Air France's image damaged by Concorde crash but not its healthy financial outlook

It is every airline executive's nightmare: a full page colour photo in Paris Match of a jagged scrap of fuselage in a field with the royal blue letters Air (of Air France) clearly recognisable as firemen hose the burning crash site in the background. No wonder some airlines - British Airways among them - have in the past dispatched workmen to paint out the logos of their wrecked planes before photographers arrived.

On the afternoon of the Concorde crash, Air France's share price plummeted so quickly that trading was temporarily suspended. But within a day brokers concluded that the disaster would have no financial consequences. After losing 10 per cent, the share price rose to €19.3 per share, only fractionally lower than its precrash level, and still much higher than two months ago.

In the aftermath of the July 25th Concorde disaster, Air France immediately suspended its new advertising campaign. Its slogan: "Making the sky the most beautiful place on earth." The project is tentatively scheduled to resume in mid-September.

The Lockerbie bombing destroyed the financially ailing Pan Am - and it was clearly caused by explosives, not structural or maintenance faults. But aviation industry analysts like Mr Nick van den Brul of BNP Equities say the Concorde crash cannot be compared to Lockerbie, because Air France is thriving. "Our view is that the effects on its image are severely negative, but the financial consequences are not that significant in the overall context of Air France's growth," he said.

The Concorde was insured for $30 million, and the cost of payments to the families of passengers, crew and the four hotel employees killed on the ground come to $350 million, but this will be paid by a consortium of insurance companies, none of which will be hurt significantly. Indemnities for victims of airline crashes vary according to the age, income and nationality of the deceased.

The family of a European passenger receives between $600,000 and $1 million, while the average payment to the heirs of a US citizen is $3.5 million.

Air France has made a spectacular recovery since Paris infuriated the EU's Commissioner for Competition by injecting Ffr20 billion into the company in 1994. The Jospin government floated nearly 50 per cent of the national flag carrier on the Paris Bourse last year - to accommodate socialist ideology, the operation was referred to as "opening capital" rather than "partial privatisation". The company made a profit of €354 million on a turnover of €10.3 billion in 1999. Only six - now five - of its 223 aircraft were Concordes. "In its entire history, Concorde has flown only 2.5 million passengers," Mr van den Brul says. By contrast, Air France carried 39.8 million passengers last year alone. Concorde is a prestige operation, but even if the supersonic carrier continues to be grounded, lost revenue for the company will be negligible.

The French airline is a fundamentally healthy company with an excellent safety record - its last previous crash occurred in 1974. It has a relatively low gearing (debt to equity ratio) of 59 per cent. "The only one lower in Europe is Lufthansa, with about 40 per cent," Mr van den Brul says. "KLM and British Airways are much higher."

Furthermore, Air France has the highest traffic growth rate of any major scheduled airline - 8.4 per cent in June alone. Growth is especially strong on North Atlantic routes, where Air France increased its traffic by 16.3 per cent in May.

North American flights are on average 85 per cent full. But this is often achieved through overbooking, a widespread practice among airlines that infuriates those left behind, however much they are compensated. On Sunday, for example, there was no room for 67 passengers with valid reservations on Air France's Paris-Rio flight.

Air France's successful combination of point-to-point and connecting traffic has made Roissy Charles-de-Gaulle - from which the doomed Concorde took off - the most important hub in Europe. Roissy boasts 14,267 long and medium haul rapid connections each week - compared to 8,640 for Frankfurt, 6,702 for Amsterdam and a mere 4,576 for Heathrow. Although British Airways has more flights than Air France, it has not concentrated on providing connections or making Heathrow a hub.

The inhabitants of Gonesse and other towns around Roissy are demanding a halt to expansion of the airport in the aftermath of the crash. Terminal F and a third runway were opened last year. A fourth runway is to become operational next year, and terminal E is scheduled to open in 2003. By the time it is completed, the plan will increase Roissy's capacity by 50 per cent. Experts like Mr van den Brul believe it extremely unlikely that work will be halted. "The government and airport authority already approved it. Work is underway. What is needed is not to stop developing the airport, but to tighten up on safety and maintenance - that, too, has a cost."