Alliance Aviation Lowers FY26 EBITDA to $190-$210 Million Amid Rising Costs
Alliance Aviation Services has lowered its FY26 earnings guidance significantly below analyst expectations, citing increased depreciation, higher maintenance costs, and a contract dispute. Despite these challenges, the company maintains profitability and a strong balance sheet.
- FY26 EBITDA guidance revised down to $190-$210 million
- Depreciation charges increased by $15 million due to higher aircraft purchase costs
- Repairs and maintenance costs exceed budget by $12 million annually
- Unresolved $4.2 million contract dispute impacting earnings
- Management initiates cost reduction and asset sales to strengthen finances
Alliance Aviation Revises Earnings Outlook
Alliance Aviation Services Limited (ASX, AQZ) has delivered a sobering update to investors, announcing that its financial results for the fiscal year ending June 30, 2026, are expected to fall materially short of analyst consensus. The company now forecasts EBITDA between $190 million and $210 million, a notable downgrade from market expectations.
This revision stems from a confluence of cost pressures and operational challenges. Notably, the purchase price of aircraft and engines servicing shorter routes has risen, pushing depreciation expenses up by $15 million annually. This increase is compounded by higher-than-anticipated capitalised maintenance costs, which have further strained the company’s earnings.
Rising Costs and Contractual Headwinds
Beyond depreciation, Alliance faces elevated repairs, maintenance, compliance, and logistics expenses, exceeding budget by approximately $1 million per month. This surge, attributed to supply chain inflation and operational inefficiencies, translates to an annualised $12 million cost overrun. Additionally, the company is embroiled in a $4.2 million contract dispute with a major customer, an unresolved issue that adds further uncertainty to the financial outlook.
Early implementation of the AVIAN inventory management system, while improving on-time performance, incurred an unexpected $3.5 million cost in the first quarter, adding to the short-term financial burden.
Maintaining Operational Strength Amid Challenges
Despite these headwinds, Alliance emphasizes that its operations remain robust. The business continues to trade profitably with strong operating cash flow and remains compliant with banking covenants. The company’s net debt is forecast to reduce slightly from $436 million to $392 million by the end of FY26, supported by a solid balance sheet boasting net tangible assets of $466 million, or $2.89 per share.
Strategic Response and Outlook
In response to these challenges, Alliance’s management has launched several remedial initiatives. These include commissioning an external review of depreciation methods, implementing cost reduction programs targeting purchasing and logistics, reviewing wet lease contracts, expanding the finance team, and pursuing the sale of non-core assets to bolster the balance sheet. The company is also working closely with corporate advisors Barrenjoey Partners to evaluate business unit performance, capital allocation, debt structure, and investor relations strategies.
Alliance reassures stakeholders that customer services remain unaffected, maintaining high standards of safety and punctuality. However, the company’s ability to navigate these financial pressures while executing its strategic plans will be closely watched by investors in the coming months.
Bottom Line?
Alliance’s FY26 guidance cut signals a challenging year ahead, with cost pressures and contract disputes testing its resilience.
Questions in the middle?
- How will the $4.2 million contract dispute be resolved and what is its timeline?
- Can the cost reduction initiatives effectively offset rising maintenance and depreciation expenses?
- What impact will the sale of non-core assets have on the company’s long-term financial health?