Australian Airline Investment Opportunity On AIM

Hunched at my kitchen table at 6.30am this morning shivering into a bowl of Cheerios, all I could think about was upping ship to a warmer climate.

It was FREEZING.

Last night my boiler broke down. Again.

Well no, the boiler works perfectly well. It's the 'on' switch that has ironically snapped off.

Sigh.

Australia would be pretty good this time of year. I have family out there, so after last night's misfortunes I'm seriously considering paying them a surprise visit.

They live in Perth, Western Australia. So while I wait for Graham 'The Boiler Man' to trundle over in his mucky tracksuit bottoms (sometime between 8am and 6pm I was told) I thought I’d look into some flights and see how much they cost.

Not surprisingly, tickets this time of year are extortionate.

I obviously need to plan it a bit better. I've always wanted to visit the Kimberleys, so I thought I’d look into flights between Perth and Broome.

Then I discovered something rather interesting...

I came across Skywest Airlines. They're an Australian-based company operated and owned by Advent Air who, funnily enough, just happen to be listed on AIM.

Feeling in the mood for a bit of digging - that and I had 10 hours to kill - I found that Skywest have been operating for 40 years with a well established client base.

Good news, but that wasn't what sparked my interest...

They are in fact the sole permitted airline operator on a number of coastal routes in Western Australia and are developing their activities in South East Asia.

Skywest have just announced an agreement with Argyle Diamonds, a wholly-owned subsidiary of Rio Tinto, to extend the existing Argyle charter contract and add further flights.

Considering Rio Tinto is one of the largest mining companies in the world, this is quite impressive.

On digging a little further I found a broker note who rates this stock a buy at 12.25p. However I'm always sceptical when you find buy signals swept across the Net. It always pays to do your own research.

So that's what I did...

And this extended contract with Rio Tinto - believed to be worth at least 5 million Australian dollars per year - is actually forecast to significantly enhance revenues and the visibility of forward earnings.

Crucially though, it significantly strengthens the company's relationship with Argyle Diamonds and provides a strong endorsement for its charter operations and current business strategy.

The deal also cements Advent’s relationships within the resources sector. It should help them build on other long-standing relationships with the likes of BHP Billiton and Newmont. This means in future they'll be able to service an increasing number of similar contracts.

While this particular contract now runs until October 2008, the life of the mine in question is 2028, and it is very likely indeed that Advent will retain the contract for as long as Argyle is in production.

The airline will provide Argyle Diamonds with a further four commuter flights a week with the charter contract work fulfilling a key component of the group's strategy.

At the moment it looks like their focus is to secure as many scheduled charter services from major resource companies as possible.

Whatever plays out over the next few months, increasing the flight operations for Argyle is an excellent opportunity for Skywest to demonstrate its ability in the resources sector, with a marquee client.

It seems Skywest Airlines has already proven itself in the provision of regular passenger transport services (it's been in steady business for 40 years remember!) as well as scheduled charter services to major resource mining operations.

Following completion of its acquisition of 100% of Skywest in August, the company has delivered pretty good full year results and is delighting the market further with an update on robust passenger numbers.

Now all they need to do is make ME one of them.

But until Graham rings the door bell, I'm not doing anything... except shiver some more.

Bye for now,

Melissa Carroll

for The Penny Sleuth