4 days ago
Wizz Air suffers £500m slump as engine troubles ground planes
Almost half a billion pounds has been wiped off the value of Wizz Air after engine troubles forced it to ground dozens of planes and triggered a slump in earnings.
Wizz Air shares fell by more than 25pc on Wednesday after the low-cost airline said operating profit in the 12 months through to March had dropped to barely a third of the previous year's total. The slump saw the company's market capitalisation fall by £480m to £1.25bn.
The Hungarian airline's problems stem from issues with the Pratt & Whitney GTF engines that power Wizz's Airbus A320-series jets, problems that have plagued all operators that use these components.
Wear and tear to the engines have left a significant chunk of Wizz's fleet idled at any one time as turbines are sent off for repair.
The Pratt engine crisis, caused by the use of contaminated powdered metal during manufacturing, which causes components to crack, has affected more than 40 A320 operators. However, Wizz has been the worst hit in Europe.
József Váradi, the chief executive of Wizz, said the company was forced to lease a dozen aircraft and 40 spare engines to fulfil its flight schedule and defend key markets. Only a proportion of these costs were covered by a compensation package from US-based Pratt, leading to the sharp drop in earnings.
He said: 'We had to protect capacity in the strategic interests of the company. That has cost us a lot of money, but otherwise competitors would have taken those markets that we had invested in previously.
'Even then, we're simply not able to fly the total fleet as much as we would, which also comes with significant costs.'
The measures pushed up overall expenses, excluding fuel, by 20pc. Operating profit fell from €438m (£369m) to just €168m, sending Wizz shares tumbling, while net income was lower than expected.
Wizz also saw its operations curtailed by the conflict in Ukraine. While listed in London, the company is based in Hungary and is a leading carrier in several East European countries where the war has limited flights.
Services to Israel, a major market for the airline, operated only intermittently in response to the fluctuating security situation.
While Wizz predicted revenue would increase this year, it declined to provide profit guidance. Management also warned that Wizz was having to cut fares to attract customers.
Mr Varadi said the fleet situation should ease in the next year. The number of planes grounded dropped from 42 at the end of March to 37 as of May 9 and should be reduced to 34 by September.
Despite the recent setback, Wizz Air still has ambitious expansion plans. It has signed a deal for more than 300 Airbus jets worth more than $45m (£33m), to be delivered by the end of the decade. It has ordered the biggest 230-seat A321s in a bid to undercut larger rivals Ryanair and easyJet.
Mr Varadi said Wizz Air could double the size of its British-based fleet from 20 planes to 40 if airport expansion plans go ahead as expected.
Government backing for a second runway at Gatwick is expected to be given later this year, while plans for expansion of Luton, Wizz's biggest UK hub, were signed off by Heidi Alexander, the Transport Secretary, in April.
