The troubles of Franco-Dutch carrier, Air France – KLM (ADR) (OTCMKTS:AFLYY) (EPA:AF), continue to pile up. The company issued a profit warning Tuesday, July 8th, putting further pressure on the second largest European carrier.

Air france - KLM
Chart via Novus NOTE: Chart does not include most recent shorts discussed in article

Odey, Marshall Wace and Discovery short Air France

Meanwhile some of London’s biggest hedge funds were increasing their shorts in Air France – KLM (ADR) (OTCMKTS:AFLYY) (EPA:AF) over the past weeks, as short interest is now over 4% according to AMF France. Tiger cub Robert Citrone’s Discovery Capital has a short amounting to 0.96% of Air France’s outstanding shares. Marshall Wace has the largest bet of 1.5% against the carrier, whereas Odey has a 0.61% short against the company. The latest to join the group of shortsellers with a 0.51% short is Magnetar Financial. AKO Capital is also shorting the company.

These shorts got richer as shares of the airline plunged another 9% today. The loss in share price is on top of a losing streak of four weeks. Air France is down 26% over a 30-day period.

Germany’s Lufthansa cuts guidance, Steve Mandel shorts it

The group said its profits for FY2014 could be 12% lower than previously forecast, down from 2.5 billion euros to 2.2-2.3 billion. Deutsche Lufthansa AG (ETR:LHA), the German carrier, also reduced its earnings guidance last month. Lufthansa blamed competition  from Gulf airlines as the reason for the 33% reduction in its FY2014 profit. The bad news from Lufthansa led to a decline in Air France – KLM (ADR) (OTCMKTS:AFLYY) (EPA:AF)’s shares as well. Marshall Wace is benefiting on both ends, as the hedge fund had a $50 million short against Deutsche Lufthansa AG (ETR:LHA) (OTCMKTS:DLAKY) till the end of June. Steve Mandel’s Lone Pine Capital declared a 0.6% short in the German carrier just yesterday.


Air France faces low traffic, weak cargo demand

The company said the profit warning comes as a result of over-capacity on longer routes and weak cargo demand. Air France experienced reduced bookings for July-August period especially on routes of Asia and North America. Most analysts already had a reduced estimate for 2014 profits which would be revised lower after this update from the company. Deutsche Bank AG (NYSE:DB) (ETR:DBK) said thatAir France – KLM (ADR) (OTCMKTS:AFLYY) (EPA:AF)’s warning was less severe than Germany’s Lufthansa, but both carriers are facing more or less the same problems.

Societe Generale SA (EPA:GLE) (OTCMKTS:SCGLY) had a more optimistic view of the group’s future, their note said that Air France – KLM (ADR) (OTCMKTS:AFLYY) (EPA:AF) intends to maintain a low investment which will help in maintaining a solid stream of free cash flow. SG predicted a reduction in the company’s net debt by 190 million euros in 2014 to 5.1 billion euros at end of 2014. Air France has a target of achieving 4.5 billion net debt by end of 2015.