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Cold War Between Lauda And Austrian

Fri Oct 20, 2000 11:10 pm

In the todays "Neue Zürcher Zeitung" (quality news paper of Zurich, Switzerland) is interesting article about Austrian an Lauda with the title:
"Cold war between Niki Lauda and AUA"
They say that Lauda has severe financial problems. Niki Lauda announced to sell 5 of his 26 aircrafts and lease them back to get cash   . Austrian is has a stake of 35.9% in Lauda. They were not informed about this and are now angry about it.

The article is much longer, but unfortunatly I don't have time to translate it.
My questions: Is it possible to solve financial problems with this methode? I don't think so!
Are these the first consequences of the Austrian's decision to join Star Alliance. This was a big mistake because Lufthansa is too close and too big. The Austrian Airlines Group (inkl. Lauda) will become an only LH and FRA feeder and will have to give up a large number of intercontinental flights. The first was JNB others will follow. The second step made SIA to give up Vienna in favour of more flights to FRA.

For people who understand German:
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Joined: Thu Oct 12, 2000 5:39 pm

RE: Cold War Between Lauda And Austrian

Fri Oct 20, 2000 11:22 pm

Given that now LH and Austrian have a monopoly on nearly all Ger-Aus routes, the European comission might ask for a more fragmented market: another player could play the role Canada3000 played in the Canadian market.

This part of europe is not submitted to rail competition (as it is in France for instance), so the problem could be solved by more traffic rights granted to another player.

Regarding your comments on Austrian, maybe we should keep in mind that alliances are sometimes volatile (see AZ/KL) and if an airline doesn't reap enough interest, it simply moves!


RE: Cold War Between Lauda And Austrian

Sat Oct 21, 2000 11:44 pm

First, I do not think that leaving the Qualiflyer Group (Swissair, Sabena, TAP, LOT,...) to join Star Alliance was a mistake. Star Alliane is made up of some of the top airlines of the world, whereas QG is simply a group of sometimes questionable airlines (Turkish, LOT,..) tied together by Swissair and sometimes victims to their expansion policy.
If the members of the Austrian Airlines Group (Austrian Airlines, Lauda Air, Tyrolean Airways) had not joined Star Alliance, they would have surely faced tough competition from LH on their very important routes to Germany. But as it is now they can conveniently bring in their traffic from Central Europe, Eastern Europe and the Far East to Vienna, Munich or Frankfurt to provide connections for their passengers. Their own flights to the US for example were never strong, Lauda only operating 3 scheduled flights to Miami per week (via Munich where the also previously collected traffic from LH) and Austrian Airlines only serving 3 or 4 destinations in the US (New Yor, Washington, Detroit,) together with previous partner Delta.

The financial transaction proposed by Niki Lauda (or more likely his CFO  ) will bring in the money needed to cover this year´s loss, but certainly not help solve the problems causing the loss. AUA was informed about the steps but walked out of a meeting of the board of directors, which made Lauda take the task on his own to save his company. If Lauda Air´s capital ratio drops below 10% (and it would if he lost USD 45mio as predicted by him), they could lose their operating license. In another meeting of the board of directors (comprised of Niki Lauda, the two CEOs of Austrian Airlines, 3 members of Lauda´s worker´s council, Austrian´s head of the board of directors, a member of Lufthansa, a lawyer and a university professor) it has been decided on Friday that another report is to be compiled by independent certified accountants, which should determine how great Lauda´s loss is going to be. Before that Lauda´s accountants had said it would be USD 45mio and Austrian´s accountants (Deloitte&Touche) stated that it will be USD 90mio.
The next meeting will be held on Monday, let´s wait and see.

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Possible Merger

Sun Oct 22, 2000 12:09 am


Well my German is so, so, but I tried to translate an interesting part.

"Aber auch eine Fusion der drei Partner soll zur Diskussion stehen. Angestrebt wird die weitergehende Ausschöpfung von Synergiepotenzialen, zumal heute AUA und Lauda Air weder ein gemeinsames Flotten-Management betreiben noch in der Streckenplanung eng zusammenarbeiten oder gemeinsam Kerosin einkaufen."
Quote from Neue Zürcher Zeitung, all right reserved.

