Airways NZ forecasts 2015 profit to rise 27%, after missing 2014 target

Wednesday 20th August 2014

Airways Corp. of New Zealand expects to boost profit 27 percent this year, after missing its target last year, on optimism the state-owned air traffic controller's global commercial partnerships will start to bear fruit.

The Wellington-based company forecasts net operating profit after tax of $15 million in 2015, after posting a profit of $11.8 million in the 12 months ended June 30, short of its $14.6 million target, according to its annual report. In 2013, profit of $21.8 million was boosted by a $12.8 million gain from the early termination of an agreement for the sale and leaseback of equipment, while in 2014 result included a $1.9 million write-down on land in Queenstown.

Airways, which controls 30 million square kilometres of South Pacific airspace, adopted the slogan 'Making A New Airways,' or MANA, in July 2012 following a strategic review which aims to move it away from traditional project-based revenue towards growth opportunities in global joint ventures and air traffic control related service businesses.

In 2014, its core business air traffic control services unit increased profit 70 percent to $10.2 million in 2014 as revenue rose 13 percent to $159.9 million after price increases and a 1.9 percent increase in flight volumes following four years of flat volumes. It cut costs by $1 million after reviewing its insurance, property, banking and hardware expenses.

However, its commercial businesses posted a 47 percent drop in profit to $1.6 million, lagging behind its $5.7 million forecast. The ancillary services unit increased profit 26 percent to $2.9 million, meeting expectations. But the company's global services unit lagged expectations, producing no market leading business, with revenue falling 28 percent to $6.8 million, causing the unit to post a loss of $1.3 million from a profit of $700,000 a year earlier.

"The loss reflects a shortfall in forecast revenue as well as the investment in starting up international partnerships and the transition away from one-off consulting contracts," Airways said. "While international markets are competitive, the work during the year to develop partnerships has positioned the business for growth."

Airways formed new global partnerships with Societe Internationale de Telecommunications Aeronautiques and GroupEAD during the year. Airways, SITA and Civil Air Navigation Services Organisation have partnered to provide the Flightyield billing system to deliver cloud-based air navigation services revenue management.

The company also launched a partnership with Madrid-based GroupEAD Europe in July this year to provide aeronautical information management and aeronautical design and development services and products to the Asia Pacific region.

Its training business expanded, securing franchise agreements with Emirates Aviation University in Dubai, the Inter American University of Puerto Rico and the Civil Aviation Management Institute of China. The partnerships need upfront investment but will provide the training business with greater scale and reach, Airways said.

Capital expenditure rose to $33.8 million from $24 million the year earlier as it invests to improve its service, including using satellite-based navigation to enable more efficient, curved landing approaches.

A so-called SMART approach trial to Auckland International Airport ended during the year, with a total of 1,704 Smart approaches flown, saving 25,560 nautical miles of distance, 909,800 kilograms of carbon dioxide, and 234,000 kilograms of fuel worth an estimated $377,000. Airways said management of aircraft noise continues to be an issue.

The company also went live on the Southern Surveillance coverage project in December, which uses technology to provide aircraft information positions at 27 sites in Southland and Otago, some of the country's most mountainous and remote terrain.

"For the first time ever, Airways and airlines now have radar-like coverage down to ground level at Queenstown and low levels over much of the South Island and well out into the Tasman Sea," the company said. "This improves both safety and flight efficiency in a region with extreme terrain and weather conditions, which has experienced significant traffic growth."

Airways had two incidents involving light non-passenger aircraft in the past year, missing its target for zero near collision incidents of any aircraft type. Refinements to processes were made as a result of a review of operations after the incidents, it said.

In its 2014 accounts, the company wrote down $237,000 of goodwill after paying $1 to buy the remaining half of its Aviation English Services joint venture that it didn't already own. The venture provides English language aviation training materials to the industry.

Airways paid a $3 million dividend to the government, up from a $2 million payment last year.

BusinessDesk.co.nz

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