ALLIANCE AVIATION SET TO BOLSTER PROFIT WITH VIRGIN DEAL

ALLIANCE Aviation Services (ASX:AQZ) will continue to diversify its services, after posting a 35 per cent decline in half year profit to $4.1 million.

The Brisbane-based charter operator's revenue was $92.9 million in the first half, down from $103.4 million in the previous period. The decline has been attributed to reduced fuel prices, which were passed on to customers as part of long-term contracts.

Alliance says it will continue to pursue a number of strategies to broaden its revenue base, lower capital expenditure and reduce debt.

This includes strengthening its charter and wet lease business, with revenue up 30 per cent to $10.8 million in HY16.

The business closed a number of heavy maintenance bases across Australia last year. Employee cost and capital expenditure savings started to materialise towards the end of the first half.

A European operation has also been established to acquire 21 Fokker aircraft over the next two years. The aircraft will be held for sale, lease or conversion to parts, with the financial benefits to be derived in the second half.

The results follow a strategic partnership between Alliance and Virgin Australia Holdings (ASX:VAH) announced today.

Subject to ACCC approval, both airlines will work together to grow their respective charter businesses by leveraging networks, branding, products and technical expertise.

Alliance managing director Scott McMillan says the partnership will allow both parties to compete more effectively in the Australian fly-in, fly-out market.

"We look forward to partnering with Virgin Australia to leverage the operational and commercial expertise of our respective businesses," McMillan says.

"With our combined services and expertise, we see a great deal of logic in working together."

Alliance expects the second half to exceed the first, driven by early level interest in its European operations.

No interim dividend has been declared. The board will consider a dividend at the end of FY16, depending on the capital needs of the business and future outlook.