Q4 2026 Alliance Aviation Services Ltd Earnings Call
Speaker #2: At this time, I would like to welcome everyone to the AQZ FY26 results conference call. All lines have been placed on mute to prevent any background noise.
Speaker #2: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad.
Speaker #2: If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to the Chairman, James Jackson.
Speaker #2: You may begin.
Speaker #3: Thank you, and good morning, everyone. Thank you for joining Alliance Aviation's FY26 full-year results and equity raising presentation. I'm James Jackson, the Chair of Alliance, and I'm joined here today by our Managing Director and CEO, Mr. Stuart Tully, and our Interim Chief Financial Officer, Mr. Simon Vertuolo.
Speaker #3: Now, the agenda for today: I'll start by taking you through an overview of the year. Then I'll hand over to Simon to cover the FY26 financial performance in more detail.
Speaker #3: Stuart will then provide more detail on the strategic reset that is underway, and the actions we are taking to position Alliance for improved performance.
Speaker #3: I'll then take you through the balance sheet initiatives we have announced today, including a $40 million fully underwritten equity capital raising, before providing an update on our strategy and the outlook for FY27.
Speaker #3: Following that, we will then open the call for questions. So, starting off on slide 7, Alliance delivered an underlying profit before tax of $38.2 million for FY26, within our revised underlying guidance.
Speaker #1: This range to improve the company's performance and position . Alliance for long term sustainability . We have taken a series of decisive decisions and actions and an end to end review of the business , resetting key commercial arrangements , sharpening our focus on Fifo and implementing a more disciplined focus on costs and capital allocation to position Alliance for ongoing success Our core contracted Fifo operations continued to perform well .
Speaker #1: This is the foundation of Alliance's business , supported by long term customer relationships , operational capability and demand from the Australian resource sector Importantly , improved cost control , stronger charter performance and early benefits from the strategic reset and performance improvement programs .
Speaker #1: We did improve performance in the second half of this year, with underlying pivot profit before tax increasing by 61% from the first half to the second half. Now, slide eight.
Speaker #1: Turning to the headline numbers for FY26. The underlying revenue was $712.6 million, underlying EBITDA was $177.5 million, underlying PBT was $38.2 million, and underlying NPAT was $26.8 million.
Speaker #1: Operating cash flow before aircraft purchases and air cap payments was 17.7 million . Revenue and flight hours were lower than FY 25 , reflecting the planned end of aviation trading activity and the reduced wet lease flying under the revised Qantas arrangement .
Speaker #1: As flagged . Core Fifo activity remained resilient through the year Statutory PBT was a loss of 129.9 million and statutory Npat was a loss of 90.9 million , mainly reflecting the non-cash impairment and asset write downs on the Fokker aircraft fleet Our net debt increased to 459.8 million at 30th June 2026 , reflecting lower cash generation , elevated maintenance expenditure , ongoing fleet investment , including the final stage of the air cap fleet expansion program .
Speaker #1: Alliance remains compliance with its banking covenants . The fleet of 80 aircraft at year end include 45 Embraer E190s and 15 and 35 Fokker aircraft During the year , we continued to simplify and optimise the fleet as part of our fleet renewal strategy , which I will cover shortly .
Speaker #1: But . Slide nine . A strengthened alliance Aviation FY 26 was a year of decisive action across both operations and the balance sheet On the operational side , we have reset the economics of our largest wet lease contract , commenced a business wide efficiency program We have progressed our fleet transition , and we have strengthened , strengthened the leadership team with the appointment of Mr. Steven Greenway as incoming CEO .
Speaker #1: At the same time , we've taken steps to strengthen the balance sheet Today's fully underwritten underwritten equity capital raising to , together with amended debt facilities and a plan asset sale programme , provides a clear pathway to reduced leverage and improved financial flexibility Importantly , these initiatives are not standalone actions Together , they support a deleveraging profile targeting approximately 2.1 times net debt to underlying EBITDA by June 30th , 2027 .
Speaker #1: While continuing to position Alliance to improve our profitability And cash generation capability and shareholder returns Slide ten . While we are navigating challenging period for the company , it's important to consider Alliance's important role in the Australian aviation industry We remain Australia's leading provider of contract and charter services , operating a fleet of 80 aircraft and delivering approximately 110,000 flight hours each year More than 90% of our revenues are contracted , supported by long term relationships with blue chip customers across the resources sector , government and aviation We operate in a market with high barriers to entry We have a fully owned fleet and we have a strong track record of safety and operational excellence .
