Net loss of AED42mn vs. net income of AED56mn in 4Q15, AED292 in 3Q16, EFGe of AED132mn Revenue: AED814.3mn, -15% Y-o-Y, -28% Q-o-Q, -17% vs. EFGe EBITDA: AED25.6mn, -88% Y-o-Y, -93% Q-o-Q, -89% vs. EFGe   Air Arabia reported very weak 4Q16 numbers, with bottom-line in the red for the first time since the airline got listed, posting losses of AED42mn vs. earnings of AED56mn a year ago and our estimate of AED132mn on very weak revenue and gross margin. Excluding volatile other income (which came in at AED51mn vs. a negative AED57mn in 4Q15), losses would have been wider at AED92mn. We believe other income was boosted by gains on interest rate and FX hedges. Revenue posted its largest decline ever, of 15% Y-o-Y (-17% vs. EFGe), due to the biggest pressure on yields (average revenue/pax -18%) since 2009, signaling strong competitive pressure on fares. Also, passenger traffic growth waned to 6% Y-o-Y after a strong 9M16. Gross profit was in the red, at AED42mn, as CoGS increased 10% Y-o-Y. In 2016 (quarterly breakdowns unavailable), the cost items that saw the largest growth were maintenance and ground & technical handling charges, as well as depreciation & amortisation (seven new planes added). We also think unfavourable hedges played a role, with losses of AED445mn booked in CoGS in 2016 (AED435mn in 2015), but it is not clear how much of this was booked in 4Q16 alone. SG&A costs were the only bright spot in the results set, falling 23% Y-o-Y (-34% vs. EFGe). EBITDA dropped 88% Y-o-Y to AED26mn (-89% vs. EFGe).   The BoD is proposing a DPS of AED0.07, which is lower than last year's AED0.09 and our AED0.10 estimate, implying a DPO of 67% (low vs. historical averages) and a dividend yield of 5%.     A very lackluster set of numbers that we expect the stock to react to very negatively, especially given the disappointing dividend, which was the main reason behind the stock’s solid performance in the past few months. We will be revising our numbers to reflect the results. (Company disclosure, Hatem Alaa, Nada Amin)   Air Arabia (DU): AED1.39 as of 8 Feb. 2017, Rating: Buy, TP: AED1.60/share, MCap: USD1,767mn, AIRARABI UH/AIRA.DU