It is a standard legal phrasing that no company wants to include in its financial reports. This week premium cabin seating manufacturer Thompson Aero filed its 2019 year end financial statement showing significant, albeit expected, losses. But included in the fine print is a note that additional funding will be required to continue operations. As a result, the “going concern” statement was included:
These circumstances represent a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business.
Thompson’s Vantage line of premium cabin seats enjoys widespread acclaim across the industry. Airlines large and small are buyers of the Vantage and VantageXL lines. Aer Lingus, Delta Air Lines, Lufthansa. and Singapore Airlines are among the companies flying with Thompson Aero hardware on board.
And the company’s backlog suggests a bright future ahead. The Design Air recently suggested the company’s Vantage Solo offering could become one of the most popular seats flying over the coming decade as single-aisle aircraft expand dramatically into the long-haul market.
Among the potential early customers for the new offering is JetBlue, tipped to be considering an expanded Mint business class cabin for its A321LR aircraft. The first delivery is slated for this year and service to London, though confirmation of the Thompson product on board remains elusive.
Like many suppliers in the industry the company is struggling. The report cites revenue, profitability and cash flow all “significantly lower than pre COVID-19
levels” and notes that Thompson holds no direct credit facilities from which to draw additional funds. It relies on parent Aviation Industry Corporation of China (AVIC) for financial stability.
AVIC provided an initial bridge loan of £36 million and a commitment for follow-on funding. But Thompson also notes that AVIC must still obtain external funding in order to deliver the additional support. As of mid-December that cash had not yet been secured.
While COVID will impact the 2020 numbers and beyond, the report filed this week covers 2019, a boom year for the aviation industry. But even that was a challenging financial year for Thompson Aero Seating.
The company saw revenue increase to £181 million from £141 million in 2018, but also saw its operating loss expand from £25 million to £141 million. The firm backlog shrank from £470 million to £416 million.
Those massive losses were “in line with management’s expectations” and represent a major investment in the company’s manufacturing capabilities. The new capacity “massively increased industrial production capacity, allowing it to burn down most of the late delivery arrears and significantly reduce the Company’s financial exposure to further penalties.”
But that capacity is only useful so long as demand remains strong. With airlines around the globe deferring new deliveries – particularly of larger, twin-aisle aircraft featuring the company’s premium seats – the firm backlog might not be so firm. Delays in airlines needing the seats will affect cash flow, further pressuring the company’s operations.
In the 2018 results (issued October 2019) Thompson noted “an increasing level of product complexity (both in development and certification)” for its seats. Contracts signed in 2017 and scheduled for delivery in 2018-19 brought a high level of contractual risk and significant adverse impact on profitability. That was all supposed to change in 2020.
We know now, even without the formal results, that did not come to pass.
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