Speaker #1: Thanks to our hard-working employees. And this includes an on-time performance of approximately 95%, which in the industry is a very high measure.
Speaker #1: The board remains confident in the underlying strength of the operating business. The operational and balance sheet initiatives outlined today are designed to improve returns and better position the company.
Speaker #1: Alliance to realise the value of these foundations Now , before I hand over to Simon to go through the FY 26 financials in more detail , I'll touch briefly on the outlook for FY 27 .
Speaker #1: I will cover this in more detail later in the presentation, but it's important to state that we do expect the actions we have taken to result in improved earnings, cash generation, and balance sheet strength in FY27.
Speaker #1: Now I'll hand over to Simon Vitulo , our interim chief Financial Officer Thanks , James , and good morning , everyone Turning on to the income statement on page 13 , I note that underlying revenue for the year was $712.6 million .
Speaker #1: Underlying EBITDA was $177.5 million , and underlying profit before tax was $38.2 million . The main drivers of year on year performance change were the end of aviation trading activity .
Speaker #1: Lower wet lease utilisation , elevated maintenance expenditure and higher depreciation , and financing costs tied to prior fleet investment We saw improved earnings momentum in the second half , with the benefits of the strategic turnaround initiatives beginning to show through Contract revenue increased Repairs and maintenance costs fell by $4.9 million and overheads , overhead expenditure stabilised There are still work ahead , but these results are early evidence of the strategic reset and the improvement to financial performance .
Speaker #1: Moving to the underlying EBITDA bridge on page 14 . This shows the movement in FY 26 underlying EBITDA compared to FY 25 . The most significant drivers were the planned exit of aviation trading and higher repairs and maintenance expenditure , partly offset by growth in Fifo contract revenue .
Speaker #1: The bridge also showed the impact of increased fuel costs being fully offset by fuel recovery mechanisms in our FIFO and wet lease contracts. Turning to slide 15, you can see how underlying profitability improved in the second half.
Speaker #1: This bridge compares H2 with H1 and shows how our improved performance initiatives began to translate into earnings in H2. The improvement was supported by higher contract revenue, lower repairs and maintenance expenditure, and reduced employee costs, partly offset by lower wet lease revenue. Importantly, the underlying EBITDA margin also expanded across the half, from 24% to 26%.
Speaker #1: The direction of travel is encouraging, with the business delivering improved profitability in H2 despite lower wet lease hours. That reflects the early impact of restructuring, cost discipline, and a more active approach to managing the cost base in line with revenue. Turning to the balance sheet on page 16.
Speaker #1: Total assets reduced to $1.1 billion, mainly reflecting the Fokker fleet impairment and write-off of related inventory and assets. This flows through to net assets, which decreased to $373 million.
Speaker #1: Net tangible assets were approximately $2.32 per share. Assets held for sale relate to surplus and non-core aircraft assets identified under the Fleet Review Program. Net debt increased to $459 million, reflecting lower cash generation and ongoing fleet investment.
Speaker #1: Alliance remains compliant with all banking covenants. The balance sheet position at 30 June was affected by the impairment and cash performance in FY26.
Speaker #1: This impairment was non-cash. James will provide more on the balance sheet initiatives shortly. Page, slide 17. Capital expenditure reduced materially in FY26, with total capital expenditure decreasing 40% to $162 million.
Speaker #1: Existing fleet maintenance expenditure was 135.6 million . Broadly similar to FY 25 , while growth , CapEx was 26.6 million , including two air cap E190 aircraft and associated entry into service costs , maintenance , CapEx , stayed elevated despite lower flying activity , reflecting the age profile of parts of the Fokker fleet .
Speaker #1: Ongoing heavy maintenance requirements. Inflation in maintenance and labor costs growth. CapEx has fallen sharply as we have moderated the fleet expansion programme.
Speaker #1: This will continue in FY27 with fleet renewal. CapEx is expected to wind down as the Air Cap transaction completes in H1. Slide 18.
Speaker #1: Turning to cash generation operating cash flow before aircraft purchases and air cap payments were $17.7 million for FY 26 . Statutory operating cash flow was $17 million , compared with $105 million in FY 25 .
