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Barr Ellison Solicitors – commercial property
ARM Innovation Hub
16 October, 2006 - 12:01 By Staff Reporter

Aero Inventory seals 10-year £850m Qantas deal

Aero Inventory has been selected as the preferred supplier of expendable and recoverable aircraft parts to Qantas Airways for the next 10 years in a deal worth over £850 million.The contract, which carries two five-year extension options, will also involve a purchase by the Hertfordshire firm of Qantas’ existing stock and its extensive database of information concerning the parts to be supplied for a total consideration of $141 million (£75m).

Aero Inventory provides e-based procurement and inventory management solutions to the aerospace industry. The Qantas deal is the firm’s single largest contract and represents a major expansion of the business following its £92m rights issue and placing in March this year.

Details of the contract were announced together with Aero Inventory’s end of year results, which reported a 46 per cent increase in both turnover and pre-tax profits for the year ended June 30.

Chosen by Qantas following the conclusion of an extensive market test, Aero Inventory said the contract was already underway and that the stock acquisition was expected to begin soon. The consideration will be financed using Aero Inventory’s existing cash resources and through a recently enlarged bank facility.

Rupert Lewin, Aero Inventory’s chief executive, said: “This is the largest contract that Aero Inventory has secured to date. With the new contract now signed we are in an excellent position to grow the business significantly in the current financial year.”

As part of the development of the contract, Aero Inventory created a local corporate entity and will be recruiting Australian staff across multiple sites to deliver its services to Qantas and support its plans for further expansion in the region.

It is anticipated that Qantas will further explore with Aero Inventory the development of a common pool of serviceable parts across the Aero Inventory network of existing and future customers.

Qantas is Australia’s largest domestic and international airline and the Qantas Group operates a fleet of 213 aircraft, consisting principally of Boeing and Airbus aircraft.

For the year ended June 30, Qantas reported pre-tax profits of A$671m (£267m) on turnover of A$13.6bn (£5.4bn).

It operates one of the largest aircraft engineering and maintenance organisations in the Asia-Pacific region and through Qantas Engine-ering provides engineering and maintenance services to the Qantas Group and other international airlines, employing more than 6,000 people.

Looking to the future, Lewin said: “Although our current focus must now be to implement the Qantas contract successfully we still have the capacity to win and implement other new business and there are a number of other new contracts that we hope to secure during the year.

“With a strong balance sheet, an expanding list of world-class aerospace customers and increasing interest in our business model we believe that we are better placed than ever to continue to expand and succeed.”

In its results for the year, Aero Inventory reported an increase in turnover of £19.9m to £63.5m (2005:£43.6m) for the period, an increase of 46 per cent.

The company’s pre-tax profit also increased, rising to £10.5m from the 2005 figure of £7.2m.

The group also increased its banking facilities from £32m to £80m.

Non-executive chairman at Aero, Nick McCorkell, said that the company’s performance had provided the board with enough confidence in its future to recommend the payment of a final dividend of 6.7 pence per share.

Taken with the interim dividend of 3.3p per share paid in May 2006, the total dividends for the year amount to 10p – the same amount as paid per share last year, but payable on the much-increased number of shares now ranking for dividend.

McCorkell said: “Continuing financial pressures are forcing airlines and maintenance providers to seek to cut costs and to change their business models to enhance efficiencies.

“Just as airlines want to focus on delivering passengers and goods efficiently so the maintenance providers are looking at new ways of improving service times and reducing costs.

“Such maintenance providers want to focus on their core business without concerns as to the availability of parts.

“Aero Inventory’s service seeks to improve the percentage of parts that are available as they are needed, as well as having a positive impact on overall costs.”

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