13 February 2015, Written by Laura Daquino

ALLIANCE Aviation Services (ASX: AQZ) - a company with 90 per cent of its revenue caught up in FIFO contracts - is bearing the hard results of a slowing mining boom, but with sights firmly set on another flightpath in tourism.

Fly in fly out contracts have curbed AQZ's half year results, with the company announcing an underlying NPAT of $6.3 million from a total revenue of $105 million this week, 

This is a reduction on a $7.1 million underlying NPAT in the previous corresponding period. The company also saw an eight per cent reduction in staff.

To soften the impact of a resources sector slowdown, and appropriately raise revenue, the charter flight company has introduced a tourism-related charter service to its business model.

AQZ currently sees more than 40 per cent of its revenue come from copper, gold and iron ore contracts.

AQZ CEO and managing director Scott McMillan (pictured right) says two of the company's aircraft are now "fully dedicated to tourism" and he is "open to adding a few more".

"Only in the past month have we set about this new direction by operating in-bound for Tauck, a large US-based company, with one of our aircraft now based out of Essendon and the other in Auckland," says McMillan. 

"Some of these top-tier tours are booked 18 months in advance which meshes well with our medium-term planning orientation.

"We are pretty excited considering it's our first entry into an overseas market and it seems to be progressing well.

"While we don't expect tourism to ever make up 50 per cent of our business, we are fortunate that by dealing with planes our revenue model is very moveable, and we can change it quite easily."

AQZ has announced in the medium term it will be amending its maintenance schedule and amount of capital investment required, as well as reducing its fleet and debt. 

In an announcement issued by the company, it stated that implementing these strategies will make AQZ become "stronger and more resilient", with an "anticipation of reinstating shareholder dividends".

The AQZ operational fleet is expected to be reduced by three, down to 24 operational aircraft, over the next four months. The company has 32 aircraft in total. 

As a result of the above, the company has already elected not to pay an interim dividend at the end of this full year.

The company still has 15 material contracts underpinning its performance, and from this expects to achieve an underlying NPAT of $13 million for full year 2015 and boost this further thereafter. 

McMillan couldn't disclose who AQZ's current customers are, except that they are "top-tier mining companies with strong balance sheets".

AQZ shares were trading down 5.66 per cent at 51 cents following its half year announcement.

Author: Laura Daquino Connect via: Twitter LinkedIn





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