JOHN Menzies strategy to consolidate its position as a global leader in aviation support includes further acquisitions, geographic expansion and taking over refuelling services from oil and gas majors.
This strategy will become the sole focus for the Edinburgh group when the sale of its historic distribution arm is completed.
“John Menzies will be an aviation only pure-play,” corporate affairs director John Geddes told The Herald. “That’s the ambition. Distribution has opportunities to grow through the internet, retail logistics, the high street, but we’ve got infinite opportunities in aviation and we can’t do it all.”
Menzies began exploring the sale of its distribution arm up in March 2017 after bowing to investor pressure to investigate if shareholders would be better served by splitting the business in two.
ANALYSIS: Faced with the road or the air, Menzies is flying
That review led the board to the decision that the future of the near 200 year-old group lay exclusively in the aviation industry.
Menzies launched an aviation arm in the early 1990s, cementing this in 2000 when it acquired Ogden Aviation Services for $118m, giving it an international presence for the first time. Another major step came in September 2016 when it acquired Florida-based ASIG for $202m, giving it a foothold in refuelling.
In the US, into-plane fuelling is carried out by aviation support groups like Menzies, but in the rest of the world, jet fuel supply is usually managed by major oil companies. “I don’t think we’ll buy another fuelling business, but what’s exciting is that a huge amount of into-plane fuelling is done by oil companies. That’s from the days when oil companies wanted to take over the world but now they are retrenching back to their refineries,” said Mr Geddes.
Last week Menzies added de-icing to its portfolio with the acquisition of Airline Services.
ANALYSIS: Faced with the road or the air, Menzies is flying
The group is now present in 231 airports across 35 countries, with LAX at Los Angeles and Heathrow being its largest operations.
“There’s a huge opportunity to consolidate,” said Mr Geddes, who was promoted to the executive board in November 2016. “Most of that is in the core of ground handling, cargo handling, and fuelling. Going into new services is something we’re interested in but only in the right markets. Catering for example is dominated by two major players and it is low margin so we wouldn’t get into catering.”
Menzies plans include boosting its presence in lounges, cleaning services, and terminal management.
Last year it made a pre-tax profit of £26.7m on revenue of £2.5 billion. Its aviation business was 52% of this, overtaking distribution for the first time. Aviation operating profit was £58.8m compared to £24.8m in distribution.
Proceeds from the sale of the distribution business will be used to pay down debt, reduce the group’s £49.5m pension deficit, and invest in aviation. Mr Geddes said he was hopeful a deal will be concluded in the summer, but there was no set timeframe.
Geographically, Mr Geddes said the Americas would always be a huge opportunity because it is the biggest aviation market in the world, and with much of the ground work carried out by airlines themselves, there is enormous scope for expansion.
“We’ve got a very successful business there but it is small market share. There’s a huge amount of growth if we keep winning contracts, there are some bolt-on acquisitions you can do. We have a list of things we like.”
Mr Geddes said South East Asia was “an obvious hole in our map” but since opening offices in Kuala Lumper and Dubai, it has become more of a focus. He said India was an exciting market.
“Where I think we’ll get into [South East Asia] is through joint ventures,” he said. “We’re looking at that model there, which is a little like how the European model was 15 years ago.”
However Mr Geddes said in the last five or six the UK market had become a “race to the bottom”.
“We got caught up in that, turning a nice profit-making UK business into a bit of a loss maker,” he said. “We’ve turned that around now. It was a line in the sand and we’ve learned from it. We’re quite smart now because we’ve learned a few painful lessons along the way.”
The largest operating margin the aviation business posted was 5.2% in 2013, and Mr Geddes said the aim was push the margin to 6% – and with staff making up 65% of costs, that will be done through driving efficiencies as volume grows.
“Aviation is tight margin at a wide range across countries,” he said. “We’re an outsourced logistics player, we’ll never be double digit. Can we get it to five? Absolutely. Can we get it to six, absolutely? So let’s get it to six and see where we are. We’re not going to promise seven or eight.”
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