Aviation high flyers

Loss making airline Silverjet is the brainchild of entrepreneur Lawrence Hunt who is hoping that the introduction of the first British all-business class, low-fare airline taking people to the Big Apple will lead him to the promised land of growth and profits.

Hunt floated Silverjet in May 2006 following strong institutional support – £25.3 million was raised at 112p (impressive for a start-up airline) – and Silverjet recently lured a further £26 million from investors through an oversubscribed placing at 180p to top up working capital coffers. Happily, the launch flight – from Luton to Newark, New York – took place in record time in January.

Silverjet offers a £999 standard return fare (compared with a typical £3,000 offered by rivals), and is ‘utterly focused on giving transatlantic passengers an outstanding business-class service at unbeatable value for money’. Passengers can turn up at a Silverjet terminal 30 minutes before a flight, sleep in a luxury flat bed and eat what they want, when they want.

The company, which claims to be the world’s first airline to become carbon neutral on all flights, announced strong passenger and traffic statistics for April, is to add an extra daily return service between London and New York from July and is wowing followers with its forward bookings.

Should existing routes become profitable, other low-fare business-class routes could be developed. However, with profits distant this alluring, disruptive airline play is for high-risk investors only.

Advent’s Australian allure
Advent Air, the £27 million owner and operator of Skywest Airlines, serves the mineral and oil and gas fields of Western Australia. It is already very profitable and represents a unique play on the sector.

The airline runs flights that combine a traditional passenger transport business with scheduled charters for resource sector clients (BHP Billiton, Rio Tinto, Portman, et al), enabling the planes to utilise capacity. The service is perfect for large resource customers as they are required to support local communities in consideration for mining rights to certain resources.

Advent’s figures are flying in the right direction, with profits soaring three-and-a-half times higher to £1.46 million for the half to December on sales lifted 18 per cent to almost £20 million and a recent update revealing continued emphatic profits and sales growth during the nine months to March.

Jeff Chatfield, chairman, insists that scheduled charter growth opportunities are considerable, with more than AUS$80 billion (£33.2 billion) in major resources projects under way or planned in Western Australia alone, nearly all of them dependent on air transport from Perth to remote mining sites.

Fuel costs are a concern, as is the risk of a commodity price downturn, but an intelligent hedging policy to mitigate fuel price rises is in place and progressive dividends and share buybacks should support the group’s valuation. Profitable and growing fast in a niche market, the shares have appeal.

Air Touring – off to a flyer
Touching down onto PLUS with an oversubscribed £1.1 million funding in October was fast-growing turboprop and jet distributor Air Touring Group.

Based at Biggin Hill Airport in Kent, the group is the exclusive UK and Ireland distributor for Columbia, Socata and Javelin aircraft – typically bought by entrepreneurs and celebrities. Although aircraft are now high-volume items, it is able to complement sales with earnings from repairs, spares, technical assistance and flight training consultancy. Towards the tail end of February, chief executive Michael Pearce announced encouraging maiden figures for the year to September reflecting a refocus on new aircraft sales.

This year, expect the group to move from losses of £100,000 to adjusted pre-tax profits of £700,000 from sales of £9.1 million (£4.4 million), with earnings coming in at 5p. Trading on a lowly forward multiple of 12, Air Touring could climb higher.

Diversified aviation plays
Logistics business Dart boasts aviation exposure through low-cost airline jet2.com, which flies passengers from the UK regions to European destinations. Loss making in the winter and profitable in the summer, Jet2.com is benefiting from customer trends towards flexible scheduled flights for their leisure needs.

Interims to September revealed an underlying profits rise to £22 million (£14.7 million), allowing for a healthy dividend increase, and good year-on-year growth is expected when annual numbers come out. This is despite ‘accelerated investment’ in new routes that prompted a pullback in forecast profits. The historic p/e of 4.1 suggests the market is missing a trick.

Likewise, Plymouth-headquartered Sutton Harbour, which offers investors exposure to aviation thrills via Air Southwest, with seasonality and fuel price volatility mitigated through Sutton’s thriving property regeneration business.

Results for the year to March revealed pre-tax profits growth to £4.2 million (£3.4million) and earnings surged 23 per cent to 12.1p.

Lastly, FTSE Fledgling Air Partner merits a mention as it forages a highly profitable path in the air charter broker market. Interim figures to January revealed a 118 per cent-plus profits surge to £3.5 million and a ten per cent dividend rise to 6.7p, underpinned by 40 per cent growth in the group’s cash balances to £17.3 million.