Speaker #1: Cash flow was affected by lower profitability , elevated maintenance expenditure , higher interest costs and fleet investment activity , cash performance , improved in H2 , reflecting the early benefits from the strategic reset , including lower maintenance expenditure , better working capital management and reduced capital requirements .
Speaker #1: The cash flow bridge shows both sides of the story. FY26 was a peak investment year for the business, but H2 showed improvement as CapEx and working capital requirements fell.
Speaker #1: With that, I'll hand over to Stewart to discuss various operational initiatives underway. Thank you, Simon.
Speaker #2: We're on to slide 20 . Wetlease update the central part of the FY 26 reset was the renegotiate , our largest wet lease arrangement with Qantas As we've previously discussed , parts of our wet lease portfolio had been become commercially unsustainable .
Speaker #2: Cost inflation across labor maintenance , logistics and compliance reduced profitability , profitability . Under the previous arrangement . The revised Qantas agreement addresses that directly .
Speaker #2: It raises prices from July 1, 2026, adds a mechanism that escalates prices annually to better reflect future cost increases, and delivers a staged reduction from 30 to 23 aircraft over fiscal year 2027.
Speaker #2: That stage reduction in committed aircraft does not simply mean less flying. It means better utilisation of that fleet, lower capital intensity, and more flexibility to reallocate aircraft to other customers and opportunities that generate the best returns. This is a commercial reset.
Speaker #2: It strengthens the economic sustainability of the wet lease arrangement, improves margins and cash generation, and gives us more flexibility as we progress.
Speaker #2: Fleet renewal and refocus capital on our core FIFO business. At the same time, we continue to value the Qantas partnership. This revised arrangement is designed to put that relationship on a more sustainable footing for both parties. Moving on to slide 21.
Speaker #2: The revised Qantas arrangement is one of a number of actions we have taken to improve the performance of the business during FY26.
Speaker #2: We started a group-wide improvement programme focused on three priorities: improving capital allocation, improving free cash flow, and improving sales and customer management on capital allocation.
Speaker #2: We have revised our fleet plan and identified surplus and non-core assets for sale, including aircraft, hangars, engine cores, and surplus parts.
Speaker #2: Inventory. The objective is to simplify the business, reduce capital intensity, and direct capital to where it earns the right returns on free cash flow.
Speaker #2: We have put a more disciplined , more disciplined engine procurement strategy in place . Reduced maintenance expenditure , started an organisational staff review and tightened controls around operating costs on sales and management .
Speaker #2: We are reviewing customer contracts against required return thresholds and have acted for arrangements that fall short of our profitability and return targets. The Qantas contract renegotiation is the clearest example of that discipline in action. While important progress has been made, the job is not yet done.
Speaker #2: Our focus remains on executing further initiatives to strengthen the balance sheet and improve shareholder returns. Moving on to slide 22 and the cost optimization program. Turning to cost optimization.
Speaker #2: We have seen the impact of these actions in the second half, with the turnaround moving from planning to execution as the wet lease block hours fell in H2.
Speaker #2: We acted to align the cost base with lower flying activity block hours, down 14% in H2. Labor costs fell 15.3%, and repairs and maintenance fell 14.6%.
Speaker #2: There is more work to do , but we're beginning to see the cost base respond to lower flying activity We have also introduced tender and contract arrangements across parts procurement protocols , heavy maintenance programs and achieving cost reductions , overhead growth has ceased with further cost out initiatives underway Looking into FY 27 , as the number of aircraft committed under the revised Qantas arrangement progressively reduces , we continuing to adjust our operating model and cost base to reflect future flying activity This also includes changes to our workforce with employee consultation underway These decisions are never easy , and I want to thank our people for their professionalism , commitment and continued focus on our customers and safety during this period of change in aggregate , these benefits are expected to result in $27 million of cost savings in FY 27 and an annualized cost reduction of $38 million from FY 28 , supporting the long term sustainability and profitability of the business I'll now hand back to James to provide more detail on balance sheet initiatives .
Speaker #2: We announced announced today
Speaker #3: Thank you . Stewart Now , today on slide 24 , we are undertaking a fully underwritten equity raising of $40 million . The raising comprises an institutional placement and a pro accelerated non entitlement offer .
