John Menzies Broadens Aviation Business Footprint

August 22, 2013

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While the headlines this week may have focused on the slight decline in first half profits at John Menzies, the Edinburgh-headquartered company actually took two steps forward in its aviation business.

Two acquisitions by the company take it into South America and strengthen its position within the Australian market.

Menzies bought Decasol, a Colombian ground and cargo handling business for up to GBP£6.4 million (USD$10 million), describing it as a "bridgehead for further opportunities in other countries" in South America.

Decasol already handles 60,000 aircraft turnarounds and 50,000 tonnes of cargo for existing customers of the UK group.

Craig Smyth, managing director of Menzies Aviation was reported as saying: "Decasol is a very exciting new development into an attractive market, as well as expanding our relationship with some key Latam low cost and national carriers."

Menzies has also done a deal to pay GBP£7.7 million (USD$12 million) for Australian ground-handling business Skystar which operates at eight airports throughout Australia and New Zealand, handling 17,000 turnarounds a year for 10 airlines.

The company said the two deals would be earnings-enhancing from next year. Menzies' recently appointed finance director Paula Bell was quoted as saying that the businesses would bring about GBP£15 million of revenue into the group.

The management hopes that the acquisitions will prove significant steps forward for a a division which delivered a 10 percent increase in operating profit to GBP£15.5 million (USD$ million).

They are operating in a highly competitive business environment as airlines apply all the pressure they can to keep ground-handling and turnaround costs as low as possible.

But Menzies said it won 50 contracts and only lost 15 in the first half with only four lost on service pricing.

While admitting the continued downward pressure on prices, Menzies said: "However, our track record reinforces our belief that customers choose and stay with Menzies Aviation for our superior service offering."

Ground-handling currently accounts for 63 per cent of the aviation business and is likely to grow in importance.

Part of the group's confidence comes from the fact that it has applied some surgery to the business closing some cargo operations in the US and UK.

Over the half year cargo tonnage shrank by 14.5 percent but like-for-like business, stripping out the closures, was down only 2.6 percent, while operating margins rose from 4.7 percent to 6 percent plus.

While the shares fell back on their half year results earlier this week they are up about 17 percent over the year marking the fact that the market believes that John Menzies is heading in the right direction.

(Ken Symon)