My observations from Thursday’s announcement:Positive that...

My observations from Thursday’s announcement:

• Positive that earlier underlying NPBT guidance has been bettered. Even better that the underlying NPBT doesn’t contain any allowance for the costs of building capacity. The half year NPBT was $13.2m so the second half underlying NPBT appears to be $43.7m. Given capacity continues to build, will be interested to see if AQZ releases guidance for FY24 on 9 August or at the AGM.
• The reasoning given for the purchase of another four E190 airframes that will be operational over the next six months or so (I.e. AQZ has a capacity shortfall in the first quarter of 2024) suggests that demand is continuing to grow and AQZ is not having an issue deploying the additional capacity. Presumably a growing business that will produce growing profits.
• Compared with the recent REX profit warning where the cited a global shortage of pilots and engineers along with supply line shocks post COVID as reasons why they had to reduce flying hours, it doesn’t appear that AQZ is suffering the same pressures. Maybe it’s a growing AQZ that it adding to REX’s ability to retain and recruit pilots and engineers.
• Great to see the contract flying to Phosphate Hill for IPL renewed for a further five years. Touch wood, but AQZ has a fantastic run rate in renewing contracts for its FIFO resources sector work.
• The footnote on page 2 suggests that up to 11 of the E190’s to be purchased from AirCap will be parted out. While the original announcement of the purchase back in February did allude to some of the aircraft being used for parts, up to 11 is a significant number. The need for the additional four airframes (I.e. aircraft without engines) announced Thursday is presumably a result of this higher that expected outcome of the non-flying aircraft from AirCap. Note the February announcement did say the purchase price of each aircraft from AirCap would be based on its maintenance status the week before handover of each aircraft so hopefully AQZ not wearing a loss if 11 aircraft are still fit for (much) flying. The growth of AQZ’s spare parts business to include E190’s is a good development.
• The additional USD 100m facility is good news. The business is now strongly cashflow positive so these debt levels appear manageable. My prediction is that we will see a small (maybe 5 cps) dividend. Going forward there should be sufficient cashflow to service and pay down debt and get into a regular dividend paying position.
• No comment was forthcoming of the QAN scheme of arrangement and we haven’t heard anything from QAN if they are going to challenge the ACCC decision through the courts. AQZ continues to be bound by the scheme agreement until December 2023. Given the lack of commentary, my prediction is that there are some discussions ongoing, although I suggest it would be an unlikely outcome if QAN can overturn the decision.