Monarch chief ascribes company’s losses to aircraft write-off

Monarch Group chief executive Andrew Swaffield has rejected suggestions the group is in trouble after its accounts for the year to October 2016 showed a statutory loss of £291 million.

The bulk of the losses relate to “onerous” leases for aircraft, with the UK group reporting a pre-tax profit of £12.9 million before provision for “exceptional items”.

Monarch Airlines suffered from the closure of Sharm el-Sheikh, “terror incidents in Turkey” and “depressed bookings” around the Brexit referendum, according to the group’s financial statement.

But Swaffield attributed the headline deficit to “a very significant one-off loss” from writing off the costs of Monarch’s current fleet. The airline will take delivery of the first of a new fleet of Boeing 737 Max aircraft next March, having ordered 45 of the aircraft, and will phase out its existing fleet over three years.

Swaffield told Travel Weekly: “We’ve pulled all the costs [of leases for the current fleet] into one set of accounts for 2016. Our accountants said ‘you shouldn’t be showing that in your future accounts’. It’s a big number, 
but it’s not a trading number.”

He described it as “the last legacy of the old Monarch”.

Speaking from Seattle, where he had a meeting with Boeing on Monday about an engineering joint venture, Swaffield said: “Monarch’s business will be so much more profitable with the new aircraft. There is a £100 million benefit for us on the bottom line.”

He acknowledged: “Our profit was down in 2016 due to external shocks like terrorism. We had 18 flights a week to Sharm.”

The fall in sterling cost the group £40 million. Swaffield said: “So to make £49 million in Ebitda [operating profit] in very difficult circumstances shows the resilience of the business.”

He insisted: “I’m pretty happy with where we are.”

Monarch must renew its Atol at the end of September, a process the CAA extended last year until parent Greybull Capital agreed to invest £165 million. At the time, the airline required Atol cover for seat-only sales. That no longer applies and Swaffield insisted: “In my view, there is no risk to 
the Atol renewal.”

The group announced the appointments on Monday of former Travelzoo Europe president Richard Singer as Monarch Holidays managing director, and former Emirates executive Richard Jewsbury as chief corporate development officer.

He confirmed Monarch has engaged consultants to review its route network, saying: “We’re exploring all options. I expect a conclusion by the autumn.”

Monarch’s annual revenue fell to £558 million in the 12 months to October, down from £655 million the previous year.

The group reported an underlying operating profit of £47.9 million, down from £70.3 million.

It  noted: “The reduction reflects the pressures from terrorism, leading to increased capacity on our routes, lower yields and consumer confidence.”

A shift in capacity to the Western Mediterranean had resulted in “an increase in supply over demand”, although it also noted: “Some first signs of more rational capacity deployment for 2018.”

Swaffield insisted parent Greybull Capital remains a medium-to-long-term investor in Monarch, saying: “You’ve seen the investment they have made. They have been very supportive owners.”

He responded to speculation that Monarch could be acquired by a rival carrier saying: “There is going to be some M&A activity in the airline space in Europe. [But] we could be a player in that.

“We’ll go into the next phase with new aircraft. We have a lot of experience of restructuring. Greybull is willing to take risks. We are more likely to be an active player than an object [of acquisition].”


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