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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.
Dave
says:Sounds to me like good news for Qantas. They were previously overpaying and now the rate is closer to where it should be
Adrian P
says:Cobham having a separate entity in Australia would suggest they have been squeezed so hard that they wish to protect the business in Europe and the middle east.
john doutch
says:Doesn’t QF also undertake full maintenance in house. (in Canberra??) whereas before they didn’t??.
Craigy
says:@ John Doutch. Yes the contract for maintenance was won internally. Hence the write down in the Cobham contract. The 10 year extension in the contract suggests under current fleet planning, the B717s will be around for at least another 10 years maybe more
Airlink85
says:I would of thought a smarter move for qantas was to switch the b717 flying to their now fully owned subsidiary, Network Aviation.
I still find it funny when staring at boarding passes that Qantas still claiming “operates by National Jet Systems”, despite the rebranding to Cobham almost 10 years ago now.
Surely the cheaper contract with Cobham vs the work reposition to Network Aviation would be more expensive for the Qantas group as a whole and overall hive greater operational effectiveness for the QantasLink brand.
Lardy
says:National Jet Systems runs the 717 AOC so that is the correct name.
Clayton, Mike
says:You sure Cobham has an Embraer airplane in it’s fleet still?
Bruno Lancome
says:The only reason they made any profit is that they don’t provide their cabin crew with any meals at all. Send them on a 4 day trip and they’re expected to BYO. A race to the bottom? Cobham are there already
Mike
says:Interesting point Mike Clayton. A quick search of rego VH-NJA shows the Cobham E190 departed Port Headland on 24 Feb 2018 for Indonesia.
On 27 Feb it landed in Warsaw.
Maintenance?! Or sold to a new owner? Maybe someone from Cobham can drop a reply for we curious readers?
MERVYN CROWE
says:COBHAM E190 VH-NJA has gone to BA CityFlyer as G-LCYZ to be based at LCY., went to Warsaw for maintenance…amazingly! Not yet in service.
The PER/BWB/PER operation has reverted to the 146.