IRISH airline, CityJet, was capable of survival as a going concern despite accumulated trading losses of £13 million and its future could be assured, the High Court was told yesterday when it appointed an interim examiner to the company.

The examiner, accountant Mr John McStay, was appointed by Mr Justice Kelly on the application of the directors of Business City Express Ltd, trading as CityJet, which has headquarters at Dublin Airport. He set the return date for next Wednesday.

Chief executive Mr Patrick Byrne, in an affidavit, said the industry norm was for a start-up airline to take up to three years to reach profitability. With CityJet, this did not prove to be the case.

As a consequence of the delay in achieving profitability, accumulated trading losses of £13 million had been incurred by CityJet.

The level of loss-making had been progressively stemmed. In the first year the loss was £6.6 million, in the second £3.7 million and in the third - for eight months to November 30th, 1996 - it was £2.2 million.

Most of the trade creditors had accepted a 75 per cent write-off of their debt. A potential investor had been identified and had expressed a willingness in principle to make an investment.

As of now, CityJet was insolvent. Because of the existence of the losses, its liabilities greatly exceeded its assets. It had insufficient funds to pay its debts as they fell due. The total assets were £3.5 million. The total liabilities were £12 million and net liabilities were £8.4 million.

Mr Justice Kelly heard the company's flights were almost fully booked for Christmas. Around 12,000 passengers had already paid for the flights which would be assured with the appointment of the interim examiner.

In order to continue to trade throughout the period of examinership, CityJet would require interim funding in the sum of approximately £500,000 to January 17th, 1997, at which time it was anticipated the examinership would be completed. Arrangements had been made to cover these financial requirements.

The company employs 165 people and operates mainly between Dublin and London City Airport. It also operates to Brussels, Zurich and Paris.

Mr Byrne said that among the factors contributing to a delay in achieving profitability were:

. Disappointing British-originating sales in respect of business class passengers. While overall passenger numbers matched expectations, the business to leisure ratio did not reach anticipated levels within the expected time.

. The disproportionately high costs of the initial trading under a Virgin franchise agreement.

. The $2.4 million (£1.45 million) cost incurred for engine modifications falling outside the manufacturer's warranty period.

. A revenue shortfall of some £2 million on the Dublin-Brussels route.

. The late delivery of three new aircraft this year resulted in unscheduled hiring costs of replacement aircraft of £750,000.

Mr Byrne said, notwithstanding the current insolvency, he believed its business was sound and that it was well capable of survival as a going concern. This was due to a number of factors.

. CityJet was no longer bound by the Virgin franchise agreement, saving costs in excess of £1.2 million a year.

. The company had effected a considerable reduction in the aircraft leasing costs £200,000 a year per aircraft.

. CityJet had succeeded in negotiating savings amounting to approximately £500,000 a year.

. It had recently entered into a three year contract with Air France which would generate revenues of £7 million a year.

. The London route had developed to a point where the mix of business to leisure passengers was where it was originally anticipated to be and was now successful. The brand name of CityJet was now well established.

. Most importantly, Malmo Aviation of Sweden, an established airline operating 10 identical aircraft to CityJet, was in advanced discussions with Irish investors with a view to an investment in CityJet in the sum of £4 million.

US Air Leasing Inc, from whom CityJet leases its aircraft, was supporting the company in these proposals. Creditors to the value of £3.2 million being 50 per cent of the trade creditors of CityJet were prepared to support the company by agreeing a write-off of 75 per cent of their debt.

It was anticipated that once these financial arrangements were finalised, banking support could be obtained in the sum of £1 million. The petitioners believed that if financing of £5 million was made available to CityJet and if a scheme of arrangement was put in place to deal with the losses, the business would be saved.