BBA Aviation shares plunge as operating margins decline

Aug 1 – BBA Aviation PLC shares fell as much as 16 percent on Wednesday, after the British aircraft services firm reported lower operating margins in the first six months of the year on softer-than-expected growth in the U.S. business and general aviation market.

The company also plans to sell its Engine Repair and Overhaul (ERO) business, which provides services to regional commercial operators, after a review of the unit. The unit contributed about 25 percent of the company’s total revenue.

Shares of BBA were the top percentage loser on the FTSE midcap index and hit a near one-and-a-half year low in morning trade on Wednesday.

In the first half of the year ended June 30, underlying operating margins from continuing operations fell to 16.3 percent from 18.4 percent a year earlier, the company said.

BBA said that the U.S. business and general aviation (B&GA) market grew 2.3 percent during the first five months of the year, below the expected 3 percent growth. BBA provides services to B&GA customers – large and small aircrafts outside the commercial and military fleets. About 88 percent of its revenue is derived from this market.

However, BBA said it was confident of modest growth in 2018.

Liberum analyst Gerald Khoo said he saw a potential downside risk to the brokerage’s consensus estimate given softer U.S. business jet usage. The brokerage currently estimates 2018 sales of $2.64 billion and core earnings of $477 million.

Profit before tax, from continuing operations, fell 11.2 percent to $76.2 million for the six months ended June 30, primarily from higher charges. On an underlying basis, it rose 4.5 percent.

BBA stock was down 13.8 percent at 305 pence in morning trading. (Reporting by Arathy S Nair in Bengaluru; Editing by Bernard Orr)

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