Speaker #3: The entitlement offer will provide eligible institutional and retail shareholders with the opportunity to participate at the offer price of $0.70 per new share. All new shares will rank equally with the existing Alliance shares.
Speaker #3: The proceeds from this capital raising will be used primarily to support working capital and to reduce debt. This provides an immediate improvement in the company's financial position and complements the other deleveraging initiatives that are already underway.
Speaker #3: The board carefully considered the size and the structure of this raising. It is designed to provide a meaningful reduction in leverage immediately while preserving the company's capacity to deliver the strategic turnaround and complete the fleet transition. The offer is fully underwritten by Barrenjoey, with the institutional component opening today and the retail entitlement offer to follow in accordance with the timetable set out later in the presentation. All eligible directors intend to exercise their rights under the retail entitlement offer and take up their rights.
Speaker #3: So we move on to slide 25. This slide shows how the proceeds form part of the broader balance sheet plan, and the equity raising will generate approximately $40 million in gross proceeds after transaction costs.
Speaker #3: The allocation of working capital—the balance will be applied to debt repayment and enhanced liquidity. This delivers an immediate reduction in net debt on a pro forma basis. The raising is only the first step.
Speaker #3: And I must emphasise that this is the first step in our deleveraging program. We're also pursuing the sale of surplus and non-core assets, including surplus aircraft.
Speaker #3: Two Brisbane hangars that are no longer fit for our use Engine cause and parts inventory . We are currently targeting proceeds from the sale of these assets of approximately 60 to $75 million or more through this financial year These proceeds will be additional to the equity raising and will be directed towards further strengthening liquidity and reducing leverage Our liquidity plan , though , does not rely on every asset sale occurring at a particular point in time However , successful execution of that asset sale will provide additional capacity to accelerate deleveraging taken together , the equity raising asset sales and improved operating performance support our objective of reducing net debt to underlying EBITDA to approximately 2.1 times by 30th June 2027 .
Speaker #3: Moving on to the balance sheet. On slide 26, this slide illustrates the immediate effect of the raising on the balance sheet. At June 30th, the reported net debt was $559.8 million.
Speaker #3: On a pro forma basis , after applying the proceeds of the offer , pro forma net debt reduces to approximately 420 million available liquidity increases from 29.2 million to approximately 69.2 million before the transaction costs , providing greater headroom to manage normal working capital requirements .
Speaker #3: Complete the remaining fleet transition commitments and operate the business through the turnaround. Pro forma net debt to underlying EBITDA reduces from 2.7 times to 2.5 times.
Speaker #3: This is an immediate improvement, as you would expect, but again, as you would also expect, we recognize further deleveraging is required and that further improvement is expected to come from three sources.
Speaker #3: Stronger earnings from the revised wet lease economics and cost-out program, lower capital growth expenditure as the Air Cap transactions complete, and proceeds from the asset sale program.
Speaker #3: Our objective is to establish a balance sheet that is appropriate for the earnings and cash flow profile of the business, with sufficient flexibility to manage operational requirements without return.
Speaker #3: Returning to the elevated investment levels experienced during the recent, now completed, fleet expansion. Moving on to slide 27. Debt facility overview. In parallel with the equity raising, we have worked constructively with our lenders to align the debt facilities with the company’s business plan and deleveraging program.
Speaker #3: We have been able to amend terms with ANZ, including the deferral of scheduled amortization and an extension of the relevant facility maturity to September 2027.
Speaker #3: This provides additional time for the operational initiatives . The asset sales and improved cash generation to translate into lower debt Following the raising , the company will have a pro forma debt position of approximately $420 million and leverage of 2.5 times net debt to underlying EBITDA Our remaining debt maturities are spread across the ANZ facilities , Cohen notes , and the Naif facility .
Speaker #3: The extension reduces near-term financing pressure and provides greater flexibility as we continue to work to execute the turnaround of the business. We remain focused on careful cash management, disciplined capital allocation, and reducing leverage.
Speaker #3: The combination of the equity raising announced today, the revised facility arrangements, the planned asset sales, and improving operational performance gives us a credible pathway to a more sustainable and required capital structure. Moving on to slide 28, which is the equity raising timetable.
Speaker #3: This sets out the key dates for the raising. The institutional offer is expected to be complete first, with the existing shares recommencing trading on 27th August.
