Alliance Aviation Services upbeat after big lift in first half profit

FOKKER 50 ALLIANCE HBA JUL13 RF IMG_9934 crop
A file image of an Alliance Fokker 50. (Rob Finlayson)

Alliance Aviation Services says it is encouraged by signs of a pickup in mining-related flying after reporting a near doubling of first half profit as its efforts to diversify the business start to pay off.

The charter and fly-in/fly-out operator posted net profit after tax of $8.7 million for the six months to December 31 2016, up 77.5 per cent from $4.9 million in the prior corresponding period.

Revenue grew 10 per cent to $100.53 million, Alliance said in a regulatory filing to the Australian Securities Exchange (ASX) on Thursday.

Alliance managing director Scott McMillan said he was pleased with the first half results.

“It demonstrates the positive impact the diversified revenue will have on future shareholder returns,” McMillan said in a statement.

Alliance was in the midst of a transition into a “broad based aviation business” that encompassed tourism, aircraft sales, wet and dry leasing and spare parts sales, as well as its traditional income from long-term contract flying in the mining and resources sector.

To that end, Alliance has purchased 21 Fokker aircraft from Austrian Airlines to build up its inventory of spares for the out-of-production aircraft, secured more non-mining work such as a four-year contract to operate aircraft in Australia and New Zealand for US-based tour operator Tauck and reduced costs through the outsourcing of heavy maintenance work to Europe.

The company has also applied to the competition regulator for approval to form charter partnership with Virgin Australia Regional Airlines (VARA). However, the Australian Competition and Consumer Commission (ACCC) in December issued a draft determination proposing to reject the application.

In response, VARA and Alliance Airlines have told the ACCC they were willing to have the competition regulator monitor their charter operations in an effort to secure approval for a proposed partnership, which if approved would allow Virgin and Alliance to work together on joint tendering for corporate FIFO contracts.

In terms of current market conditions, Alliance said there was a pickup in contract flying hours in the second quarter of 2016/17, after a dip in the first quarter of the current financial year.

Flight hours for contracted/charter operations fell to 10,392 hours in the first half, 1,000 hours lower than in the prior corresponding period.

However, the decline was offset by growth in wet lease flight hours, which more than tripled to 1,702 hours in the first half, from 472 hours in the prior year.

“The resources sector is demonstrating signs of a recovery which will benefit Alliance,” the company said.

“There is positive sentiment in this industry with a number of customers talking about reinstating additional services.

“Wet lease income continues to improve and the aviation service business will develop further during the second half with new opportunities.”

No dividend was declared.

“The directors have resolved that no interim dividend will be paid as the business continues with debt reduction and to invest in future growth,” Alliance said.

“The payment of a year-end dividend will be considered towards the end of the financial year.”

On Wednesday, Alliance said it has secured a three-year contract extension with Newcrest covering the gold miner’s Telfer operations in Western Australia. The Newcrest renewal followed another contact extension for CITIC Pacific Mine secured in December 2016.

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