October 4, 2008

Airline Troubles Wipe GBP 24m Off Menzies Shares

By Martin Flanagan

A PROFITS warning triggered by the battered airline industry slashed 15 per cent, or GBP 24 million, from the stock-market value of Edinburgh-based aviation services and newspaper distribution group John Menzies yesterday.

Shares in the company closed down 40.7p, at 229.25p, valuing the firm at GBP 138m, as it blamed a sharp drop in passenger and cargo flights with airlines scaling back business in the economic downturn.

William Thomson, chairman of Menzies, admitted that the company was operating in "turbulent markets".

He added: "Airlines are significantly cutting schedules and cargo volumes are poor driven by the price of oil and falling consumer demand."

And in a statement to the Stock Exchange, the group said: "As a direct result of this and in light of the continued uncertainty in the market, the board believe that Menzies Aviation is unlikely to meet current market expectations for the full year."

Paul Dollman, Menzies' finance director, said the group, whose airline customers include EasyJet, Jet Blue and Alaska Airlines, "saw a softening in volumes in August".

He added: "Last week we got the winter schedules for airlines and they are dramatically lower."

The airlines' moves have been in response to the soaring oil price.

Dollman said that on average Menzies had seen a 10 per cent fall in volumes for the division.

Menzies' aviation division includes ground handling and passenger check-in, and a separate cargo handling operation.

Dollman said that Menzies' newspaper distribution division was picking up some of the slack.

He added: "When aviation services was growing at 20 per cent per annum for five years, wholesale distribution was flat.

"But, my goodness, when it goes the other way you are grateful for the GBP 20m of cash flow [from wholesale] supporting the overall business."

Dollman maintained there were bright spots in the aviation division, including new operations in the past year in Bangalore and Hyderabad. But he said it was difficult to tell when things would improve.

"The aviation business is very cyclical. It can turn down dramatically, but it can also come back again very quickly," he said.

Iain Macarthur, services analyst at broker Arbuthnot, said he was downgrading his profits forecast this year for the Menzies' aviation division from GBP 20.6m to GBP 14m.

He said he was sticking with his operating profit forecast for the distribution arm at GBP 23m.

He said: "The worry is that, while there is reasonable visibility on ground-handling for Menzies, there is much less for cargo- handling, with volume falls sometimes being known only a couple of weeks in advance."

Originally published by Martin Flanagan City Editor.

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