Speaker #3: The retail entitlement offer is scheduled to open on 2 September and close on 11 September, with the new retail shares expected to commence trading on 21 September.
Speaker #3: Eligible retail shareholders should refer to the Retail Offer Booklet for full details of the offer, including eligibility, key dates, and instructions on how to participate.
Speaker #3: Taken together, these actions represent a significant strengthening of our balance sheet and establish a clear pathway to further deleveraging through FY27.
Speaker #3: One of our significant objectives before we turn to strategy and outlook, I'd also like to address the announcement we made last week that Stewart Tully will step down as Managing Director and CEO at the end of October. On behalf of the board, I'd like to acknowledge Stewart's contribution over more than 11 years as CEO at Alliance and the key role you've played in leading Alliance through a very challenging period and positioning the business for long-term success.
Speaker #3: We're also very thankful that Stewart's agreed to stay on to effect an orderly transition, with Stephen Greenway due to commence in the role as CEO as of 1st October 2026.
Speaker #3: And with Stewart at this point staying on to help the transition through to the end of October and maybe longer, Stewart brings more than 20.
Speaker #3: Stephen brings more than 25 years of international aviation leadership experience across Asia , Australia , the Middle East and North America , including senior roles at fly Deal , which is in the Middle East .
Speaker #3: WestJet in . Scoot in obviously Singapore and Mango Aviation Partners . The board believes Stephen has the experience and capability to lead Alliance through its next phase of strategic execution , and I look forward to introducing Stephen to you all at our FY 26 AGM Alliance is strategic priorities remain unchanged .
Speaker #3: Performance improvement fleet transition . Customer relationships , safety , reliability , cash generation and improved returns Turning to slide 31 . Strategy and outlook As noted earlier , Alliance has a clearer strategic focus , improved commercial arrangements and an operational improvement programme into FY 27 .
Speaker #3: Our priorities for FY27 are quite clear: improved profitability and free cash flow generation, executing the strategic turnaround, progressing surplus asset sales, and reduced leverage.
Speaker #3: Strengthen the balance sheet, execute the fleet renewal strategy, and improve the returns on our investment capital. We will also deliver a smooth transition of leadership for our people.
Speaker #3: Customers and shareholders, as Stephen takes over from Stewart, we are guiding to underlying EBITDA between $175 million and $190 million for FY27, and an underlying profit before tax of $55 million to $60 million for FY27.
Speaker #3: That guidance reflects improved economics from the revised wet lease arrangements, expected benefits from the operational turnaround, cost reduction initiatives, and continued investment in fleet renewal and operational capability, with much lower growth capital requirements from the second half.
Speaker #3: It also reflects timing and execution risk on surplus asset sales and is subject to the normal operating assumptions and risks , including aircraft utilization , customer demand , fuel costs , labor availability and economic conditions .
Speaker #3: Alliance expects improved earnings , cash generation and balance sheet strength in FY 27 . The actions taken over the past six months , including the wet lease reset , strategic improvement Programme balance sheet initiatives , including today and leadership succession plan , have established a much stronger foundation for the business going forward While there still remains significant work ahead , Alliance is now better positioned to improve returns target a reduced leverage .
Speaker #3: As mentioned earlier, our target is 2.1 times net debt to underlying EBITDA by the end of FY27, and to deliver sustainable long-term value for our shareholders.
Speaker #3: Thanks to Alliance's people across Australia for their continued focus on providing industry-leading safety and service to our customers and to our shareholders.
Speaker #3: For your continued support, I'll now open the line to take questions, and thank you.
Speaker #4: At this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from Phil Chippendale with Ord Minnett.
Speaker #4: Please go ahead .
Speaker #5: Good morning guys . Thanks for your time . First question , just on the asset sales , you've mentioned aircraft Some aircraft hangars and parts .
Speaker #5: Can you just give us maybe a sense of the quantum of aircraft that you'd be looking to sell as part of that portfolio?
Speaker #5: And then just a related issue is just on the timing . You know , that 60 to 75 million , presumably it's going to be second half weighted .
Speaker #5: Is that a fair assumption
Speaker #1: Listen , Phil , it's most it's actually well , I don't know about percentages , but a certain amount is weighted to the first the to the first half .
Speaker #1: Phil, so you'll see there's assets held on the balance sheet that comprise two Embraer aircraft, okay, and some aircraft hangars, and the ROU assets associated with that.
