RYANAIR SAID yesterday it had pulled out of talks to buy 200 aircraft from Boeing and would now trim investment from 2011 to cut costs and free up cash to pay to investors, lifting its shares.
The Irish airline said talks with Boeing over an order for 200 aircraft failed and that it has no plans to reopen negotiations with the US company or other suppliers.
Ryanair shares rose the most in three months in Dublin trading after chief executive Michael O’Leary said he would switch to a strategy of “significantly” reducing growth and capital expenditure to maximize cash to fund payments to investors. “It is appropriate to return these surplus funds to shareholders if we cannot use them to purchase aircraft on terms which enable us to meet our demanding return on capital targets,” Mr O’Leary said.
The Irish airline had been in talks with Boeing to buy 737-800 series short-haul jetliners with a list price of $1.4 billion for delivery from 2013 to 2016. The breakdown in the negotiations won’t affect an existing order for 112 737s that will arrive over the next three years, increasing the size of the fleet by more than 50 per cent, Ryanair said.
“The company couldn’t keep growing at the same rate,” said Stephen Furlong, an analyst at Davy Stockbrokers with an “outperform” rating on the stock.
Other analysts said Ryanair would not be able to meet its long-term earnings target if growth slowed or ended after 2012, forcing it to eventually increase average fares. “Given the already low cost base, further significant unit cost savings will be difficult to deliver,” London-based Arbuthnot Securities said in a note.
The carrier will announce details of its revised business plan next quarter, including “much reduced” capital spending that will generate “substantial” surplus cash for distribution from 2012 through 2015, it said in a statement.
Boeing said it was disappointed having worked to find a solution that met the carrier’s needs while also making good business sense, the company said in a statement.
Analysts, including John Mattimoe at Merrion Capital, said the announcement did not preclude the carrier from buying planes if prices fall. – (Reuters/Bloomberg)
