Where were the obligations related to Genano’s future maintenance recorded?
I have reviewed the financial statements of Genano Oy Ab for the years 2020–2024 as well as certain financing agreements used by the company.
In the agreements I examined, the price of the device included several years of maintenance services, and the financier paid the entire financed purchase price to the supplier upon delivery of the device. Thus, at least in these agreements, Genano also received the portion related to future maintenance in advance.
In the financial statements, advances received were:
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2020: 268,572 euros
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2021: 28,553 euros
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2022: 318 euros
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2023: 318 euros
Based on the financial statements, I have not been able to identify which balance sheet item the obligations related to yet-to-be-performed maintenance were recorded under, or what the total liability was. This does not mean that the entries were not made, but rather that their amount and accounting treatment are not clearly evident to me from the financial statements.
In the years 2019–2022, a total of approximately 858,000 euros in dividends and 600,000 euros in group contributions were recorded in the financial statements. These are permissible arrangements in themselves, but to assess the overall picture, it would be important to know whether the costs and obligations of future maintenance were appropriately accounted for.
The year 2023 appears to form a clear turning point.
In connection with the Genano arrangement and merger, the way device and maintenance packages were financed also appears to have changed. Based on the information I received and the subsequent agreements I reviewed, the previous financing model ended for at least one financier, after which the device and maintenance services were handled separately.
This change may have affected the timing of cash flow from sales and possibly also revenue recognition, depending on how the agreements were treated in accounting. By itself, it does not prove the cause of subsequent losses, but it raises the question of how large a portion of previous years’ earnings was related to the upfront financing of future maintenance services.
The gap between the expectations placed on the Genano arrangement and the actual development is significant.
Inderes estimated that Genano would strengthen the group’s balance sheet and provide the new entity with better prerequisites to revive its loss-making financial performance. The report published in December 2023 was titled “Genano mahdollistaa kasvuharppauksen” (“Genano enables a growth leap”). For 2024, Inderes forecasted a revenue of 8.7 million euros and an adjusted operating profit of 0.2 million euros.
The reported revenue for 2024 was approximately 8.35 million euros, but the operating profit was approximately –7.94 million euros and the net result for the financial year was approximately –8.76 million euros. In 2025, the loss grew further to approximately –10.67 million euros.
The forecasted and reported operating profits are not directly comparable, and it cannot be concluded from the figures alone that Genano caused the losses. However, the actual financial development deviated substantially from the expectations presented in connection with the arrangement.
The matter was already brought up at the 2024 Annual General Meeting.
The public minutes of Pallas Air’s Annual General Meeting held on June 25, 2024, recorded that a shareholder considered that the lease provisions transferred as a result of the corporate arrangement implemented with Genano Oy Ab were not apparent from the 2023 financial statements.
According to the minutes, Chairman of the Board Mikael Rentto stated that the financial statements had been prepared appropriately and in accordance with applicable regulations. Auditor Mauri Eskelinen, in turn, stated that any known material deficiency would appear in the auditor’s report.
However, the answers did not reveal the euro amount of potential liabilities, the balance sheet item used, or how they were taken into account in the corporate transaction.
Source: Minutes of the Annual General Meeting of Pallas Air Oyj, June 25, 2024, item 6
The key open questions are:
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How much of the financed agreements included future maintenance services?
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Under which balance sheet item were the related obligations recorded?
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How were the change in the financing model and future maintenance obligations taken into account in the due diligence review and the determination of the purchase price?
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Did part of the future maintenance costs remain for Pallas Air to bear, and if so, how large was the liability?
This writing is not an allegation of an accounting offense or other unlawful procedure. It is a set of questions raised based on the financial statement data, the agreements I examined, Inderes’ assessment, and the public AGM minutes.
For the sake of transparency, I disclose that I own one share of Pallas Air Oyj. This writing is not an investment recommendation.
Pallas Air’s next report is scheduled to be published on August 31, 2026. Perhaps in connection with it, more detailed information will be obtained on how the revenues and obligations related to future maintenance have been recorded and how large the total liability is.