Speaker #1: Okay . Then you've probably then the balance is probably around about that 50% , but they're not categorized as assets held for sale .
Speaker #1: And they're progressive , you know , probably actually running from about around about September to the end of the year . They comprise Fokker aircraft coming to the end of their life engine cores , which have no more no more cycles .
Speaker #1: And yeah, as well, some parts that are no longer required in the business.
Speaker #5: Okay , so just thinking about the , the profile of the net debt over the balance of the year , you're starting the year pro forma at for 20 .
Speaker #5: You've got that $33 million payment to air cap in the first half . And if we sort of assume asset sales were spread 50 , 50 , we'd basically be looking at a net debt number of a similar level come 31st December .
Speaker #5: Does that sound sort of broadly right? And then you see that improvement in the second half, obviously with no AirCap payment.
Speaker #1: Oh yeah . Okay . I see what you're saying . So yeah , if you swap the swap the capital raise for the settlement of the air cap , they roughly offset .
Speaker #1: Yeah . So yeah . But listen , we're hoping to produce those progress . Those asset sales as quickly as possible . Yeah .
Speaker #5: Understand just on the topic of the Qantas wet leasing arrangement , you know , you guys have reduced the the arrangement on seven aircraft there .
Speaker #5: Can you just walk us through the timing of that step down from 30 aircraft to 23?
Speaker #2: Thanks, Phil. The step-down has already commenced, so we've taken one aircraft back from Qantas already, and the second one will be soon.
Speaker #2: And then five additional E190s will step down between February and June next year. So by the 1st of July next year, we'll be at 23 aircraft, or 23 E190s, for Qantas.
Speaker #5: Okay . And then in terms of those seven aircraft , you know , you've highlighted that there's two E190s for sale currently . Obviously , there's a balance of five .
Speaker #5: Can you just talk to your intentions there . And I'm sort of looking at the comment on one of your slides where you're talking about growth initiatives .
Speaker #5: Just wondering about those five aircraft. You know, some of them will be presumably going towards Fokker F100 replacement. Is that a fair assumption?
Speaker #5: And then is there any that are sort of left over for sort of perhaps , you know , some some growth opportunities or new business opportunities in either the contract or charter segments
Speaker #3: Phil , I think that one of the benefits of doing the agreement , the way we have agreed with Qantas , was that there's optionality there for us , and this will be driven by , obviously , economics and return on capital going forward .
Speaker #3: So if we can redeploy those aircraft , then clearly there's a growth opportunity . If we have the contracts to apply them to , if not , you know , in the short term they could be seen as surplus .
Speaker #3: And we may seek to monetize them There's also the opportunity to use them from a from a parts perspective . And the engines .
Speaker #3: So we believe that we haven't landed exactly because we don't actually have those contracts forward. But I can say that we are seeing new business opportunities at the moment.
Speaker #3: And so we've now got , let's say , a foresight into seeing , well , we will have some aircraft next year . Maybe we can actually move to , you know , service those potentially new customers as well
Speaker #5: Okay . Thanks . I've got some questions on just the the net debt to EBITDA ratios that you've got on slide 26 . But I might take that off line with Simon after the call .
Speaker #5: I'll jump back in the queue. Thanks for your time.
Speaker #4: Your next question comes from the line of James Ferrier with Canaccord Genuity. Please go ahead.
Speaker #6: Hi . Good morning . Thanks for your time on slide 18 . What was the $31.9 million of that was spent on aircraft and engine deposits , I think is the reference .
Speaker #6: What did that relate to?
Speaker #1: That is the on the air with respect to the Air Cap transaction, James.
Speaker #6: Okay . So this is the six remaining aircraft due to . Yeah . So if we take that 31.9 , add it to the 33 , you owe in first half , 27 that's essentially the full amount owing for the six remaining aircraft .
Speaker #1: Yep , yep . And then that deal was recut . James . So basically over the second six months , we received roughly one aircraft per month .
Speaker #1: And then the deal closes out in December.
Speaker #6: Yeah . Understood . Okay . Makes sense . So just in terms of the the fleet movements , then and Phil sort of covered , you know , the asset sales components and how you're thinking there when you look at FY 27 guidance , and I guess your starting point is you had 80 aircraft in the fleet at the end of FY 26 .
