Wednesday, 4 March 2009

AeroMechanical Signs Ground Breaking Deal

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


We trust the market will appreciate the significance of today’s announcement about the agreement struck between AMA and Sierra Nevada Corporation.
SNC is a 45-year-old, Nevada-based corporation employing 1,600 people that has a long standing and significant relationship with the U.S. military.
One example of SNC’s aviation prowess is the auto-landing systems it manufactures for unmanned air vehicles and a related capability recently demonstrated that allows autonomous in-air, “hands free” refueling.

Today’s news release is about AeroMechanical and SNC signing a “Manufacturing and Military Partnership Agreement” that:
1) Puts an undisclosed - but significant- amount of cash into AMA’s coffers. The cash comes in two forms. First is an upfront payment for the license to manufacture the afirs™ products for AMA’s sales to the civil markets and market AMA’s technology to the military. The second tranche comes as SNC contributes funds, personnel and expertise to the design of AMA's future afirs™ airborne technologies. The cash influx provides AMA with adequate near-term working capital.
2) Strengthens the company’s balance sheet. Not only does cash come in, but in the future, when the next generation airborne product is developed, the inventory of components and finished goods required at AMA will be minimized.
3) The partnership will elevate AMA in the eyes of operators and aircraft Original Equipment Manufacturers (OEMs) that have been exploring employing AMA’s technology for commercial and civilian purposes. The most significant impact may be with the airframe OEMs and the large fleet operators who set a high bar for suppliers to meet. The OEMs require demonstrated staying power from any companies which supply equipment that will be installed on new aircraft and supported by the OEM for 25-40 years. We know that AMA management has been positioning the product to be offered as a factory option by OEMs, and several customers have requested afirs factory installations from OEMs. This partnership will allow that strategy to be pursued aggressively and effectively.
4) Reduces AMA’s research and development expenditures and downside exposure. SNC’s extensive technical staff will enhance the development program by augmenting AMA’s talented core group. This negates the requirement to add significant numbers of new technical staff at AMA and provides AMA with easy access to hundreds of talented hardware, software, and manufacturing engineers. The ability to deliver on schedule and on budget is improved as a result of the pool of talent and extensive development, testing and manufacturing facilities.
5) Provides AMA with a future revenue stream from afirs and UpTime sales and another recurring revenue stream associated with data capture, interpretation and delivery.
6) Adds a very high level endorsement of the value of the technology based on SNC’s long and successful association with the U.S. military. It stands to reason that SNC would not have joined hands with AMA unless it believed the military would also embrace the benefits of the technology. AMA’s recent contract to install afirs on the ubiquitous C-130 Hercules provides a great jumping off point for joint SNC-AMA marketing to the military.
7) As SNC deals at the billion dollar level with the U.S. military, is it fair to assume that it can see meaningful profits being realized from this partnership?

To appreciate SNC’s business, one must visit its website to understand the scope of its technologies and services.

“SNC is a world-class prime systems integrator and electronic systems provider known for its rapid, innovative, and agile technology solutions. Fast-growing and widely diversified, SNC is a high-tech electronics, engineering, and manufacturing corporation that continues to expand its impressive portfolio of capabilities, products and services.”

One obvious question is, what could this mean for AMA’s future sales? We can’t answer that and are not privy to what SNC is thinking. But based on its many years of success, we can’t imagine that SNC didn’t assess the market potential before signing the partnership agreement with AeroMechanical.

Unknown, but also extremely important, is how many eyebrows will be raised in the corporate offices of airlines, large fleet operators and OEM (original equipment manufacturer) organizations that have been talking with AMA? AeroMechanical can deservedly pump its chest out for closing this deal.

Could its dance card suddenly fill up?

Please click here to read the news release and also appreciate what AeroMechanical has just accomplished.