(Adds CEO conference call comments paragraph 3; analysts' comments 7, 9-10; updates shares 6)
By Daniel Morrissey
LONDON, Feb 27 (Reuters) - Europe's biggest car rental company, Avis Europe Plc, said on Thursday it faced an uncertain outlook with no significant economic recovery expected for 2003, after posting a steep fall in 2002 underlying profit.
Avis Europe warned investors the threat of impending war in the Middle East clouded its outlook but said it would keep tight control on its fleet and staff levels to keep costs down.
"The lack of economic improvement in Europe means that we are not seeing the corporate sector yet usher any sign of real recovery and we expect this to remain constrained throughout the year," Chief Executive Mark McCafferty told reporters.
Avis Europe, which accounts for just more than a fifth of sales from the corporate market, said its 2002 results were in line with previous guidance. The company reported pre-tax profits before exceptionals and goodwill amortisation of 77.3 million pounds ($122 million), down from 89.5 million pounds in 2001.
Sales fell more than five percent to 747.5 million pounds, but the company has proposed a final dividend of 3.8 pence per share, keeping its total dividend for 2002 steady at 5.8 pence.
Shares in Avis Europe, of which Belgian car retailer D'Ieteren owns 59 percent, were up two percent at 80 pence by 0905 GMT. The stock has kept in line with the 20 percent fall in the FTSE 250 MidCap Index in the past six months.
Analysts said the shares were higher despite the decline in earnings and outlook because of a big drop ahead of the results, no surprises in the 2002 accounts, and no cut in its dividend.
Avis Europe, whose major markets of France, Spain, Italy, Britain and Germany generate more than 80 percent of its revenues, said the leisure business kept growing in the first few weeks of 2003, partly offsetting its weak corporate segment.
The slump in demand for air travel, particularly on the transatlantic routes, has hurt. Airports generate half of Avis Europe's business and a big slice of its high-margin profits.
"Their best margin business is basically people getting off transatlantic planes, walking up to the counter at Heathrow (airport) and wanting to hire a Mercedes," WestLB Panmure transport analyst James Cooke told Reuters.
"Those kind of people aren't travelling. The airline market is very poor for them and don't forget, their second biggest market is Germany where there is cut-throat competition."
Avis Europe is to acquire rival Budget licence agreements and royalties as well as the right to use the Budget trademark and name in Europe, the Middle East and Africa. Budget will give Avis Europe just under 20 percent of the market share in Europe.
It said in January Budget would cost more than $20 million.