. During the third quarter 18.6 million shares for a total of NOK 1,266 million had been sold while the remaining 14.0 million shares will be sold in December for an agreed value of approximately NOK 952 million, subject to regulatory approval. This would have a positive effect of NOK 934 million in total on Norwegian´s cash position.

The grounding of the B737MAX aircraft is anticipated to impacted 2019 results by NOK 1.0 billion (USD 110 million). Norwegian stated to request compensation from Boeing but no agreement had been signed yet and it is not clear when the Boeing 737MAX will be allowed to return into commercial service and therefore the total effect of the grounding cannot be conclusively determined yet. Deliveries of B737MAXs in 2019 are put on hold. This in turn contributes to a lower CapEx which is estimated to be USD 1.0 billion in 2019 and USD 1.4 billion in 2020.

In the first nine months of 2019, the low-cost carrier stated cost reductions of NOK 1,848 million (USD 203 million) through the implemented cost saving programme named #Focus2019, a crucial key factor in the strategy to return to profitability. In the third quarter, Norwegian achieved a reduction in costs by NOK 827 million (USD 91 million). The programme includes, amongst others, network optimisation, crewing efficiency, refinancing of aircraft deliveries and the divesting of several aircraft on order. The objective of NOK 2.0 billion cost reductions in 2019 had been increased to an amount of NOK 2.3 billion.

After the growth peak in 2018, Norwegian Air Shuttle shifted its focus from growth to profitability and cash generation. This became already significantly evident in the second quarter 2019. Capacity growth was 6 per cent compared to 48 per cent in the same quarter 2018 and is anticipated to further reduce speed. The recent estimate in capacity growth for 2019 had been downgraded from a range between 0 to 5 per cent to 0 per cent. In 2020, the airline anticipates reducing capacity by 10 per cent compared to 2019. The airline had a review on the route network resulting in cutting loss-making routes and adjusting frequencies. Transatlantic flights out of Ireland ended in September 2019 as these routes are not commercially viable without the operations of B737MAXs. Frequencies from London Gatwick will be adjusted according to their performance. Amongst others, frequencies to Rio de Janeiro, Orlando and Buenos Aires will be reduced while weekly flights to San Francisco, Austin and Denver will be increased next summer.

In October 2019, Norwegian announced to have signed a Letter of Intent to partner with the low-cost carrier JetBlue which has, amongst others, hubs in Boston, New York JFK, and Fort Lauderdale. This would allow Norwegian´s passengers to transfer to about 40 additional destinations in the U.S., the Caribbean and Latin America whereas JetBlue passengers can transfer to Norwegian´s flights to Europe and on twenty intra-European routes. The tickets would be available on both airlines´ websites from early summer 2020 on. The same month, it was announced that Norwegian has agreed on the sale of further five B737-800 aircraft in the fourth quarter 2019 and the first quarter 2020 to the company "Aircraft Recycling International", a recycling and asset-management entity based in Hong Kong. The airline expects that this sale increases liquidity by USD 50 million. In regard to Norwegian´s leasing business, the carrier will establish a joint venture with China Construction Bank Leasing, the leasing arm of one of the largest banks worldwide. The latter will have 70 per cent shareholding and Norwegian 30 per cent in the newly established joint venture. The joint venture will start with 27 Airbus A320neo with delivery dates from the manufacturer between 2020 and 2023. Norwegian assumes that this will reduce its CapEx by approximately USD 1.5 billion.

End of October 2019, Norwegian announced to have implemented a two to three year transformation plan called NEXT (Norwegian Excelling Together). It is a cross-functional plan with the focus on improving RASK (Revenue per Available Seat Kilometre), minimising CASK (Costs per Available Seat Kilometre) and optimising the route network. This would include, amongst others, the aforementioned reduction in capacity in 2020 as well as the development and implementation of digital tools to support revenue generations. The objective is to generate NOK 4 billion run-rate EBITDAR until the end of 2021 on top of the pursued benefits of #Focus2019.

