By Kristy Dorsey
John Menzies has estimated it could ultimately shed up to a fifth of its global workforce as the aviation services specialist reshapes its business to match demand in the wake of the coronavirus pandemic.
Speaking after the group posted deep losses for the first half of the year, company secretary John Geddes said it was “no surprise to anybody that we had a traumatic first six months”. However, he added that Menzies would emerge from the crisis as a stronger operation.
“The industry will look different than it did before,” Mr Geddes said. “We will be a smaller business and our revenues will drop, and that is directly related to there being less planes in the sky, but we will grow profitably from that smaller base.”
About 40 per cent of the group’s pre-Covid global workforce of 32,000 currently remain on furlough, rising to 70% of its 6,500 UK employees. Menzies is already in consultations about the loss of 1,200 jobs across the UK airports where it operates, including posts in Glasgow and Edinburgh.
READ MORE: Menzies leads plea for cash to save jobs in the aviation sector
Asked where the company’s global headcount might eventually settle, Mr Geddes said Menzies is currently putting its estimate around the 25,000 mark.
“But it is very, very difficult to tell at the moment – it could be something more than that, or it could be less,” he said. “We just have to see how things emerge.”
Revenues during the six months to the end of June fell by a third to £431.5 million, while the pre-tax loss soared to £80.1m from £4.4m previously.
The company suffered heavy declines in ground handling and refuelling activities as passenger flight volumes fell by 43%. These activities account for 60% and 20% respectively of overall revenues.
READ MORE: Scottish airports count cost after flights axed following collapse of airline
The UK ground handling business was also impacted by the collapse of regional airline Flybe, which operated about 40% of all domestic flights within Britain. Its failure was felt most acutely in Manchester, Glasgow and the Isle of Man, Menzies said.
The smaller cargo handling and cargo forwarding businesses put in more resilient performances, with volumes in Amsterdam robust and London Heathrow boosted by a new contract from Qatar Airways. Menzies said that since the end of the first half it had won further business with Qatar Airways in Los Angeles, its fifth contract with Qatar this year.
The cargo forwarding business, AMI, performed strongly and is trading ahead of expectations. It has benefited from a shortage of cargo capacity around the world due to the grounding of passenger flights, which has generated an upturn in bookings and a general improvement in rates.
Going forward, executive chairman Philipp Joeinig said Menzies intends to boost the share of cargo operations to half of group revenues.
“Due to the actions taken in 2019 to re-shape the business commercially, we are making real progress, winning new contracts, particularly in cargo, and I expect this to continue in the second half,” he said. “Expansion opportunities are emerging, and we will selectively look to take advantage of the current situation.”
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Asked where the opportunities lie, Mr Joeinig highlighted Europe and the Americas, as well as new markets such as the Middle East and Eastern Europe.
As part of measures to clamp down on costs, Menzies has exited about 18 smaller regional airports in the UK and the US where it offered only limited services such as de-icing. The company is also benefiting from government support schemes around the world, which Mr Geddes described as “vital” to retain skills within the sector.
Revenues in the second half of the year are expected to be on par with those in the first six months, with conditions remaining challenging through the winter and early part of next year. The group anticipates a “sustainable” recovery in activity levels thereafter, contributing to modest revenue growth in 2021.
Menzies has agreed a revised temporary banking covenant with its lenders covering a $235m (£183m) amortising loan and a £145m revolving credit facility. This runs through to 2022 and will allow “the flexibility to restructure and grow the business as the aviation industry recovers”.
Its shares closed a penny higher yesterday at 112.8p.
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