"But a merger of the three partners is to be discussed. The potential synergies are far from being used, today AUA and Lauda Air don't have a common fleet management nor worked on a real common network planning, or common fuel purchases."

One of the main problem of a merger IMO is that Lauda Air has built an almost Boeing-only fleet and Austrian Airlines has is looking for a Airbus-only fleet. Correct me if I'm wrong but the only common type would be Tyrolean's and Lauda's CRJs!

Anyone would have an idea? Any rumour or information about that issue please?

Best regards,
Alain Mengus
Posts: 383
Joined: Thu Apr 06, 2000 11:05 am

RE: Cold War Between Lauda And Austrian

Sun Oct 22, 2000 12:45 am

Schoko: Well said.
I think the financials of an airline are very very difficult to be analyzed. However, by applying simple financial rules we can definately say that the swap from owing an asset (in this case the aircraft) to a leasing it , would have effects in the capital structure of the company, its cash flows , and some activity ratios (Asset turnover ratio) but on the other hand its liquidity and leverage ratios will be affected as well.... leasing is a great long term liability.

I did not get exactly understand what you mean by capital ratio I think you reffer to current ratio (current assets / current liabilities) but a current ratio of 10 is gross...... if you were refering to working capital, it is total current assets - total liabilities. In both cases a lease would make things look better in the short run, but liquidity problems (aka the ability of a company to meet its financial obligations as they become current, will remain.
On the other hand Leverage Ratios (debt ratio etc) measure the relationship of funds supplied by creditors and the funds supplied by the owners.
The use of borrowed funds by profitable companies will improve the ROE. However it increases the riskiness of the business and if used in excessive ammounts can result in financial embarassment.
That is a reason, I think why Austrian and other investors will be getting angry. Because such a swap will have an effect on the total debt ratio at market (t. Liabilities/t.liabilities+market value of equity) ... this last one is used by lenders to link the relationship b/e debt and the economic value of the firm.

Any more thoughts guys?


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Joined: Thu Apr 06, 2000 11:05 am

RE: Cold War Between Lauda And Austrian

Sun Oct 22, 2000 1:14 am

Alain: Thanks for the translation.
Indeed a different fleet makes things worse, but only in cases that the airlines are thinking of merging. But I think in this case we are just having an investor relations problem.
Anybody has any info about the terms of the investment of AUA in Lauda? I mean a 37% stake will give them ability to have an impqact on decision making especially in financial issues.


RE: Cold War Between Lauda And Austrian

Sun Oct 22, 2000 1:26 am

it is true that Lauda operates only Boeing aircraft (737, 767 and 777) and Canadair CRJ50. Tyrolean operates Fokker F70, CRJ50, and DeHavilland Dash 8-100 and Dash 8-300. Austrian Airlines currently operates Fokker F70, McDonnel-Douglas MD80/81/83 and Boeing A320, A321, A330 and A340.
But I think the fleet is not one of the top issues for a merger. Austrian Airlines wants full control over Tyrolean and Lauda, not only for strategic issues but also in daily business. Tyrolean as a 100% daughter (since 1998) of Austrian Airlines is astonishingly independent until now. It has always made the the most profit in the group despite operating the smalles equipment and only being a regional (Austria and Europe) carrier. They are as stronlgy opposed to Austrian´s plans as Lauda Air. Also their employees identify themselves strongly with their company, opposing Austrian Airlines, the former monopolistic and state-owned carrier, whose people are regarded as being slow, bureaucratic and arrogant.
Prime targets for synergies and rationalisation through merger would be Sales, Revenue Management, Revenue Accounting, Route Development and IT.
Plans for merger are still undecided, many rumours going round as to who would lead the combined company (maybe even Niki Lauda or Tyrolean´s boss Fritz Feitl), but this task is not going to be easy as the employee´s contracts and conditions and their team spirit and attitude in the 3 companies are very different.


