ANALYSIS: Royal Jordanian raises borrowing limit

Borrowing limit increased from 150% to 250% of available capital.
ANALYSIS

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Royal Jordanian has received approval to increase its borrowing levels to finance a large-scale fleet expansion over the next three years. The announcement was made following a shareholders meeting at Le Meridian hotel in Amman on 25th April 2011, where the carrier’s CEO Hussein Dabbas and chairman of the board Nasser Lozi proposed that borrowing levels were enhanced from 150% to 250% of available capital.

Approval was granted to support the funding of Royal Jordanian’s capital projects, especially with the imminent delivery of 11 Boeing 787s to serve long-haul routes from 2014. In addition, the general assembly also decided to retain last year’s earnings to support various expansion projects and boost the market position of Royal Jordanian.

“We will continue, despite the challenges, our endeavours to increase the shareholders’ equity without increasing the capital directly, and without putting additional financial burdens on the shareholders,” stated Dabbas. “Royal Jordanian plans to rely on its successful programmes, on employees’ efficiency, on its modern fleet and on expansion plans. It also strives to improve its services, operations, human resources, engineering, and maintenance services.”

Around three million passengers were transported by Royal Jordanian in 2010, marking an increase of 13% compared to the previous year, while there were improvements of 29% in cargo volumes, 9% in flight frequencies, and 7% in flying hours. Supported by this growth, overall revenue was 15% higher than the previous year, at US $967.5 million. However, with increased competition in the region, ticket prices were dropped to attract passengers and operating costs also soared, leading to net profits of $13.5 million last year, compared to a much healthier $40.4 million in 2009.

“Royal Jordanian’s performance in all operational aspects improved despite the major challenges it successfully overcame during the year, among which, the effects of the global economic crisis and the rise in jet fuel prices,” commented Lozi. “Those hurdles significantly overloaded the budgets and influenced the net results of airlines, despite the growth in the number of passengers on the international route network.”

The chairman added that consequences of the global economic crisis continued to directly affect the performance of the international economy last year, which showed in trade, investment, employment and budget deficit. In addition, instability and regression affected the performance of the majority of stock exchange markets. “This reflected on the airlines, whose yields went down. That was also due to ticket price competitiveness, particularly among the carriers operating in the Middle East and the Arab Gulf,” he stated.

“In light of these big challenges, we exerted our utmost efforts in 2010 to improve competitiveness. Royal Jordanian encouraged its personnel to work more and be more productive; it continued automating its systems and applied advanced electronic solutions in different fields of work. There have been major upgrades in the services offered to passengers onboard and of all travel procedures, as the company is aware that services are an important tool needed to compete with other airlines.”

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