BBA Aviation Trading Statement and Acquisition

Published on : Tuesday, November 8, 2016

BBA AviationBBA Aviation plc (“BBA Aviation”, “the Group”), a market-leading provider of global aviation support and aftermarket services, is pleased to announce a trading statement for the period from 1 January to 31 October 2016, and an acquisition by our Ontic business.

 

Trading Statement – Continuing operations

The Group’s trading and cash flow remains in-line with expectations, with revenue up 27% year-on-year, reflecting the contribution from the Landmark acquisition completed in February and good organic growth at Signature.

 

In Flight Support, the enlarged Signature revenues grew 56% and 4.1% on a like-for-like basis (constant currency, adjusting for lower fuel prices and before acquisitions). Signature continued to deliver good market outperformance and drop-through and Landmark is on track. North American B&GA flight movements remain modestly up, recording 0.6% growth in the year to end September (same period last year: 0.7%).

 

The integration of Landmark Aviation continues to progress well, with systems roll-out to new US FBO locations completed in September, ahead of schedule. The vast majority of actions required to achieve at least $35 million of annual cost savings are now complete. Signature development projects are also on track, and new Signature Select locations were added in Farmingdale, Long Island in September, and since 31 October, in Bogota, Columbia.

 

Aftermarket Services revenue was lower than the prior year period due to decline in ERO sales. Ontic, our legacy support business, continues to perform well, with increased activity materialising as expected in the second half of this year, and a good contribution from licenses acquired in 2015. Ontic continues to assess a pipeline of opportunities in relation to new products and license adoptions, signing a new agreement in the period, in addition to agreeing the acquisition detailed below. Conditions in ERO’s markets remain challenging and while organic revenues were down 10.7%, we did see a small improvement in ERO’s operating performance since the half year.

 

Trading Statement – Discontinued operations

In September, we announced the sale of ASIG, our commercial aviation services company, for $202 million. The transaction is subject to customary approvals and completion is expected around the end of 2016. ASIG, now classified as a discontinued operation, reported organic revenue growth of 1.0%, with continued good operational performance. This disposal further enhances BBA Aviation’s focus as a high quality, strongly cash generative market leader in the provision of business and general aviation and maturing aerospace platform services.

 

Acquisition of part of GE Aviation’s avionics business

Ontic, BBA Aviation’s legacy support business, has reached agreement to acquire a portfolio of legacy avionics products (the “Business”) from GE Aviation, for a cash consideration of $61.5 million on a cash and debt free basis, paid from existing financial resources.

 

The Business comprises a portfolio of legacy avionics parts servicing the military and commercial aviation markets, including electro mechanical, barometric, gyroscopes and electronics products. Key platforms include Boeing 737, Sikorsky Sea King and Leonardo AW101 helicopters, Lockheed C130/J transports and BAE Hawk aircraft. The portfolio has a strong fit with Ontic’s existing business, and the acquisition is aligned to Ontic’s strategy to deliver continued profitable growth in mature avionics and electronics products with high intellectual property content. With significant experience of acquisitions including a similar business bought from GE Aviation in 2011, Ontic has proven processes to ensure the seamless integration of new product lines, which will be supported in this case by a transitional services agreement with GE Aviation.

 

The Business employs around 90 employees at its principal location adjacent to Ontic’s existing site in Cheltenham, UK, and has two further sites in Florida, US and Brisbane, Australia. The relevant work will relocate from the latter sites to Ontic’s locations in Chatsworth, US and Singapore respectively. The transaction is expected to complete early in the New Year, subject to the satisfaction of certain conditions.

 

Financial effects

In its first full year of ownership, the Business is expected to contribute approximately $7.5 million of operating profit after expected year one transition costs of approximately $1.6 million, and will exceed the Group’s ROIC hurdle. In addition to the $61.5 million capital needed to acquire the Business, we anticipate approximately a further $5 million of capital expenditure in the first year.

 

Simon Pryce, Group Chief Executive of BBA Aviation, said:

“Despite our primary markets only showing slow growth, the Group is performing as anticipated with continued outperformance from the enlarged Signature business and good margin drop through. The integration of Landmark has gone well, with synergies ahead of plan, and actions completed that will drive annualised synergies of at least $35 million in 2017. With the enlarged Signature business allowing us to extend our industry leading service and network management abilities to over 200 FBOs, we continue to see opportunities for continued market outperformance. Our Aftermarket division is performing as we expected with Ontic delivering the anticipated second half uptick in revenue and ERO showing signs of stability and small improvement despite tough markets.

 

“Today’s acquisition is a strategically significant deal for Ontic – a business that has grown significantly since the Group acquired it in 2006. Ontic is already the leading provider of high-quality, cost-effective solutions for the continuing support of maturing aerospace platforms and we look forward to expanding our product offering in legacy avionic parts.

 

“In a year of great transformation, the Group is on track to deliver good further progress in 2016.”

 

Source:- BBA Aviation

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