Norwegian is exposed to normal business risks such as fluctuations in fuel prices and currencies, fierce competition, seasonal variations, operational risks (as for example the Boeing 737MAX grounding), Brexit and regulatory issues. Besides, Norwegian is aware that it is exposed to a liquidity risk, amongst others regarding commitments for future aircraft deliveries, lease commitments and constraints from credit card institutions. The carrier identified various potential sources of financing, including amongst others the divestment or postponement of aircraft, the shareholding in Bank Norwegian (as previously mentioned), improved operational performance and the extension of two bonds with maturity in December 2019. The latter had been approved by the bondholders mid-September and the maturity of two unsecured bonds had been pushed back to November 2021 and February 2022 respectively; secured by a pledge over Norwegian´s slots at London Gatwick Airport. According to Norwegian the value of these slots is above the bond´s nominal value of USD 380 million. Transaction costs amounted to NOK 70 million. Norwegian Air Shuttle follows, as mentioned above, a strategic change from growth to profitability, including postponements of aircraft deliveries, divesting aircraft, network optimisation and the implementation of #Focus2019. Norwegian´s priority remains to return to sustainable profitability. 

Thai Airways International PCL

Thai Airways International Public Company Limited is majority-owned by the Thai Government (Ministry of Finance) (51.03 per cent) and operates as full-service network carrier. It is the flag carrier of the Kingdom of Thailand. In 2018, Thai Airways International, including its subsidiary Thai Smile, transported more than 24 million passengers. As at 30 June 2019, the fleet comprised 103 active aircraft of which 83 were wide-body aircraft. Thai and Thai Smile operate routes to around 80 destinations in more than 30 countries, including destinations in eleven European countries. In 2019, Thai Airways is ranking again in the top ten of "the World´s Best Airlines" by Skytrax. In the category "The World´s Best Airline Cabin Crew" and "World´s Best Airport Services", Thai Airways was voted fourth best and second-best airline respectively. Additionally, the carrier was rated number one in the category "Best Airline Staff in Asia".

2Q - KEY FIGURES [billion THB]	2Q2019	2Q2018	Change
Operating Revenues	42.51	47.24	- 10 %
Operating Result	- 7.11	- 2.81	- 153 %
Net Result	- 6.88	- 3.10	- 122 %
ASK (million)	21.897	22,804	- 4 %
RPK (million)	16.353	17,282	- 5 %
Load Factor	74.7 %	75.8 %	- 1 pp
Passengers (million)	5.72	5.90	- 3 %

 

In the second quarter 2019, Thai Airways stated a net loss of THB 6.9 billion (USD 224 million), an increase of 122 per cent compared to the same quarter 2018. Total operating revenues decreased by 10 per cent to THB 42.5 billion (USD 1.4 billion) whereas passenger and excess baggage revenues decreased by 6.1 per cent totalling THB 34.6 billion and freight and mail revenues dropped by 18.8 per cent to THB 4.4 billion. The operating loss rose from THB 2.8 billion in the second quarter 2018 to THB 7.1 billion in the same quarter 2019. Last year´s second quarter operating results benefitted from a gain from selling shares in Royal Orchid Hotel (Thailand) PCL and properties in Sydney. Despite significant lower revenues, operating expenses decreased only slightly. Expenses for fuel and oil account for nearly 28 per cent of total expenses and the carrier stated a fuel hedging loss of THB 81 million. Expenses for cockpit crew increased after the introduction of a new pilot compensation system to align with the industry standard. While capacity was reduced by 4 per cent, demand decreased by 5.4 per cent which resulted in a decline in the passenger load factor by 1.1 percentage points to 74.7 per cent. The average passenger yield decreased by 1.4 per cent, amongst others due to the appreciation of Thailand's currency. Aircraft utilisation remained stable at 11.5 block hours a day. The number of transported passengers decreased by 3.1 per cent to 5.72 million. During the second quarter, three decommissioned Airbus A330-300s had been sold while another 18 aircraft are held for sale.

Second quarter results 2019 were impacted by rising fuel prices, fierce competition and one-off expenses: impairment loss of assets and aircraft THB 172 million (USD 6 million) and a gain on foreign currency exchange THB 522 million (USD 17 million). The appreciating of Thailand´s currency slowed down the expansion in the tourism sector; the increase of foreign tourists was 1.1 per cent compared to the same quarter in the previous year whereas the number of Chinese tourists declined by 8.2 per cent (Chinese tourists account for 28 per cent of all foreign tourists). The decline in Chinese tourist numbers is still the aftermath of the boat tragedy in Phuket in 2018 and the effect of the U.S. trade barriers. The latter had also a negative impact on freight demand decreasing by 16 per cent. Chinese economy growth in the second quarter 2019 was the lowest in 27 years.