Speaker #6: What assumptions are you making on fleet size and existing fleet CapEx and D&A for FY27, within that guidance?
Speaker #1: I'll go just on the on the Bau CapEx , it's $137 million . Okay . I'll hand over to Stu on the fleet
Speaker #2: , on the fleet side . So we'll see in the presentation , the fleet of 80 there . But there's a footnote that during FY 26 , we have put into storage five Fokker 100 .
Speaker #2: And we expect to do a few more during FY 27 . So that'll bring the operating fleet down to around around 72 . And that that's been part of our plan to retire the Fokker 100 fleet .
Speaker #2: And the the with that seven aircraft coming back from Qantas , that doesn't reduce our fleet . It just redeploys them more . As James talked about , it gives us optionality in that fleet .
Speaker #6: Yeah. And from that 72, then Stuart, you would add on the six Embraers that will come in from AerCap.
Speaker #2: No, no, that's not the case. So we can talk about the air cap.
Speaker #1: Yeah, they're mostly part of that. James.
Speaker #6: Part of that is for sale, or part of that is for use in maintenance.
Speaker #1: Yeah . Part of that for use with surplus potentially going into sale as well . They're old holes with good engines . The full part out does give us surplus major components .
Speaker #1: So, we'll consider the sale of those as well.
Speaker #6: Yeah. And then the last part of that question was, what's the DNA expense that you have embedded within the '27 guidance? Yeah.
Speaker #1: That number is $90 million.
Speaker #6: 90 million . Yeah . Okay On slide or in terms of the cost optimization initiatives , there , that Slide 22 talks about $27 million of benefit being captured in FY 27 .
Speaker #6: When you look at the EBITDA that was achieved in FY26, the normalized number, and you compare that to the FY27 guidance.
Speaker #6: The uplift in EBITDA is smaller than what the cost optimization is . So what's what's happening on the other side of the ledger headwind wise , that the business is still facing , which means you won't retain the full benefit of those cost optimization savings .
Speaker #1: Yeah , you've got the reduction in the in the wet lease revenue But around that , you get you do get an expansion , you get an expansion of the overall margin from the cost out .
Speaker #6: So, fewer aircraft equals less revenue. But net-net, the costs come down.
Speaker #2: Yep ,
Speaker #7: Yep .
Speaker #3: Yeah . There's a progressive move from 28 or 30 . But 28 . But particularly in the first half of next year . James , where those five aircraft come out , they're coming out .
Speaker #3: And, you know, essentially they won't be, obviously, servicing that contract, and they'll be sort of roughly one a month. And so there's a cumulative effect in terms of the revenue and the hours flown on that agreement.
Speaker #3: And then it stabilizes at 23, and then it remains at that state.
Speaker #7: Yep .
Speaker #3: So this period
Speaker #7: From
Speaker #3: Sorry
Speaker #6: No, no, please finish.
Speaker #3: No, I was going to say this period, with respect to that revised agreement with Qantas, is a transition period. And then we move to the 23 aircraft going forward.
Speaker #6: Yep . Understood . So yeah last question then when you look at that free cash flow guidance for FY 27 that you've provided that that implies a very meaningful improvement on the PCP A reasonably modest component of that is coming from the EBITDA guidance uplift .
Speaker #6: So, what else is contributing to the improved—or the expectation of improved—free cash flow?
Speaker #1: Yeah . I mean , broadly , the numbers you start from a , a one , one , 90 EBITDA , 190 EBITDA .
Speaker #1: There is an effect from those embedded restructuring costs in there. Okay. You've got a negative working capital movement. There's of $40 million.
Speaker #1: And as I mentioned earlier, the stay-in-business CapEx of $137 million.
Speaker #6: Yeah . Understood . Sorry . Just to follow up there , the the negative working capital move . You mean that's cash in the door or cash out the door .
Speaker #1: Cash out the door . It's just timing related . Yeah , it's only timing related
Speaker #6: Okay . Thanks
Speaker #4: Your next question comes from the line of Chris Creech with Morgan Financial. Please go ahead.
Speaker #6: Hey good morning guys . Most of my questions have already sort of been asked by the other two guys , but just a quick question on the sort of EBITDA to debt range .
Speaker #6: You've said that you want to sort of get down to that sort of 2.1 times. Is that where we should be thinking, about 2.1?
