Thursday, 23 October 2008

AeroMechanical Scrubs Skies, Banks Money

AeroMechanical Services Ltd., (TSX:V-AMA)
Basic Shares: 82.5 million
Fully Diluted: 88 million


There was a kernel of investor manna buried in a lengthy, Aug. 23rd news release about AeroMechanical’s eureka program to save airlines up to five per cent of their mammoth fuel bills.

The manna was that AeroMechanical (AMA) intends to take a piece of the cash from the new energy-savings pie it just baked.

The news release focused on how AMA worked with two existing clients to use AMA’s patented technology – the bluebox, or 'afirs(TM) UpTime(TM)' for those who like its formal title – and its expertise to build a program that will result in estimated fuel savings of up to $250,000 per aircraft, per year.

That’s no chump change.

But missed by many was the fact, AMA also stands to benefit from the new development, not just in having another tool that it fervently believes will win it new clients, but also in creating extra recurring revenue from existing and new clients.

The buried clue was in the middle of about the 9th sentence. In it, AMA President Richard Hayden wrote about the new fuel-savings program and added it will be offered to new and existing clients, “on a fee-for-service basis, as a compliment to our (existing) patented products and information services.”

Right now, AMA aims for a target recurring revenue of about $2,000 per month from every aircraft that carries its bluebox.

Left unstated in the news release was what the new monthly target revenue would be for those airlines using the blueblox for its existing capabilities and for the new fuel-saving program.

What was clear was the two current clients AMA worked with to create this new fuel-saving program – Canadian North Airlines and Skyservice Airlines -were backstopping AMA’s money-saving claims.

Canadian North President Tracy Medve was especially happy that by cutting the amount of fuel her aircraft burn over Canada’s environmentally-sensitive North, she can also dramatically cut the airline’s carbon footprint.

Even though oil prices dropped recently, most senior analysts believe oil prices have nowhere to go but up because the black stuff is getting harder and harder to find. And despite today's lower prices, aviation fuel is still far more expensive than it was one year ago. So in both of the latter cases, there is an enticing incentive for airlines to examine how AMA can save them significant coin.

To read the full news release please click here.