By Jenny Wagler
It has been a tough stretch of late for Avcorp Industries Inc. (TSX:AVP).
The Delta-based aerospace company’s stock has plummeted from more than $15 in 1997 to approximately $2 since late 2002 and flatlined to below $0.10 since late 2009, but it maintains that brighter times are ahead.
“We’ve got shareholders who are confident in what we’re doing,” Avcorp president and CEO Mark van Rooij said. “We’ve got a path laid out for the coming years, and I think in the longer term, this company will be profitable.”
Avcorp designs and builds airframe structures for companies such as the Boeing Co. (NYSE:BA), Bombardier Inc. (TSX: BBD.B) and Textron Inc. (NYSE:TXT) subsidiary Cessna Aircraft Co.
But it has posted only two profitable quarters in the past eight. Since the recession struck, the company’s annual revenue fell from nearly $129 million in 2008 to just over $69 million in 2009; for 2010, its revenue increased slightly to just over $77 million. On June 14, the company released its first-quarter 2011 results. Despite achieving revenue of just under $21 million compared with around $17 million in the same period a year prior, Avcorp posted a loss of just over $1 million.
However, van Rooij said that after re-financings in 2009 and again this year, Avcorp’s balance sheet “looks good” and isn’t his top challenge right now.
Top challenges, he said, are to keep the company delivering high-quality work and to be more aggressive in building sales, particularly in the defence sector.
“We want to get our fair share of that procurement pie.”
As an example of Avcorp’s recent success in that area, he pointed to the company’s $500 million contract signed last year with BAE Systems Operations Ltd. to deliver joint strike fighter (JSF) wing tips for the F-35 Carrier Variant Outboard Wing (CV-OBW) over 10 to 15 years.
But van Rooij noted that the defence “pie” is shrinking for the aerospace industry generally and pointed to Canada’s withdrawal from Afghanistan and the U.S. winding down its presence there as reasons for that shrinkage.
Van Rooij said Avcorp is therefore offering new assembly technologies and partnering with other suppliers to integrate their offerings into Avcorp’s products.
For 2011, van Rooij said the company’s top priorities are to produce its first JSF products and to keep a tight focus on producing quality work.
He said the aerospace industry is “at the beginning of an up cycle,” citing the dramatic improvement in the mood at last month’s Paris Air Show compared with what it was in 2009, when it was last held.
“That [2009] was a little bit of a funereal feeling; this year it was much more upbeat,” he said. “There was a lot of opportunities and a lot of people thinking again about improvements and about growth.”
Van Rooij said he’s confident that Avcorp will return to profitability.
Steven Hansen, an equity analyst with Raymond James Ltd., said the release of Avcorp’s 2011 first-quarter results shows that it’s making progress. But he added that returning the company to profitability depends in large part on the willingness of a large Avcorp strategic investor to fund its existence.
“[Avcorp] has been bleeding cash on a pretty regular basis. There have been intermittent periods where they’ve been showing positive cash flow, but they’re not quite there yet, they haven’t turned the corner entirely, although the market is showing good signs of turning.
“And so I think it’s going to be a matter of time, but as the cycle is evolving in business jets and as the company has also positioned itself to win a lot more military and commercial work, I think they will eventually achieve that profitability.”