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Economy

Silverjet in furious row with broker

Tuesday, 15 January 2008

Business-only airline Silverjet has furiously hit back at City-based investment bank Daniel Stewart & Co after a report told investors to sell shares “at any price” because the airline was “doomed to fail”.

The airline issued a statement after trading on the London exchanges had closed on Monday to rebut a 0p target price valuation by Daniel Stewart analyst Mike Stoddart. It was the first time the broker had reported on Silverjet.

The airline recently raised £22 million, £12 million from existing investors and £10 million from the Reuben Brothers as well as securing two new aircraft which will be delivered by March this year.

Stoddart, however, pointed at average occupancy figures of 53 per cent on Silverjet flights and said that he expected that the cash would eventually run out again.

"The fate of the business will then depend upon shareholders’ willingness to put up more equity," Stoddart wrote in a 32-page note.

Silverjet was launched a year ago and operates two transatlantic services a day between London Luton Airport and New York Newark Airport. It also runs a daily return service to Dubai from London Luton Airport.

Fuel prices

Silverjet’s competitor MAXjet halted flights and filed a voluntary petition under Chapter 11 of the US Bankruptcy Code.

Filing for Chapter 11 protection will protect the airline from its creditors enable the company to conduct an orderly liquidation of assets and resolution of claims. In Chapter 11 the firm will be subject to the oversight and supervision of the bankruptcy court and will be governed by its existing board of directors.

MAXjet blamed rising fuel prices, other operating cost increases, competitive pressure and a decline in consumer spending for its precarious financial position. In the current financial climate it had found it

Following the ‘Open Skies’ agreement, which lifted restrictions on other than four designated airlines to operate transatlantic flights, both new and existing airlines have tried to capture a share of the lucrative transatlantic market.

Material mistakes and inaccuracies

Silverjet (LSE:SIL) said in its statement that the research published by Daniel Stewart contained “numerous material mistakes and inaccuracies”.

It added that the current average cost per rotation was £75,000 rather than the £135,000 quoted by the Daniel Stewart research note.

The airline pointed out that liability for maintenance of £9.7m was payable over the ten year term of the lease and not the majority in the current financial year as stated by the Daniel Stewart research note.

“The statement that Silverjet expects to be cash generative following the current financial year is based on operating five aircraft and not three as stated by the Daniel Stewart research note,” Silverjet pointed out.

Pre-tax profit

The directors said that they remained confident that Silverjet will achieve its first month of profit before tax in the current financial year ending 31 March 2008.

It expected cash flow to be broadly neutral over the remainder of its current financial year ending 31 March 2008 and to generate a pre-tax profit thereafter.

The airline said that business continued to trade strongly with 5000 bookings being made last week and 20 per cent of customers repeat bookings.

Shares in Silverjet went into a tailspin after the negative broker report on Monday, but recovered strongly in trading on Tuesday following Silverjet's rebuttal.

The airline floated at AIM last year at 112p and reached over 203p in March 2007, but was trading down 28 per cent at 35.5p on Monday. The share price was up almost 17 per cent on Tuesday, however, trading at 41.5p.

The airline's own brokers, Arden Partners, also put out a statement contradicting Daniel Stewart's analysis.

Daniel Stewart announced on Monday that its managing director Alastair Cade had resigned unexpectedly after 12 years. City sources said that the firm's head of equities Hamish Dickson had also left after siding with Cade in a conflict with chairman Peter Shea.

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