Helen massy-beresford / london
When Swiss flag carrier Swissair collapsed in 2002 amid massive debts and the ignominy of a nation used to the clockwork-efficiency of its national institutions, the future of its various subsidiaries looked highly uncertain.
Although catering division Gate Gourmet has had problems, its maintenance, repair and overhaul (MRO) arm, SR Technics, which underwent a private-equity-backed management buyout, has been a success, becoming the biggest independent MRO in the world.
The company’s new chief executive, Hans Lerch, says: “SR Technics’ rather abrupt departure into independence turns out to have been a unique opportunity.”
Reporting 2005 revenues of $1.3 billion, and earnings before interest, tax, depreciation and amortisation (EBITDA) last week of $146 million, chairman Frank Turner dubbed it “the best year since the company became independent”. He believes the firm, which bought FLS Aviation two years ago and is majority owned by private equity investors 3i and Star Capital, is ready for the next stage: an initial public offering (IPO).
Turner says the company is preparing to float a “chunk” of its shares by the end of 2006. In practice, this is likely to mean by October, say IPO specialists, given that November and December are quiet months for the markets.
SR Technics has appointed Rothschild and Wyvern Partners to advise on the IPO. Turner declines to speculate on the size of the offering, or the cash it will raise. The company will be listed on the Zurich stock exchange. “SR Technics is a Swiss-registered company,” says Turner. “The retail side of the offering will be better served in Switzerland than in the UK.”
The upswing in the civil aviation sector is also a major factor in SR Technics’ impressive growth, not least because it provides new business opportunities to pursue in emerging markets and a new style of customer in the form of low-cost carriers. “When margins are under pressure and where tight margins are an integral part of the business model, there will always be a pressing need for efficient, cost-effective solutions,” says Lerch. “Outsourcing non-core services – such as servicing, maintenance and the technical management of entire fleets of aircraft – is therefore a matter of survival for most airlines.”
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Following the signing of a $750 million, five-year contract with Gulf Air that will see SR Technics take over maintenance for the airline’s entire fleet in a joint venture, SR Technics now counts the Middle Eastern carrier as its third largest customer, after EasyJet and Swissair successor Swiss. The joint venture with Gulf Air is also broader in scope than the initially agreed terms of the contract suggest. “We are talking to other customers in the region,”says Turner. “It’s a stable location on the route between the Indian subcontinent and Europe.” Further east, he says, “developing airlines” will be important to the group as it strives to increase its footprint in the rapidly expanding Indian and Chinese markets. Negotiations are ongoing with Chinese airlines.
Turner says it is the extensive realignment that has taken place within the company over the last three years that allows SR Technics to position itself for success as the aviation industry continues to boom. EBITDA increased in line with revenues in 2005 (see chart), and this is partly due to the successful turnaround of the UK-based arm of the business.
A wider realignment of the company’s product offering sees the business split into three divisions – Integrated Component Solutions (ICS), Integrated Airline Solutions (IAS) and Integrated Engine Solutions (IES).
Key to the continuing growth of SR Technics’ business is the 10-year, $1 billion maintenance contract for EasyJet’s Airbus A319 fleet, which the company estimates will save the airline 25% of its A319 maintenance costs, excluding engines. The company is hoping for further, similar deals. “We are very optimistic about signing more of these long-term agreements – they are complex but very attractive,” says Turner.
Last year, SR Technics set up a $325 million asset-backed financing facility with GECAS. About half of this is still available to the company, and could be used for the joint venture it has agreed to form with Qantas on A380 components, says chief financial officer Richard Steiblin. “But we have to define the shape the joint venture will take, and then how to finance it,” he adds. The company could consider setting up a further independent financing agreement at a later date, he says.
Source: Flight International
