SOURCE: [Technology Dispatch] - A January 23, 2014 initial research report from Byron Capital Markets, issued a “strong buy” recommendation for FLYHT Aerospace Solution (FLY-TSX.V), with a target price of $1.25 (178% higher than current market value).
Byron Capital is global Investment Banking firm that specialises in financings, mergers, acquisitions and market analysis. Their research department covers metals, mining, oil & gas, alternative energy, healthcare and technology.
FLY has three aviation technological products designed to reduce costs and improve efficiencies:
AFIRS™UpTime™ allows aircraft operators to manage and monitor aircraft operations anywhere, anytime, in real time. This technology has received regulatory certification for installation in approximately 31 widely used aircraft types.
FLYHTStream™ is an emergency data streaming mode that can be manually activated by the flight crew, ground support or automatically triggered by predefined emergency parameters. FLYHTStream sends critical data to ground-based operations using the Iridium satellite network.
FLYHT Fuel Management System offers a powerful interactive tool for aircraft operators to achieve cost savings through identification of fuel consumption trends.
“FLY sits at a significant revenue inflection point in 2014 with several events serving as catalysts in the near and medium term”, states the Byron report, “Airbus currently has a backlog of 1,600 planes to be cleared in three years.”
Airbus currently produces 42 A320s per month, and 10 A350s. Airbus production has increased for 12 consecutive years. It 2013 it delivered 626 aircraft, breaking the previous record of 588 in 2012. FLY’s management hopes to have its technology installed in 25% of all new Airbus aircraft.
A strict regulatory environment creates a significant barrier to entry for aviation technologists. FLYHT holds patents or patent-pending on all its products. Installation of aftermarket electronic devices on aircraft must be authorized by government aviation regulators with a Supplemental Type Certificate (STC). FLYHT currently holds 40 approved STCs and another 13 are pending or in progress.
FLY’s technology is tailor made for the Asian market. The Civil Aviation Administration of China (CAAC) announced a new policy that states 50% of Chinese commercial transport aircraft must be equipped with Satellite Communications systems by 2015 - and 100% by the end of 2017.
“Crowded skies, aging fleets, outdated communications are stifling airline the industry,” states the Byron report, “Increasing globalization and trade between developed and emerging markets has and will continue to spur air travel, crowding skies further. Carrier fleets are aging. Workhorses such as the Boeing 737 and 767 are nearing 20 years' old and are fuel inefficient compared to the current alternatives.”
On January 22, 2014 FLY announced successful delivery of 12 AFIRS 228S units to L-3, a leading provider of commercial and military avionics with a product line that includes configurable voice and data recorders, collision avoidance systems, navigation products, display systems and processors.
“L-3 is extremely pleased to work with a strong partner like FLYHT in offering its extensive worldwide airline and OEM customer base a solution for emerging ACARS and SATCOM requirements,” said Mike Smith, president of L-3 Aviation Recorders. “In conjunction with an onboard L-3 flight recorder, FLYHT has already demonstrated FDR data and aircraft position streaming on in-service aircraft.”
“This milestone delivery of AFIRS is the culmination of 15 years of dedicated efforts,” states Bill Tempany, president and CEO of FLYHT”.
“Rising accident statistics in recent years are forcing U.S. and EU regulators to implement next-generation navigation mandates by 2015,” states the Byron report, “China will follow with similar mandates by 2017. Amidst high oil prices, razor thin margins and consolidations, carriers look for optimal flight routes, operational efficiencies and better asset management tools.”
FLY’s business model is attractive to investors because it charges an upfront AFIRS installation fee, which then creates re-occurring revenue for each active flight hour.
“The company targets carriers directly for retrofits,” confirms the Byron report, “but uses "big brother" channels (L-3 for Airbus) for forward fit (factory installed) business. FLY earns a royalty for every plane that rolls out of an OEM factory, and captures monthly recurring revenue thereafter.”
There are about 5,000 planes in the air at any given time. That number is expected to double by 2030. In the next 5 years, “Real Time Data Communications” will be standard equipment on new planes,” stated a recent Technica Pro News article, “as ubiquitous as the rear view mirror in an automobile.”
“With a superior growth profile compared to its peers and strong strategic partnerships, we see considerable upside potential for FLY beyond 2014,” concludes the Byron report, “Investors can expect additional upside in the medium term through potential acquisition interest from larger players like Rockwell, L-3 or Honeywell, all of which operate as FLY partners or co-vendors. We are therefore initiating coverage with a “Strong Buy” recommendation and a $1.25 price target.
FLY is currently trading at .44 with a market cap of $69 million.