Rex – half year financial results for FY2016

Although the results were disappointing, it isn’t as bad as they first appear to be. Yes, they made a loss but the loss was mainly due to impairment of goodwill and specific assets (one-off items).

The highlights of the half year results are as follows:

  • Accounting loss of $11.3 million. Loss mainly due to impairment of $13.4 million from goodwill and fixed assets related to Pel-Air’s defence contract which has ceased. The termination of this contract was previously flagged. The surprise to me was the quantum of the contract, as it was mentioned in the Q&A session that the contract was worth about $2 million in operating profit.
  • Revenue and passengers numbers are up marginally from the previous half year. This is primarily due to the commencement of the Queensland regulated routes. Passenger numbers have only increased by 3,655 which is tiny considering the Queensland routes should have added about 19,000 passengers over a 6 month period (reported to have 38,000 annual passengers).  I believe the small increase is due to: 1) falling passengers in the rest of the network offsetting the uplift in Queensland passengers and 2) Queensland routes having lower than expected traffic due to the mining downturn.
  • Purchased 2 Saab 340 for the commencement of the WA routes (28 February 2016).  The rights for this route are for 5 years. As noted in my last post, the WA win is a significant for Rex as the two WA routes are reported to have 103,000 annual passenger traffic (10% of current annual passengers).
  • AAPA has been certified by the Civil Aviation Authority of Vietnam, this clears the way for the cadet pilot training to commence for Vietnam Air.  It has taken a few years for AAPA to sign up its first customer and hopefully this will provide confidence for other airlines to follow suit.
  • Purchased a hanger in Wagga Wagga for aircraft painting and refurbishment. This will provide some cost savings as the work can now be done locally.

Excluding the one-off impairment charges (including loss on fuel swap) result in an underlying profit of $3.3 million (HY15: $3.9 million).  It appears that the loss of the defence contract was offset by the new Queensland routes. On a brighter note, salaries and wages have only marginally increased from HY2015. The EBA negotiations are still on-going and this loss result may help dampen the union’s demands.

So overall disappointing result given that passenger numbers are still weak. However, there are some tailwinds from the new WA route commencing and lower fuel prices.

 

 

 

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