Tuesday, 17 March 2009

Hugh Cleland Sings AMA's Fuel-Saving Praises

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


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Hugh Cleland, founder and portfolio manager of Northern Rivers Funds wrote to his fund shareholders yesterday about the continuing slumping markets.
But contrasted to the dismal market performance, Mr. Cleland highlighted some substantial business developments at AeroMechanical, one of Northern Rivers' core investments.

Mr. Cleland described in detail the importance of AMA's March 4th announced contract with Sierra Nevada Corporation, (SNC), the billion-dollar, private U.S. corporation that provides military aerospace technology. "The significance of this deal is difficult to overestimate," Mr. Cleland wrote before pointing out how SNC's up-front payment to AMA gives AMA the cash it needs to carry on business without doing another immediate financing.

He also pointed out other critical aspects of the contract that will be an enormous benefit to AMA:
  • it precludes the need for AMA to use its working capital on inventory;
  • it greatly reduces AMA's research and development costs;

  • it becomes "a powerful channel" for sales into the global military market;

  • it enhances AMA's marketing of its new fuel-saving program because SNC wants to use the fuel-saving aspect in its sales to military markets.

Mr. Cleland also wrote how he went to a recent AMA presentation in Toronto about the fuel-saving program and was awed at the presentation and how much it can cut aviation fuel bills - even for airlines that already have aggressive fuel-saving programs in place.

For airlines that don't have well-run fuel-saving plans in place, Mr. Cleland wrote that AMA's technology could chop anywhere from $150,000 to $900,000 per year in fuel savings, or $50 to $200 every flight hour.

For airlines that already have fuel saving programs in place, Mr. Cleland wrote he was impressed to hear that AMA could save those airlines another roughly $30 per hour of flight, or $100,000 per aircraft, per year.

"From customer questions/reactions/statements, it was very clear that sales will be forthcoming from that seminar," Mr. Cleland wrote. In conclusion, Mr. Cleland wrote that the SNC contract and AMA's fuel-saving program were,"two company-transforming developments."
To read his insights into the general stock market and the developments at AMA, please click here.