1st Half - KEY FIGURES [billion THB]	1H2019	1H2018	Change
Operating Revenues	92.30	100.71	- 8 %
Operating Result	- 7.94	1.03	---
Net Result	- 6.44	- 0.38	- 1,595 %
ASK (million)	44,768	46,338	- 3 %
RPK (million)	34,715	36,251	- 4 %
Load Factor	77.5 %	78.2 %	- 1 pp
Passengers (million)	12.01	12.16	- 1 %

 

Thai Airways stated in the first half 2019 a net loss of THB 6.44 billion (USD 210 million) compared to a net loss of THB 0.38 billion in the same half 2018. Total operating revenues decreased by 8.3 per cent to THB 92.3 billion (USD 3,008 million) while total operating expenses increased by 0.6 per cent to THB 100.24 billion (USD 3,267 million). The carrier stated an operating loss of THB 7.94 billion (USD 259 million) compared to an operating profit of THB 1.03 billion in the first quarter in the previous year. Capacity decreased by 3.4 per cent and demand by 4.2 percent respectively. The load factor consequently decreased by 0.7 percentage points to 77.5 per cent. The lower traffic production resulted mainly from the frequency reduction on the Australian routes as well as from parking aircraft due to the bottleneck of spare engines caused by the Trent 1000 issues. The passenger yield was THB 2.14, down by 2.7 per cent. Aircraft utilisation increased by 2.6 per cent to an average of 12.0 block hours per day. Cash and cash equivalents as at 30th June 2019 were THB 13.23 billion (USD 431 million) and total assets amounted to THB 261.99 billion (USD 8,538 million).

First half results had been impacted by the reasons as mentioned above as well as by one-time expenses: Impairment loss of assets and aircraft of THB 385 million (USD 13 million), a gain on foreign currency exchange of THB 1,888 million (62 million) and a gain on exchange in ownership interest of THB 273 million (USD 9 million) resulting from the dilution of Thai´s shareholding in NOK Airlines PLC. Additionally, the closure of the Pakistan airspace and the suspension of flights to Lahore and Islamabad negatively impacted Thai´s results. On 27th February 2019, the Pakistani airspace was closed for several days forcing Thai Airways to cancel flights not only to and from Pakistan but also to and from Europe. Since August 2019, flights operate as before after Pakistan re-opened its airspace.

In 2018, the airline declared a new vision as part of its transformation process: "National Premium Airline with Touches of Thai and Effective Management for Sustainable Profitability". This comprises the core values of customer satisfaction, world-class service and value creation for all stakeholders. In line with the objective of sustainable growth, Thai Airways signed code share agreements with NOK Airlines on secondary routes (from Bangkok Don Muang Airport), Bangkok Airways (ten domestic and six international routes) and Shenzhen Airlines (three international routes) and moved some routes to its subsidiary Thai Smile. The latter expanded routes to strengthen its network to destinations in China, India and the member states of the Association of Southeast Asian Nations (ASEAN). Thai Smile applied in June 2019 to become a Connecting Partner of the Star Alliance in 2020.

Thai Airways continues to focus on its revised 2018-2022 transformation plan, a reconstruction programme defining operational strategies, to exit the business rehabilitation process. The focus is to deliver a profitable business performance and to improve service quality and customer satisfaction. The airline´s five strategic objectives of the implementation plan include: Aggressive profit, business portfolio, customer experience, digital technology and effective human capital management. The airline also puts priority in generating additional revenues from supplementary businesses such as frozen meals and ready-made sauces under Thai´s catering brand offered to European consumers. This is part of the project "Mantra", which had been launched in the second quarter 2019. During the same quarter the integration of Thai Smile into the main carrier Thai Airways continued. The project called "Brother-Sister" has the objective to generate synergy effects through the merging of functions which are currently still exercised in parallel, particularly in the sales and flight planning sector. In 2020, the airline aims at being ranked among the world´s top 5 airlines and the reduction of negative retained earnings by 2022. The 2019-2026 fleet acquisition plan undergoes a review and will be amended to the current airline´s needs. Local press indicates that the acquisition of 38 aircraft might be split into two phases.

