An airline stock bucking the trend while others still struggle: Alliance Aviation

An airline stock bucking the trend while others still struggle: Alliance Aviation

Summary

  • The airline industry is one of the worst-hit industries due to the nationwide lockdown.
  • Companies have witnessed a complete shutdown of operations impacting their financials; Virgin Australia has even filed for bankruptcy.
  • Alliance Aviation Services Limited has beaten the odds and has generated substantial business amid the COVID-19 induced lockdown.
  • The Company has witnessed growing demand from the resources sector, an increase in charter revenue, and has acquired several new clients.

The airline industry is in distress and is one of the worst-hit industries due to the COVID-19 pandemic. The aviation companies have incurred significant losses due to the complete stoppage of their operations. As the infectious disease is highly contagious, it became imperative to cease air travels (both international and domestic). The rising number of cases related to international travel history led the governments to take these drastic measures, hurting the financials of the aviation industry.

Do Read: Coronavirus outbreak: Can the Airline Industry regain the vigour?

In the absence of a vaccine or treatment for COVID-19, the best strategy has been to take all preventive measures to curb the virus spread. Methods such as social distancing and public gathering were implemented across geographies. As airports are a commonplace of mass gathering and the fact that several cases were linked to travel, the airline industry wan brought to a standstill. During the beginning of the transmission of the disease within countries, the airlines supported their respective governments to check every passenger and perform quarantine activity.

Due to the lockdown and ceasing of non-essential services, the airline industry in Australia has suffered to a great extent with Virgin Australia Holdings Limited even filing for bankruptcy as it struggled to remain operational with a heavy debt burden.

While the industry is facing massive challenges for its survival despite the improving scenario, one of the airline stocks listed on ASX is running against the wind - Alliance Aviation Services Limited (ASX:AQZ).

Interesting Read: Pandemonium for Airline Industry – Hope versus bankruptcy Projections

Let us deep dive into its business model, COVID-19 related measures and updates, recent activities, and stock performance.

With the economy stabilising, albeit slowly, AQZ recently assured that it expects to deliver Profit Before Tax for FY 2020 to be more than $40 million. This accounts for the diverse nature of the Company’s business model.

About AQZ:

Alliance Aviation Services Limited is an air charter operator offering FIFO (fly in fly out) services. The Company provides tailored air travel solution services to corporate, education, entertainment, government, mining, resources, sporting, and tourism sectors in New Zealand, Australia, South East Asia, and the Pacific Islands. In Australia, the operational bases of the Company are situated in Adelaide, Brisbane, Cairns, Darwin, Melbourne, Perth, and Rockhampton.

AQZ has been catering to the resources industry of Australia since 2002 and presently, supplies ad-hoc air charters to the industry. The Company offers the lease of its aircraft for short- and long-term period and services including crew and operating the aircraft. It also provides spare parts sourcing and management, spare engine leasing, and aviation consulting solutions.

Currently, AQZ operates a fleet including 13 Fokker 70LR and 24 Fokker F100 jet aircraft, along with 5 Fokker 50 turboprops. Additionally, the Company has an added five aircraft in storage which are available for entry into the fleet.

The Company is fully compliant with CASA (Civil Aviation Safety Authority) regulatory standards. Also, Alliance Aviation Services Limited became the first airline in Australia to be accredited with Flight Safety Foundation BARS (Basic Aviation Risk Standard), the Gold Standard. AQZ is Wyvern Wingman registered after the successful completion of Achilles audits.  

Trading Update:  On 20 May, the Company released its trading update and COVID-19 response. The share price rose by 24 per cent following the announcement.

Before the COVID-19 situation, the balance sheet of Alliance Aviation was in a strong position. The Company generated extra cash out of its forecast result, which will further enhance its financials and net debt, thereby reducing its gearing level. The Company enjoys maximum flexibility in utilising its assets as it owns all its aircraft.

Revenue:

While all the inbound tours of the Company are withdrawn, and it is expecting its flights to be fully operational not before FY 2022, AQZ has witnessed an additional demand for flights from the resources sector. Its existing clients even increased their flight schedules. Moreover, the Company has gained several new clients in the resources sector.

Alliance Aviation adopted several measures for its passengers since the beginning of COVID-19 pandemic. Such measures include cleaning of specific regimes, seating plans to incorporate social distancing, and aircraft filtration systems. The measures also include screening the health and testing the temperature of all passengers before check-in (at both mine sites and homeports).

The Company has gained additional demand due to its flexible approach, social distancing, and unavailability of flights from its competitors.

Regular Public Transport (RPT):

In Australia, the regional access to air services is an essential requirement, which has become even more fundamental during a pandemic. Alliance Aviation continues to have an uninterrupted service from Brisbane for keeping the community connected to both Bundaberg and Gladstone.

For cost optimization and to maintain viability, these services operate six times in a week and have been triangulated. Regional Airline Network Support Program by the Federal Government has been funding three services in a week. Funds from the Federal Government ensures the steadiness of RPT operations of the Company.

The services from Brisbane to Port Macquarie are withdrawn because of the restrictions at the interstate border.

The distribution and marketing agreement between Virgin and AQZ are operational in Virgin’s voluntary administration process. As per this agreement, Virgin passengers can book on AQZ’s RPT routes.

Employee Share Plan Issue:

To contribute to the success of the Company to its employees, AQZ will offer free shares having a value of $1,000 to eligible employees (which excludes the Senior Management Team).

  • The offer will be made to all employees working as full-time and part-time. These employees are the one which was employed for a complete FY 2020.
  • The shares are scheduled to be issued on 17 July 2020.
  • Eighty-five per cent of the Company’s employees are applicable for the offer.
  • Offer will be made in agreement with AQZ’s Employee Share Plan.
  • These shares will be escrowed for three years from the issue date.

Airline Services Contract with South32:

On 1 May 2020, AQZ notified the market that it had signed a new airline services contract with South32 Group Operations Pty Ltd., which is an agent for each of the following entities:

  • Groote Eylandt Mining Company Pty Ltd (GEMCO)
  • South32 Cannington Pty Ltd (Cannington)

 

Since 2006, AQZ has been delivering airline services to the GEMCO and Cannington mine sites. As per the new contract, the services are revised for a tenure of ten-year (from 2020 to 2030).

Stock Performance: On 25 May 2020, Alliance Aviation shares last traded at $2.700, in line with the previous close. The stock has generated 1-month and YTD return of 36.36 per cent and 6.72 per cent, respectively.

NOTE: $ represents Australian Dollars unless stated otherwise.

 


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