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Airways 1H earnings fall 36% as new businesses miss forecasts, costs rise

13 Mar 15

Airways Corp of New Zealand, which is in charge of the nation's air traffic control, posted a 36 percent decline in first half profit as its investments in new international businesses didn't perform as well as expected and it had a one-time cost for removing asbestos.

Net operating profit after tax fell to $6.6 million in the six months ended Dec. 31, lagging behind its $8.1 million budget and below the $10.4 million profit in the year earlier period, the Wellington-based state-owned enterprise said in its interim report. The latest earnings include $1.3 million of unexpected asbestos removal costs for this year following building maintenance and repairs at a small number of sites. First-half revenue was little changed at $92.7 million while expenses rose 7.4 percent to $83.7 million.

Airways, which controls 30 million square kilometres of South Pacific airspace, gets the bulk of its earnings from its air traffic control business. In an attempt to boost future earnings, the company is targeting growth opportunities in global joint ventures and air traffic control related service businesses. However those investments are taking longer to produce sales and earnings than estimated.

The company's global services business posted a $300,000 loss in the first half, wider than the estimated $100,000 loss although ahead of a $700,000 loss in the year earlier period. The unit produced revenue of $2.7 million, below its $4.7 million budget and lagging behind $4.8 million in the year earlier period. Airways expects new revenue from international business to flow through in the second half of its financial year, helping the unit achieve full-year profit of $300,000, which is below its $1.6 million target but ahead of a $1.3 million loss the year earlier.

"The delay in revenue streams highlights the challenges in converting the new partnerships into cash generating businesses, and has resulted in revenue for Airways Global Services coming in below budget for the first six months of the year," chair Susan Paterson and chief executive Ed Sims said in the report.

The company's air traffic control business boosted first-half revenue 4.9 percent to $85.4 million, ahead of its $84.2 million forecast, as increased traffic volumes on core domestic routes outweighed a reduction in regional air traffic movements and it benefited from a 3.5 percent price increase from 2013-14. The unit's profit slipped 37 percent to $6.1 million.

Still, the higher costs from removing asbestos are expected to be made up through savings in discretionary spending during the year, particularly in travel and professional services, meaning full-year earnings for the unit should be in line with plans, the company said.

Airways expects full-year profit of between $12.4 million and $13.9 million, up from $11.8 million last year. The forecast is lower than its earlier estimate of $15 million due to the asbestos costs and the delay in new revenue streams from international businesses into the second half of the year, a spokeswoman said.

The company paid a $1 million first-half dividend to the government, unchanged from the year earlier period, and expects to pay a total dividend for the full year of $4 million.

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