For 2019, the airline expects increasing passenger numbers as a result of various governmental promotions to support tourism growth; amongst others through the free visa on arrival policy for 21 countries which had been extended until the end of October 2019 and the promotion of secondary destinations. Thai Airways also expects further recovery of the number of Chinese tourists. On 3rd May 2019, the carrier raised THB 10 billion (USD 313 million) through an unsecured debenture issue for institutional and high net worth investors. The coupon rates between 2.35 per cent and 4.65 per cent have tenures between one and 15 years. The debenture received an A-rating by the rating agency TRIS which has taken into consideration that Thai´s debt to capitalisation ratio remains high. The raised capital will be used to refinance maturing debt and investments. In July 2019, Thai Airways increased its daily flights to Fukuoka in Japan to ten times a week and in in October, the airline launches flights to Sendai (becoming the airline´s sixth destination in Japan). After the removal of the red flag by ICAO, Thai Airways' competitors launched new routes and increased production which further intensifies price competition. Early November 2019, the airline´s chairman Ekniti Nitithanprapas resigned and was replaced by the current vice-chairman, Air Chief Marshal Chaiyapruk Didyasarin.

Thai Airways identified various risk factors for 2019, amongst others natural disasters, accidents where tourists are involved, and trade wars, particularly between China and the United States. The airline´s operations are also subjected to seasonal variations and dependent on the tourism sector. Furthermore, growing market shares of low-cost carriers as well as fluctuation risks of fuel price, foreign exchange rates and interest levels put yields under pressure. Strategic decision making is dependent on the Government impacting the airline´s agility. Thai Airways has implemented Enterprise Risk Management (ERM) in 2003 which has also been integrated into the airline´s business rehabilitation plan to further support enhanced efficiency and proactiveness. In October 2019, Sumeth Damrongchaitham, CEO of Thai Airways, stressed the importance of the business rehabilitation plan and the necessary support by the entire airline staff to optimise the cost basis, to improve revenues and to return to profitability.

Material Events since April 2019

 

April 2019

 

Dividend Declaration (23 April 2019)

The Company declared a quarterly dividend in respect of the quarter ended 31 March 2019, of 2.25 cents per Share, to holders of shares on the register at 3 May 2019, and payment was made on 16 May 2019.

Annual Report and Audited Consolidated Financial Statements (24 April 2019)

The Annual Report and Audited Consolidated Financial Statements for the year ended 31 December 2018 were published. 

 

May 2019

 

Interim Update (28 May 2019)

The interim investor update report for the period 1 November to 30 April was published.

 

July 2019

 

2019 Annual General Meeting (08 July 2019)

The results of the 2019 AGM were published.

 

Dividend Declaration (08 July 2019)

The Company declared a quarterly dividend in respect of the quarter ended 30 June 2019, of 2.25 cents per Share, to holders of shares on the register at 26 July 2019, and payment was made on 15 August 2019.

 

August 2019

 

Unaudited Condensed Consolidated Interim Report (19 August 2019)

The Unaudited Condensed Consolidated Interim Report for the period ended 30 June 2019 were published.

 

Director Retirement (21 August 2019)

The Company announced that Ms Angela Behrend-Görnemann would be retiring as a director of the Company with effect from 31 October 2019.

 

October 2019

 

Dividend Declaration (21 October 2019)

The Company declared a quarterly dividend in respect of the quarter ended 30 September 2019, of 2.25 cents per Share, to holders of shares on the register at 1 November 2019, and payment was made on 14 November 2019.

 

Director Appointment (24 October 2019)

The Company announced that Mr Harald Brauns would be appointed as a director of the Company with effect from 1 November 2019.

 

 

Enquiries:

Kellie Blondel / Laura Dunning

Aztec Financial Services (Guernsey) Limited

As Company Secretary to DP Aircraft I Limited

Tel: + 44 (0) 1481 748833