Stock Brief - Air Partner (LON:AIR)

Aviation services company, Air Partner, is one of the few companies in its industry to have successfully withstood the impacts of the Covid-19 pandemic and to emerge in a stronger position. The diversity of the group’s operations has given the company a unique advantage in some of the most challenging market conditions and it looks set to thrive with the re-emergence of international travel.

Providing charters for commercial aircraft and freight services, Air Partner played a key role in the international response to the Covid-19 pandemic. Not only was the company involved in global repatriation and evacuation efforts, but it was also able to ensure that critical healthcare supplies were delivered in a timely manner around the world. This enabled the company to still turn a profit in one of the worst affected industries.

Whilst revenues from the Group Charter and Freight divisions are now beginning to fall, Air Partner is seeing heightened levels of demand for its Private Jet division once more as travel restrictions continue to ease.

After a £7.5 million equity raise last year to strengthen the balance sheet and take advantage of market opportunities, the company has continued to make strategic acquisitions to enhance and diversify its unique business offering, and fortify its competitive moat.

However, given the company’s limited organic growth in recent years and its dwindling Covid-19 related revenues, will Air Partner’s share price continue its ascent?

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Profile

What are the company's principal business activities, how does it generate its revenues/profits?

Air Partner's 4 key business segments fall under Private Jets, Group Charter, Freight and Safety & Security.

The Private Jets division offers charters for smaller aircraft (up to 19 people), which are typically used by corporates or high-net-worth individuals. Through the company’s JetCard membership programme, which offers greater flexibility and perks for private jet charters, the company is able to generate lots of repeat business from regular flyers.

The Private Jet division currently accounts for the largest portion of the company's profits, after a surge in bookings over the last 6 months, particularly in the UK and US. The Gross Profit by Division contribution (from the company’s H1 2021 interim results) can be seen below.

Source: Air Partner H1 2021 Results Presentation

During the initial outbreak of the Covid-19 pandemic, Air Partner’s Group Charter division played a key role in the repatriation and evacuation of individuals across the globe. The company’s charter team was responsible for the evacuation of 300 British and EU nationals who were stuck in Wuhan, China during the initial onset of Covid-19.

By offering Group Charters across every type of aircraft, Air Partner is able to appeal to a large number of clients, such as governments, multi-nationals, sports teams and individuals. After seeing a huge rise in demand for Group Charter services during 2020, revenues and profits have tailed off as Covid-19 related demand subsides.

The group’s Freight services provide charter and part-charter services for cargo aircraft, such as Learjets and the giant Antonov 225. The division primarily focuses on providing key services such as emergency air drops and time-critical doot-to-door freight delivery.

After strong Covid-19 induced tailwinds, the Freight division has seen profits fall quite substantially over the past year. However, the division’s profit generation still remains 100% above pre-pandemic H1 2019 levels. This is due to the continued demand from governments, as well as the automotive and healthcare industries for timely and efficient freight services.

The Safety & Security division saw the highest levels of profitable growth in H1 2021, with a 69.6% rise in profits. Through Redline & Baines Simmons the division provides critical training, consulting and managed services to clients in order to ensure that all risks and vulnerabilities are addressed and the toughest compliance and regulatory performance challenges are adhered to.

This rise in profitability over the past 6 months has been driven by a series of notable contract wins and renewals, from customers including international airports, public transport operators, regulatory bodies and government support agencies. Furthermore, one of the company’s recent acquisitions, CHS Engineering, has already been seamlessly integrated into the group’s Safety & Security operations, and has already contributed positive earnings.

Size, Sector & Exchange

At the current share price of 91p, the market capitalisation stands at just under £58 million, classifying the company as a small cap. Liquidity isn’t a major issue, with an exchange market size of 5k meaning allowing you to buy over £4,500 with relative ease, however, the spread is quite large, typically standing at over 5%.

As an aviation services company, Air Partner forms part of the Industrials sector and under the Passenger Transportation Services industry group.

Air Partner trades on the London Stock Exchange, as part of the FTSE sector Travel and Leisure, in the Airlines sub-sector. The company is also in the FTSE Fledgling index.

Business strategy

Air Partner is one of the industry leaders in the aviation services market. After 60 years in operation, the company has built itself a strong reputation and has established some key long-term relationships. Part of the group’s business model has focused on attracting and retaining a high-quality diversified global customer base, which ranges from blue-chip companies and high net worth individuals to national governments and the military.

The strategy outlined by the company states that: ‘We aim to grow organically by capitalising on global aviation market opportunities, cross selling our services between divisions, driving internal efficiencies and investing appropriately. We are also successfully diversifying earnings with investment in the less cyclical Safety & Security division.’

Due to the diversity of Air Partner's operations, it is able to offer services to a wide range of customers, including airline operators, military & civil organisations, airports, oil & gas companies, the sports industry, and corporate clients to name a few. Furthermore, the successful integration of its acquisitions has expanded the company's service offering in a way that enables it to capitalise on cross-selling its services across divisions and encourage repeat business.

History & Growth

Air Partner was founded in 1961 as a school for military pilots who wanted to convert to civilian flying. In the subsequent 60 years, the company has transformed itself into one of the world's leading aviation services group, specialising in aircraft charters and aviation safety & security solutions, which it now offers in 18 locations around the world.

