Alliance Aviation creates a new business and establishes a European presence
Alliance Aviation Services Limited announced (25-Nov-2015) that it has contracted to purchase Austrian Airlines entire fleet of 21 Fokker aircraft for a total consideration of USD15 million (a combination of shares and deferred cash payments). This fleet consists of 15 Fokker 100 and six Fokker 70 aircraft. Alliance said the agreement provides a "cost effective and guaranteed supply of engines and parts for its existing fleet". The carrier also noted that the acquisition provides "significant revenue opportunities in wet leasing, dry leasing, engine sales and leasing, spare parts sales and aircraft sales". No debt funding is required to undertake this acquisition although Austrian Airlines AG becomes a shareholder of Alliance under the agreement. The transaction will be earnings accretive in future years. Details are as follows:
- Strategic Rationale: Over the last 18 months Alliance has undertaken a strategic review of its operations as a result of reduced activity in the resources sector. This has resulted in a number of measures being undertaken that have improved our cost base and the efficient delivery of our services to our clients whilst at the same time looking for revenue opportunities. The purchase provides Alliance with a secure and cost effective supply of engines, spare parts and other major components for its own Fokker fleet of aircraft for the foreseeable future. This transaction is therefore an important measure to preserve the economic life of the existing fleet and to manage the supply and cost of parts over the next 8 to 10 years. This will also provide ongoing comfort to our Australian clients in relation to retaining our position as the number one on- time performer to the resources industry;
- European presence: This transaction will expand Alliance's footprint into Europe where it will be able to utilise these aircraft to provide cost effective:
- Wet leasing during the peak summer months when European Airlines experience heavy passenger demand. Alliance’s research indicates that the high number of hours flown in the peak of the European summer provides significant wet leasing opportunities;
- Dry leasing particularly in Europe, Asia and the Pacific for periods of short duration to meet passenger demand and unexpected maintenance
- Engine sales and leasing as replacements to existing airlines or for reconditioning and resale
- Spare parts will generate significant revenue opportunities both in Australia and overseas as the Fokker aircraft are still in extensive use. Presently there are 69 Fokker jet Aircraft that are in service within Australia and Papua New Guinea. Other potential markets include Europe, Asia and Africa
- Aircraft sales: The number of Fokker aircraft operational in Australia and Papua New Guinea has increased significantly over the past few years and Alliance will be able to provide aircraft for purchase should this trend continue;
- The Transaction: Alliance has contracted to purchase 15 Fokker 100 and 6 Fokker 70 aircraft from Austrian Airlines AG, a wholly owned subsidiary of Lufthansa AG. The aircraft will be delivered and purchased progressively over a 26 month period commencing in Dec-2015. They will be delivered to and owned by Alliance Aviation Slovakia s.r.o. – a wholly owned subsidiary of Alliance Aviation Services Limited. The total purchase consideration is USD15 million, with adjustments based on the final delivery condition of each aircraft. Payment will comprise an issue of new shares in Alliance to Austrian Airlines AG for a total value of USD 5.5 million and a later cash component of approximately USD9.5 million. The share component of this transaction will be issued based upon the average share price for the last three months and a USD exchange rate of $0.72. The total number of shares to be issued is 14,565,174 which means that Austrian Airlines AG will have a 12.04% interest in Alliance. The conditions of this issue also include a restriction that the shares will be held in escrow for 38 months from 25-Nov-2015. The cash component for the transaction will not commence until the second year of the delivery period and will be funded from the revenue opportunities generated by this transaction. The transaction will not require an increase in the company’s debt. Alliance reduced total debt by AUD11 million within the last twelve months and successfully refinanced the remaining debt this year with no significant change in terms. Alliance will continue with its strategy to reduce debt in the medium term;
- Strategic and Operational Advantages: Alliance has developed a strong technical and engineering relationship with Austrian Airlines. A subsidiary of Austrian Airlines, Austrian Technik Bratislava (ATB) was contracted this year to provide heavy maintenance servicing in Bratislava of the Alliance Fokker aircraft. This contract and the closure of the heavy maintenance bases in Australia has resulted in immediate and continuing cost savings to Alliance. Where the newly acquired aircraft are to be parted out, ATB will store the aircraft at Bratislava, and remove and store parts. Bratislava airport is 50km from Vienna airport. Alliance plans to operate its current fleet of Fokker aircraft in Australia and New Zealand for at least the next 8 to 10 years. Alliance has 15 F100 and 8 F70 jet aircraft (as well as 5 F50 turboprop aircraft) and is the largest global operator of the type.
- Shareholder value: Alliance does not expect any significant growth in the resources sector in this financial year. Alliance continues to provide the most reliable FIFO service in Australia and has recently continued to expand this offering to other industries particularly tourism and general charter. Alliance has retained all contracts and continues to renew contracts in advance of their renewal date. Alliance said: "The resources industry continues to provide challenges for both schedule and margin, however Alliance has continued to respond and adapt to these challenges. This new opportunity is consistent with our strategy as it is an important part of managing costs associated with the ongoing maintenance of the fleet and provides an opportunity to diversify its revenue as we support the Fokker fleet more broadly"
- Financier consent: The proposal has received the consent of both financiers of Alliance, ANZ and CBA. This proposal will increase earnings per share in subsequent years.
Alliance MD Scott McMillan said: “This purchase now provides Alliance with the opportunity to expand Alliance’s revenue streams into new areas and geographies and also provides a cost effective long term supply of parts to our existing Fokker fleet. These opportunities both in Australia and through the establishment of an office in Europe will allow Alliance to generate new income streams that are not directly related to the Australian ‘Fly in and Fly out’ (FIFO) resources sector”. [more - original PR]