After its three-year-old, multi-million dollar accounting blunder surfaced earlier this year and a longer than expected internal review resulted in Air Partner suspending trading in its stock for 10 days in early June, the question was how long would it take to win back the hearts or at least buy ratings of financial analysts? Following the publication of what it described as strong annual results, the answer was less than two months as Gerald Khoo of Liberium today posted a “buy” rating for Air Partner.
In his report titled, “Strategies and fundamentals unchanged, Khoo writes, “Air Partner’s strategy and fundamentals remain intact and attractive. Continued development of Broking, supported by selective recruitment, is complemented by the addition of new more stable income streams in Consulting & Training. The recent accounting issue was disappointing and has required us to rebase forecasts, but it has not impacted growth or cash generation. We resume coverage with a BUY recommendation and 155p target price.” The current Air Partner price is 122p with a trading updated expected August 24th and interim results on September 27th.
In looking at Air Partner’s financial strengths, Khoo cites faster growth in safety consulting, consulting improves earnings quality, more earnings-enhancing acquisitions, charter continues to gain market share, fractional ownership loses market share mean more charter and jet card sales, US private jet exposure improves, and Customer First improves repeat business. To the last point, company CEO Mark Briffa has been a proponent of high-touch personal service over the digital-first approach of others.
Making a Bear Case, Khoo said his concerns about Air Partner include that acquisitions distract the core business, profitable consulting remains a small part of group, there are struggles to find suitable M&A targets, jet cards and charted could be impacted if corporate spending tightens, fractional schemes could recover and win back share, expansion into the US and Europe could stall, and as with many aviation-related companies, profits remain volatile.
Since 2015, Air Partner has completed four acquisitions: Cabot Aviation (aircraft remarketing), Baines Simmons (safety training and consulting), Clockwork Research (aircrew fatigue risk management), SafeSkys (outsourced environmental and air traffic control services). In our review of Air Partner’s jet cards, executives believe these acquisitions are helpful in its evaluation of providing card users with the best possible operators so to supply flights.
Overall, Khoo writes, “Air Partner continues to run a conservative balance sheet, in part reflecting the cyclical but asset-light nature of air charter broking. The group currently has a net cash balance (excluding Jet card customer deposits) of £4.8m and it also has access to a £7.5m revolving credit facility and a £1.5m unutilized overdraft facility.”
Khoo continues, “The group is also consistently cash generative, although large working capital swings can lead to volatility in free cash flow year to year. Overall, the group has sufficient cash generation to fund small acquisitions while still covering a progressive dividend payout, and it has balance sheet cash and committed facilities to fund larger purchases without recourse to raising equity.”
From our perspective, Air Partner’s jet cards remain attractive for several reasons: At 10 hours and $47,000 for light jets, they are a good entry-level, get to know you type card. They are refundable and you can use your deposit for on-demand charter when you are flying outside the service areas where they offer fixed rates and guaranteed availability, which includes both North America and Europe. You can also upgrade of downgrade cabin size across light jets, midsize, super midsize and large jets, and if you do a lot of winter flying, deicing is included. Rates also include 7.5% Federal Excise Tax and there are no fuel surcharges or CPI escalators. There is also a 20% discount for qualifying roundtrips and while there are 56 peak days, the surcharge is only 5% and lead time on peak days is only 96 hours versus the normal 12 hours.
In terms of its jet cards, Air Partner offers lower rates for a broader range of aircraft an average of 10 years old, while you can pay a premium to secure a private jet that is model year 2000 or newer.
On the negative side, we would prefer Air Partner offered an escrow account option instead of just placing your deposit in a segregated account and it’s pet policy varies based on the operator it is using in sourcing your aircraft, which could be an issue if you always or often fly with Fido.
On a positive note, Air Partner has considerable experience in highlight complicated aviation transportation projects. In recent years it has been contracted to evacuate tens of thousands of people from places such as Iraq, Iran, West Africa, Afghanistan, Chechnya, Indonesia, and East Timor, in once case extracting over 7,500 expatriates in one weekend from Lebanon in 2006.