Eurotunnel to cut jobs and services

Subsea rail operator Eurotunnel unveiled on Friday a "Project DARE" plan to cut jobs and services as it tries to dig its way out of a mountain of debt in the face of falling revenues and market share.
The company is crippled by debt interest payments which exceeded by 76 million pounds ($139 million) operating profits of 70 million pounds ($128.2 million) in the first half of 2004, and faces a cash crisis as it starts to lose credit concessions in a year's time and revenue subsidies in two years.
It said Project DARE was an "essential first step towards recovery" in seeking to improve its annual operating performance by 70 million pounds by 2007 and it was now preparing to discuss with its banks how to cut its 6.4 billion pounds ($11.7 billion) of debt to a sustainable level.
"In reality the financial structure of the group remains fragile and the high financial charges continue to impact on operating results," Chief Executive Jean-Louis Raymond said in a statement.
Any debt reduction strategy is likely to involve a massively dilutive debt-for-equity swap, analysts say, with the company's current French market capitalisation of 1.44 billion euros ($1.83 billion) dwarfed by its debts.
At 1215 GMT, Eurotunnel shares in Paris were 3.6 percent lower at 0.27 euros.
Eurotunnel is facing a cash crisis because of looming changes in creditor and state support deals.
From December 31 2005 it is due to resume paying its interest bills in cash, instead of using cash and more debt as it has until now, and this will require an extra 30 million pounds annually, said Beth Fusco, credit analyst at Merrill Lynch.
Also, Eurotunnel will have to meet these higher debt payments from a shrinking cash flow from December 2006 when Eurotunnel loses the Minimum Usage Charge (MUC) levied on other tunnel users such as the Eurostar intercity passenger train operator.
The loss of the MUC implies a lost cash flow in 2007 of around 40 million pounds, Fusco estimated.
In addition, Eurotunnel is due to start paying off its 4 billion pounds ($7.32 billion) of junior debt from 2007. This will cost Eurotunnel an additional 33 million pounds in 2007, Fusco said.