Ending FY23 on a high, Alliance Aviation Services (ASX: AQZ) has reported a statutory profit before tax of $52.2 million, up from a loss of $7.1 million in FY22. Plus, its total revenue from operations stands at $517.2 million, with underlying operating cash flow down to $55.9 million from $91.8 million. Its flight hours have increased by 27,675 to 75,195 with 96% of those hours contracted aviation services (FIFO and wet lease).

Alliance’s Managing Director, Scott McMillan, stated, “During the second half of the 2023 financial year we started to realise substantial financial return from the multi-year investment in the E190 fleet and related additional resources. E190 activity increased by 160% when compared to the first half of the year with the majority of this growth in contracted wet lease services. This increase was achieved through a combination of additional fleet capacity becoming available and an increase in fleet utilisation.”

The underlying adjustment of $4.7 million relates to one off fees for the proposed Scheme of Arrangement pertaining to the Qantas acquisition offer and associated ACCC review. In April 2023, the Australian Competition and Consumer Commission (ACCC) opposed Alliance’s acquisition by Qantas. As per ACCC Chair, Gina Cass-Gottlieb, Alliance’s removal (by way of integration into Qantas) might lessen competition, thus “threatening increased prices and reduced service quality for customers”. Alliance and Qantas opposed this view, seeking additional explanation from the ACCC.

Additionally, the ACCC said no to Virgin Australia Airlines and Alliance Aviation Services’ request to keep working together and bidding for services for corporate customers, especially those who are fly-in fly-out (FIFO) employees. The conventional FIFO flights remain a fundamental support for the Company, ensuring a consistent and dependable stream of contracted revenue and earnings. The Company serves major active mining projects across Australia.

McMillan added, “While we have conducted wet lease flying in the past, it has been largely ad-hoc in nature. We are now focused on growing this segment under a contracted revenue model. The attributes that make us the best FIFO operator in the country are equally applicable for contracted wet lease: superior operating performance (material for customer service levels relating to on-time arrival), geographic infrastructure, low operating cost, availability of suitable aircraft and labour resources (including pilots).”

Wet lease revenue grew to $164 million, up 195%, the most significant revenue growth for Alliance in FY23. A wet lease is a contractual arrangement in the aviation industry where an airline provides an aircraft, complete crew, maintenance, and insurance to another airline. For instance, Qantas is a wet lease client for the Company, having 22 aircraft. Alliance’s total wet lease flying hours amounted to 45,112 in FY23.

Furthermore, the Rockhampton maintenance facility’s construction has wrapped up, involving costs of $17.8 million. The facility’s certification process is projected to conclude by September 2023, with the arrival of the first aircraft expected by the end of the same month.

In September 2023, the acquisition of an additional 30 E190 aircraft from AerCap will take place. These aircraft will be delivered as follows: 16 in FY24, 10 in FY25, and four in FY26. Out of these planes, up to 11 may be disassembled for spare parts. Initially, 10 will be allocated for Alliance contract and wet lease commitments, while the remaining aircraft will remain unallocated, earmarked for potential future expansion.

Despite the significant revenue and profit growth, the Company only had $22.3 million in cash at the end of FY23, up from $21 million in FY22. Perhaps that’s why it so eagerly sought the Qantas acquisition.

Accordingly, in FY24, Alliance will focus on cost control and ensuring that the Group’s profitability margins are maintained in a high inflation economy.