A new “repriced” contract with Qantas to operate regional services has squeezed profits for Cobham Aviation Services.
The British-based aerospace and defence group announced in London last week that interim operating profit for the aviation services division for the 2017-18 financial year had fallen from £40.6 million to £22.8 million (A$40.6 million).
Revenue edged up £9.4 million to £366.6 million (A$653.3 million), but margins were almost halved to 6.2 per cent.
Cobham plc chief executive David Lockwood said the profit decline was largely caused by the “repriced” contract with Qantas.
In July 2016, Qantas and Cobham announced a 10-year extension of the contract under which Cobham provides flightcrew, cabin crew and some line maintenance for the QantasLink fleet of 20 Boeing 717s.
Cobham said the deal was worth $A1.2 billion.
However, Lockwood told the London Stock Exchange the new contract had “an adverse impact” on Cobham’s Adelaide-based Australian operations.
While this impact was primarily the cause of the lower result for the aviation services division, the parent company’s division also suffered from reduced flying for resources companies and a lower Australian dollar exchange rate.
And its income was reduced by the winding-down of helicopter services in Trinidad and Qatar.
Looking forward, Lockwood said there were early signs of revival in the Australia resources sector – where Cobham provides fly-in/fly-out services.
“Aviation Services won a number of contract awards in 2017, including the commencement of operations for the Oz Minerals fly-in, fly-out mine at Prominent Hill,” he said.
“Significantly, the sector also secured a five year contract extension to continue its operations for Chevron, albeit at a lower rate of flying activity.”
Cobham provides services between Perth and Barrow Island for petroleum giant Chevron’s offshore Gorgon project. The extension was valued at $160 million.
“This agreement, along with the 10-year contract extension for Qantas, provides a foundation on which to re-build the commercial business, when demand increases,” Lockwood added.
Also on the positive side, the four Bombardier Challenger 604 aircraft were now fully operational for the company’s Australian Maritime Safety Authority 12-year, $A640 million search and rescue contract. This had brought a revenue benefit for the company.
Lockwood said Cobham was restructuring the division to have an Australian-based business and a UK-based business covering Europe, the Middle East and Africa. The present arrangement covers all commercial flying activities globally.