IPO to raise K105m for expansion

Dionisia Tabureguci
Papua New Guinea’s Airlines PNG has unveiled plans to expand its fleet via a listing on the Port Moresby Stock Exchange, pending a successful Initial Public Offer (IPO) currently underway in PNG.

Airlines PNG (APNG), with a fleet of 17 aircraft, revealed in its prospectus it was floating a total 105 million shares at K1.00 per share in a bid to raise around K105 million to enable it to buy a Boeing 737 as it looks at a concerted push into the international flight service market.

“Our current plans are to acquire more aircraft, including our own Boeing 737 as part of our expanding international services,” said APNG chairman, John Wild in the prospectus. 

“In 1987, I started the airline to service remote regions of Milne Bay with one aircraft.  Today, Airlines PNG is one of the largest private airlines in the Australasian region with 17 aircraft, over 500 staff and in excess of 225,000 passengers each year.

“This year I turn 80, and whilst I am very proud of what we have achieved at Airlines PNG, I also look forward to my retirement and spending more time with my family.  I also believe it is time for Airlines PNG to become a truly ‘peoples own airline’, so many ordinary Papua New Guinea people can join in its prosperity and future. The transition of the company to public hands is through the offer contained in this prospectus.”

The airline, he added, was well positioned to take up opportunities in a growing local economy by providing “high quality and cost effective aviation service to our customers.”

APNG’s humble beginning originated out of Wild’s need 21 years ago to frequently travel to his plantation on China Strait in Milne Bay Province.

The story goes that he bought an aircraft, and when he was not travelling himself, he put it to use around Milne Bay. The one aircraft business grew to become a big force in PNG’s aviation market, where APNG is now competing with state-owned Air Niugini, the only other airline company in the market.

It is in the business now of providing charter flight services, which contributed over 40 percent of its sales revenue last year in its domestic and international RPT (Regular Passenger Transport).

The decision now to expand its operation comes on the back of its desire to participate in what it believes would be a growing international market.

Although the company met some challenges in the domestic RPT market last year, which derailed its plans to expand local routes, the outlook on its international RPT operation fared much better.  

“Airlines PNG entered the Brisbane market in August 2006 using a leased Boeing 737-200 configured in 60 business class seats,” its prospectus said.

“Initially Airlines PNG entered the market with a differentiated product to capture a market share by providing business class seats at economy class fares. 

In April 2007, the configuration was changed to normal business/economy class configuration and in January 2008, a Boeing 737-300 aircraft replaced the B737-200, increasing the seat numbers to 126 from 108 seats.

Airlines PNG’s load factors have increased significantly and with a 126-seat capacity, Airlines PNG now has greater ability to generate better yields and more revenue for the same operating costs. Tour groups have also played a significant role in Airlines PNG’s growth.

One significant change has been due to the linking of international services and Kokoda flights. Over 6000 trekkers are planning to walk the trek this year and more in 2009.

The establishment of new routes capturing material market share take, in the opinion of the directors, between 18 to 24 months. Shorter lead times are achievable however at the expense of the market share. It is essential for Airlines PNG to capture a significant portion of the market and increase competition which increases market share.

Under the bilateral air services agreement between PNG and Australia, only two carriers from PNG can operate flights to Australia.  With many large projects due to start within the next few years, Airlines PNG is in an enviable position as the only competitor to Air Niugini in the market.

Airlines PNG has made the decision to purchase a Boeing 737-300 aircraft to service this route and to expand in the international RPT and charter operations.

On its charter operation, the company said it was comfortable with its portfolio as income from it “is significantly diversified and the largest charter customer will be responsible for less than 15% of its income in 2008.”

APNG’s audited financials saw it performing better last year when it posted an after-tax operating profit of K4.2 million, contrasting two consecutive losses in 2005 and 2006. 

The company was carrying a total liability of K120 million against a total asset worth over K216 million in its 2007 financial year.

This float sees it issuing 95 million shares out of its total 200 million issued shares and will top that up with an additional 10 million new shares, taking total shares on issue to a minimum 210 million shares upon listing.

APNG director corporate financial services Jason Gilai told ISLANDS BUSINESS the funds raised will go towards the purchase of one Twin Otter, two Dash 8s and a Boeing 737, as well as general debt reduction and working capital.