RE: Cold War Between Lauda And Austrian

Sun Oct 22, 2000 1:48 am


Austrian Airlines currently holds 35.9% of Lauda Air. They have an option to buy another 20% in June 2001 from Niki Lauda, which they will most certainly exert.
At the moment their influence on Lauda is very limited. They are only represented in Lauda Air´s board of directors and until now this body has not had a lot of influence. There has of course been a working relationship between the CEOs of the three companies, but the business decisions of Lauda and Tyrolean have not always followed Austrian´s whishes. This is why Lauda´s current financial troubles comes quite handy to Austrian to argue for a complete merger giving them full control.

As far as I know Lauda did not buy its planes, but has already leased them. Now they want to buy the planes out of the leasing contracts, sell them and lease them back, giving them more money now but higher costs in future years.

Sorry I do not know the correct english financial terms to explain the situation any better. I was talking about relationship of funds supplied by creditors and the funds supplied by the owners. If an airline in Austria has less than 10% of own capital when presenting its annual financial statement, its license can be revoked by the Transport Ministry. But the Austrian Transport minister has already said that he has no plans on doing so, even if the ratio is below 10%.
This is also an political issue as Austrian Airlines´ leadership is still dominated by social democrats (SPO) while the current government consists of conervatives (OVP) and freedom party (FPO). The transport minister belongs to the freedom party which has a deep dislike for the SPO and is thus unlikely to help their 'child' Austrian Airlines gain control over politics-free (but rather anti-socialist) Lauda Air.

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Joined: Thu Apr 06, 2000 11:05 am

RE: Cold War Between Lauda And Austrian

Sun Oct 22, 2000 3:24 pm

The capital structure of every company is a factor that should be very carefully considered. Every company needs financing, but if financing is uded to cover increased expenses, rather than investments then the company is going down. Beyond liquidity (short term ability to meet financial obligations) leverage ratios come in plece to measure the relationship of funds provided by creditors and by the owners. Those are liked with activity ratios (profitability of business) by the so called trade support (accounts payabe=debt/cost of goods cold=main expense of what you sell) . Then it comes the leverage multiplier (assets / equity ) to determine who owns what in the business. All these have their impact in the main profiatbility ratio ROE (return on equity which indicates how profitable the company is utilizing shareholder's funds.)
The management of each company can "improve" (or "hurt") its ROE in several ways. Every analyst must get behind the ROE figures and must understand the underlying causes of any changes. From what I saw Lauda had losses for 1999, and they are trying to reconfigure their capital structure, maybe in order to show better profitability for these years........
But the profitability of each company can not be maintained with just such measures...... operations must be improved as well.
As far as the bying of the leased equipment, selling them, and re-leasing them (with better terms) this is something oftenly done by companies, by paying off early their leased equipment (and which the financing companies hate) However, from what I know some companies have a minimum time period before allowing an early payoff (1 year for some, maybe more for others)........
If you have any questions regarding these financial figures do not hesitate to email me at agrodemm@hotmail.com

Best Regards,
Posts: 383
Joined: Thu Apr 06, 2000 11:05 am

RE: Cold War Between Lauda And Austrian

Fri Nov 10, 2000 12:39 am

I am reading today at the FT that Austrian Airlines are planning of acquiring the 20% stake owned by Luftahansa so as to gain control of Lauda Air.

If this will take place, Niki Lauda is expected to be ceased from CEO of his company.

This comes after the news announced about a month ago on the decision of Lauda to sel and lease back 5 of his airplanes in order to improve the company's cash reserves, and liquidity. However, as described above such moves create long term problems beyond the short term improvements and definately they are not reflecting the current operating status of the company.

It is evident that AUA is not happy with the management decisions of Lauda, and are willing to make a dynamic intervention, by acquiring LaudaAir, even though this was described as a hostile takeover.

Regardless of the final outcome, I think that this will not have a "happy end", and maybe this will be the end of LaudaAir.

What do you think?


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