Speaker #1: Chris . Yep .
Speaker #6: Yeah . Is that where we should be thinking about it for sort of the long term ? Is that is that your sort of comfort factor or do you want to sort of see it reduce a lot further from that , from onwards ?
Speaker #1: Yeah , I think that's a starting point . You know , we need to get the debt under control . As James mentioned , or at a lower level , we achieved that through the asset sales .
Speaker #1: The capital raise and the progression of a turnaround plan . But yeah , I think beyond beyond into 28 . Chris , we'd love to deliver further .
Speaker #6: Yeah . Gotcha , gotcha . And just in terms of some of those , I asset sales , you've mentioned some of the sort of e190s that are potentially surplus , but is the hope to try and get rid of the vast majority of the Fokker fleet and then following on from that , what is the the sort of second hand market for stock is sort of at the moment , like if you if there's a lot of factors that come into the market at any one time , does that sort of have a price decrease issue there , or is there a pretty strong from potential customers ?
Speaker #1: So just answering the different parts here , I guess there's a progressive sale of Fokkers and IT transit the focus , the Fokker 100 transit transition out by FY 30 .
Speaker #1: There's no sale of Fokkers F 70 Fokkers at this stage . I think they've very much fit for purpose going into smaller , smaller sites in relation to the sales to date , they've basically sort of been at , at or around the written down , the written down value .
Speaker #1: When we've given that proceeds of asset sale range , price of 60 to 75 , you know , I'd , I'd probably to your point , I'd flag , you know , the risk factor driving that range is , is the Fokkers .
Speaker #1: Okay . I guess we've had a progressive sale process to date , but I guess the question in my mind is , if we put more onto the market , then , you know , that'll drop the realizable value and that drives that range .
Speaker #6: Yeah . No drummers at all . And just in terms of sort of cash flow for , for FY 27 and just with the , I guess the business right sizing and whatnot , are we are you sort of expecting , I guess , a significant amount of cash out the door to sort of cover that rightsizing ?
Speaker #6: Or how should we be sort of thinking about that?
Speaker #1: Oh , listen , restructuring costs in total are about $12 million . Okay . That could be that could be less . Okay .
Speaker #1: That is mostly associated with exiting, all the right sizing of the workforce. Chris, you know, particularly we require fewer pilots in view of fewer hours on the wet leases.
Speaker #6: Yes, thanks very much. I'll pass it on.
Speaker #4: Your next question comes from the line of James Ferrier with Canaccord Genuity. Please go ahead.
Speaker #8: Thanks for the follow up . Since two , please , just to clarify , Simon , what you were saying around the timing on the working capital .
Speaker #8: So is it essentially that there was a positive benefit to cash flow in FY26 around timing, and then that reverses in FY27?
Speaker #1: I just make like our Chris . I mean , James , the creditor run say my payments run on a Friday is about $10 million .
Speaker #1: Yeah . You know , more once you add fuel in . So it is one of those things I'm whatever the day of the week , the end of the period is , it can just drive a material movement in the working capital .
Speaker #1: So I wouldn't overread the working capital movement. It's just timing-related.
Speaker #8: Yeah. No, absolutely. I understand that it's quite common, but the question was more about the benefit of timing—was it in FY26?
Speaker #8: Oh , sorry .
Speaker #1: There's an outflow in 27. Yep.
Speaker #7: Yeah .
Speaker #8: Yeah . Okay . Understood . And then second follow up was the the 137 of maintenance CapEx expected in FY 27 . Given your parting out , these Embraers from Aercap and whatever else is sitting on the balance sheet .
Speaker #7: Yeah .
Speaker #8: Is the cash component to that going to be quite low? And I'm just looking at the splits for '26. It was 73 cash of 136 total.
Speaker #7: Yeah
Speaker #1: No , the cash component is is sort of around that level . Yeah . To answer the question .
Speaker #7: Okay
Speaker #8: Thanks for your .
Speaker #7: Time . Yep
Speaker #4: There are no further questions at this time. I will now turn the call back over to James Jackson for closing remarks.
Speaker #3: Thank you . And I would like to thank all of those questions . And thank you all for attending . And we we look forward to keeping you up to date with what we're doing in the future .
Speaker #3: And please be welcome to come to our AGM. Okay. Thank you.
