AN influential American research firm has issued a report on Ryanair’s accounts, warning that the company faces a downturn in demand and declining free cashflow.

The Center for Financial Research and Analysis (CFRA), one of America’s top independent analysts, also points out that Ryanair overstated operating cashflow in its 2001-2 results.

The CFRA was founded by Howard Schilit, an accountancy academic, and has built up a strong reputation for independent research. It works for 500 American and British institutions, including hedge funds and rating agencies. It has had an office in Britain for the past 18 months and has covered Ryanair for nine months.

The report comes on the back of an increasing amount of investor interest in the airline’s accounting policies and corporate-governance practices.

The CFRA’s latest report on Ryanair, which focuses on the 2002-3 results, points out that the company’s proportion of unearned revenues — seats sold but not yet flown — has declined, hinting at a possible weakening in demand. The indicator provides “a possible signal of slowing future revenue growth”.

The report also highlights Ryanair’s declining free cashflow, defined by the CFRA as the cash generated from operations, less spending on tax, financing costs and capital spending.

Under this measure, Ryanair’s free cashflow for 2002-3 was negative to the tune of ¤121m (£85m), up from the previous year’s minus ¤58m.

Howard Millar, Ryanair’s finance director, said he welcomed CFRA’s report. He added: “We are in the middle of a big aircraft order with Boeing, and we are paying deposits on aircraft that we won’t see for two years. This spending is heavily front-loaded, and I think the CFRA understands this point.”

The report said that Ryanair overstated its cashflow for the previous year because of the way it accounted for a maintenance contract.

“Because of the capitalisation of the contract . . . it was mistakenly considered cashflow, hence the overstatement,” the CFRA said.