SHARES in John Menzies have climbed around seven per cent after the aviation services firm said it expected flight activity to start to pick up in July following the slump triggered by the coronavirus.
The update from the company boosted hopes key sectors of the economy such as tourism will start to enjoy some sort of recovery now lockdowns that were imposed to slow the spread of the virus are being eased.
Edinburgh-based Menzies has faced huge challenges since March after the imposition of lockdowns around the world prompted the airlines the firm supports around the world to halt most flights.
With airports such as Glasgow and Edinburgh coming to a virtual standstill, Menzies found demand for services it provides such as flight handling reduced to a fraction of the levels expected at the start of the year.
Menzies came under fire last week when the Unite trades union warned the jobs of more than 300 workers employed by Menzies at Glasgow and Edinburgh airports were under threat.
The company’s chief executive Giles Wilson said then it had taken the difficult decision to reduce job numbers to match its workforce to the reduced volumes of work it expects to have through the winter and “well into 2021”.
He said the UK aviation sector was facing its most challenging period ever, adding: “Whilst a small number of flights have started operating again, we do not expect volumes to return to pre-Covid 19 levels in the near future”.
Menzies noted yesterday that it had enjoyed material benefits under the support schemes introduced by governments around the world. These include the furlough programme in the UK.
READ MORE: Firms to pay up to 20% of furlough wages as Government job scheme winds down
The company said: “The Board currently expects activity levels witnessed in May to remain subdued into June, before a gradual return from early July. “
It added: “As volume builds, we expect to see short haul capacity return first with long haul capacity taking longer to recover.
“In addition, we expect cargo revenues to continue to build back as customers employ more innovative measures to meet demand, such as using passenger aircraft for cargo only flights.”
Menzies said its board remains confident in the long-term growth potential of the aviation services market. It believes the company’s strong market position will allow it to emerge strongly from this challenging period.
The company’s shares rose 15% initially following yesterday’s update. This may have encouraged investors to hope the worst is in the past for Menzies and that the damage caused by the coronavirus to its finances may not be as bad as feared.
The company said trading in the second quarter to date has been ahead of management expectations.
READ MORE: John Menzies severs historic links with newspaper trade
It noted: “Despite the significantly reduced revenue, strong cost management, together with quick and effective mitigating actions, resulted in an overall performance for April and into May that was better than expected at the time of the March Trading Update.”
Menzies said it had not incurred any material bad debts during the current crisis.
Revenues in April and May were 64% below budget. However, the company generated cash from its operations, helped by good cash collection from customers, cost-cutting and the amounts received from governments.
The board believes the current loan facilities should be sufficient for the remainder of the year and into 2021.
Analysts at Berenberg investment bank wrote: “With liquidity secure until 2021 and the trough of flight activity behind it, Menzies’ imminent risks are reduced " They noted that Menzies benefits from its global scale and diversification.
Menzies employs around 600 in Glasgow and Edinburgh and 6,000 across the UK.
Shares in the company closed up 10.6p at 154.6p.
Menzies sold its newspaper distribution business in 2018 to focus on aviation services.
READ MORE: Menzies boss departs amid soft cargo trade
The group said yesterday that ground handling, fuelling and ancillary passenger airline activity were all down around 75% in April and May compared with the same period in 2019.
“Cargo performance continues to be slightly more resilient overall with total volumes down c37% year on year in April,” it added.
In March Menzies said it had reduced headcount by 17,500 around the world in response to the dramatic fall seen in activity.
“Reductions are being supported in some countries by governmental schemes and we hope that in the fullness of time a high number of these employees can return to the business," it said then.
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