GPA close to aircraft cancellation agreement

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GPA, THE Irish aircraft leasing group, is believed to have reached outline agreement with aircraft manufacturers to cancel half its dollars 12bn (pounds 6bn) worth of outstanding orders.

A formal deal is expected to be signed by the end of the month, allowing the Shannon-based group to back out of orders with Boeing, McDonnell Douglas, Airbus and Fokker without forfeiting most of the deposits it has paid.

Reports from Dublin quoted GPA sources as saying the manufacturers agreed provisionally to allow the company to reschedule delivery with minimal financial penalties. The group has paid dollars 830m in deposits, and was due to buy 350 aircraft by the end of the decade at a cost of dollars 12bn.

The deal would save GPA dollars 2bn over the next two and a half years, as it would only take delivery of dollars 4bn worth of aircraft instead of the dollars 6bn ordered for the period to March 1995.

However, some brokers still believe that the cancellation penalties will drive GPA into the red this year. There are also doubts over its ability to raise another dollars 300m from shareholders and place sufficient numbers of its aircraft on order with customers. Both moves are seen as critical to the group's survival.

GPA still has to fund the 41 per cent of its dollars 3.7bn long-term debt that matures by March 1995.

Irish newspaper reports suggested the manufacturers had agreed to the deal because they feared the consequences of GPA going under. The leasing group has been financially stretched by the failure of its dollars 1bn share offer earlier this year and the downturn in the air travel industry.

The prospectus for GPA's abandoned flotation showed accumulated pre-delivery payments of dollars 954m, including dollars 353m to Boeing, dollars 278m to Airbus and dollars 248m to McDonnell Douglas.

GPA accounts for 100 of the 800 aircraft ordered for this year. Because of the lead times for building aircraft, supply has not yet declined to match falling airline demand. This oversupply is affecting second-hand values, further weakening GPA's balance sheet.