The company has grown organically and through a strong track record of acquisition activity. In the last decade alone Air Partner has acquired Cabot Aviation & Baines Simmons, Clockwork Research, SafeSkys, Redline and more recently, CHS Engineering & Kenyon International. This acquisition strategy has allowed Air Partner to diversify its revenue & earnings streams into less cyclical markets, such as Safety & Security solutions.

Company Timeline

1961-1980: Founded by Tony Mack Senior as Airways Training.Air Training School - converting military pilots to civilian aircraft.

1980-1990: Launched new concept in charter broking. Air London floated on the London Stock Market.

1990-2000: Paris office opens. Cologne and Fort Lauderdale offices open. Group re-branded as Air Partner and Air Partner Travel Consultants are launched.

2000-2010: 24/7 Operations department opens in LGW. Air Partner involved in Military movement as part of the Gulf War. JetCard product launched.

2010-2020: Mark Briffa takes over as CEO. Istanbul offices open. Acquisition of Cabot Aviation & Baines Simmons. Launch of Customer First campaign. Acquisition of Clockwork Research. Acquisition of SafeSkys. Acquisition of Redline.

2021: Asset purchase of CHS Engineering Ltd. Acquisition of Kenyon International Emergency Services Inc.

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Recent News

Half Year Results and Trading Update - After a strong H1 performance, and promising start to H2, ‘the Company now expects performance for the full year to 31 January 2022 to be materially above market expectations.’

Highlights during H1 included the following:

Baines Simmons and Redline secure new contracts - Air Partner recently reported notable contract wins, as momentum continues to build in its Safety & Security division.

Baines Simmons, the group’s aviation safety and fatigue risk management specialist was awarded a 12 month contract from the UK’s largest ferry operator Caledonian MacBrayne.

Meanwhile, Redline, which focuses on the provision of global security solutions, secured a 12 month contract extension with Manchester Airports Group, as well as a new contract with Gatwick Airport. This builds on recent business wins with Doncaster Sheffield Airport, Liverpool John Lennon Airport, Edinburgh Airport and Teeside International Airport, as demand from airports continues to ramp up.

Acquisition of Kenyon International - One of the world’s leading emergency planning and incident response companies since its founding in 1906, Kenyon International was acquired by Air Partner for $11.7 million on the 27th August 2021.

Funded via the group’s existing cash and debt facilities, Air Partner outlined its rationale for the acquisition:

Catalysts

Trends & Events

Whilst Air Partner’s Group Charter division is likely to benefit from the pent up travel demand seen around the world, its Private Jet division could be the real winner post-Pandemic.

According to reports, there is currently record demand for Private Jets, with 69% of current private aviation users expecting to fly more post-Covid than prior to the pandemic. It seems that the pandemic has only acted to further the need for efficient, luxurious and trouble free travel for the super rich and Air Partner will be a big beneficiary of this trend.

The Covid-19 pandemic has also highlighted the need for timely freight transportation, especially in regard to medical goods. Whilst Covid-19 related revenues will subside, freight transportation via airplane charter may become a preferred means of transportation for time sensitive and critical goods in the future.

Finally, as airports reopen and more people travel, safety & security services will become paramount to ensure the smooth running of all airport operations. This should provide a further boost to Air Partner’s Redline, Baines Simmons and newly acquired Kenyon International brands.

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Risks

What risks does the business face?

Operational - Providing plane charters requires timely, efficient and reliable services to be at the forefront of the company offering. Should logistical, technical or any other issues arise, as they often do in the aviation industry, then the reputational damage from just a few mishaps can become quite severe.

Acquisitive - As demonstrated by the size of the Kenyon International acquisition, it seems that Air Partner is now more prepared to take on greater risks in order to facilitate the company’s growth strategy. As with all acquisitions, there are always integration risks, but as acquisitions become larger they can also burden a company’s balance sheet.

Competitive - There has been some consolidation in the industry, and should this continue, Air Partner will need to prepare itself to compete on not just its services but its pricing, which could affect margins over the longer run.

Covid-19 - Air Partner is arguably better positioned than most companies in its industry to deal with the impacts of Covid-19, however, a new deadlier variant or new government-imposed lockdowns could affect the demand for travel, especially for its Private Jet division.

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Summary

Bull points

Diversity of operations enabling the company to consistently generate profits, pent up travel demand to boost Private Jet division, strong balance sheet with net cash of £6.4m (end of Sep 2021), excellent track record of acquisitions, progressive dividend policy with £13.5 returned to shareholders in the 5 years prior to the pandemic

Bear points

Declining revenues in Group Chart & Freight divisions after an exceptional year due to Covid-19, exposed if international travel does not recover or new travel restrictions emerge, lack of organic growth in recent years, possible that riskier acquisitions take place in the future due to the limited organic growth

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Boasting strong all round fundamentals and impressive backing from institutional investors such as Hargreaves Lansdown, Schroder Investment Management and Amati Global Investors, as well as investment gurus like Lord Lee of Trafford, Air Partner could present an interesting opportunity in the aviation services industry.

Air Partner’s recent H1 results were covered in some more depth by our very own Jack Brumby in the Small Cap Value Report, which you can see here.