A. Introduction

• Why is the Offer being conducted?

  Alliance is conducting the Offer to raise funds to pay:

  • a voluntary repayment of bank debt ($15.0 million);
  • loans owing to Existing Shareholders ($13.5 million);
  • 37.5% of the purchase price to acquire the Alliance Entities which currently conduct the Alliance business ($41.8 million - the other 62.5% is paid in Shares); and
  • expenses of the Offer ($3.8 million).

• What is Alliance?

  Alliance is a leading mining services company providing fly-in, fly-out (“FIFO”) transportation
  to the mining and energy sector through a fleet of 25 aircraft. Alliance also provides ad hoc charter and ACMI services to a range of corporate and Government customers.

• What are the key Offer statistics?

   

  1. This is the amount of cash received by Alliance under the Offer (before payment of any expenses) and is calculated by multiplying the Offer Price (of $1.60) by the number of Shares offered under the Institutional Offer and Broker Firm Offer. The uses of proceeds are described in Section 7.1.2.
  2. Total number of Shares on issue following the Offer includes those Shares issued under the Employee Offer.
  3. Calculated by multiplying the Offer Price by the number of Shares on issue on Completion of the Offer. No proceeds will be received from Shares offered under the Employee Offer
     (see Section 7.5).
  4. Pro Forma net debt of $71.6 million as calculated in Section 4.4.2.
  5. Enterprise value at Offer Price is defined as market capitalisation at Offer Price of $144.0 million plus Pro Forma net debt of $71.6 million as calculated in Section 4.4.2.

• How will Alliance be restructured for the Offer?

  Alliance Aviation Services Limited (the “Company”) is seeking a listing on the official list of the ASX.

  The business of Alliance is currently carried on by the five Alliance Entities. Each Alliance Entity is owned by the five Existing Shareholders. The Existing Shareholders are interests associated with Steve Padgett, Hugh Jones and Scott McMillan (who are directors of the Company) and Stephen Bond and Charles Jacobsen (see part G of Section 1).

  As the five Alliance Entities do not have a parent company, it is proposed that the Alliance Entity Shares will be purchased by the Company immediately prior to Listing. The Alliance Entities will be purchased by the Company on the terms of the Share Sale Agreement. The purchase price will be paid by the Company to the Existing Shareholders in cash (37.5%) out of the proceeds of the Offer and Shares (62.5%). These Shares will be the subject of voluntary escrow arrangements (see Section 9.5.2). This will result in Alliance Aviation Services Limited becoming the parent company and the five Alliance Entities becoming its subsidiaries.

  The purchase price of the five Alliance Entities is the proceeds of the Offer less the sum of proceeds used to repay debt, the Offer costs and the value of the Shares under the Employee Offer.

B. Key features of the Alliance business model

• How does Alliance generate its income?

  Alliance generates its income from the following major sources:

  •   FIFO services (representing approximately 75% of revenue in FY2011);
  •   ad hoc charter services (representing approximately 18% of revenue in FY2011); and
  •    ACMI or wet leasing services (representing approximately 6% of revenue in FY2011).

  FIFO services
  

  Alliance transports the employees and contractors of its mining and energy customers to and from remote locations by air.

  Ad hoc charter services
  Alliance provides commercial charter services to a broad range of corporate and Government organisations.

  ACMI or wet leasing services
  Alliance provides aircraft, crew, maintenance and insurance (“ACMI”) to other airlines or aviation operators on a short or long-term basis.

• How does the Alliance business differ from that of an RPT airline?

  Some regular public transport (RPT) airlines also conduct FIFO services. Compared to
  

  RPT airlines:

  • Alliance has long-term customer relationships, with a large portion of revenue subject to contract, compared to complex load factor and yield management requirements of traditional RPT airlines; and
  • Alliance’s profit margin is less exposed to the volatility in key variables (such as yield, fuel price and A$:US$ exchange rate movements) experienced by RPT operators due to Alliance’s revenue being subject to contract and the cost pass-through provisions in Alliance’s FIFO contracts.

• How does Alliance expect to fund its operations?

  Historically, Alliance’s operations have been funded by a combination of cash flow and debt.

  The Company has in place existing finance facilities. On 6 May 2011, the Alliance Entities entered into a three year club banking facility with Australia and New Zealand Banking Group Limited and National Australia Bank Limited.

  The facility borrowing limits are as follows:

  • Working capital facility – A$8.0 million;
  • Non-amortising US$ term facility – US$20.0 million;
  • Amortising component of A$ term facility – A$33.0 million;
  • Non-amortising component of A$ term facility – A$20.3 million; and
  • Capital expenditure facility – A$12.0 million.

  With the exception of the working capital facility, these facilities are currently fully drawn down. Alliance intends to voluntarily repay $15.0 million of the amortising term facility out of the proceeds of the Offer and will be entitled to redraw that amount under the amortising term facility post Listing. This $15.0 million is at call and may be used by the Company to fund capital expenditure and working capital requirements. The amount drawn down under the working capital facility varies according to the working capital needs of Alliance.

  Alliance is subject to the following financial covenants under its Bank Facilities:

  
  
  Alliance is currently in compliance with its financial covenants and expects to remain in compliance with them.

• What are Alliance’s key business strategies?

  As a result of its national footprint, Alliance is uniquely positioned to capture growth opportunities arising from the mining and energy sector through:

  • organic growth in contracted FIFO revenue from existing customers;
  • growth through new customer wins; and
  • growth through expansion of current geographic reach.

C. Key Offer statistics

• What are the key Offer statistics?

   

  NOTES

  1. This is the amount of cash received by Alliance under the Offer (before payment of any expenses) and is calculated by multiplying the Offer Price (of $1.60) by the number of Shares offered under the Institutional Offer and Broker Firm Offer. The uses of proceeds are described in Section 7.1.2.
  2. Total number of Shares on issue following the Offer includes those Shares issued under the Employee Offer.
  3. Calculated by multiplying the Offer Price by the number of Shares on issue on Completion of the Offer. No proceeds will be received from Shares offered under the Employee Offer
     (see Section 7.5).
  4. Pro Forma net debt of $71.6 million as calculated in Section 4.4.2.
  5. Enterprise value at Offer Price is defined as market capitalisation at Offer Price of $144.0 million plus Pro Forma net debt of $71.6 million as calculated in Section 4.4.2.

• What are the key investment metrics?6

   

  NOTES

  6 See Section 4 for full details of the financial information.

  7 Enterprise value at Offer Price is defined as market capitalisation at Offer Price of $144.0 million plus Pro Forma net debt of $71.6 million as calculated in Section 4.4.2.

  8 Commonly referred to as a price earnings or PE ratio. A PE ratio is a comparison of a company’s share price and its earning per share.

  9  See Section 4 for full details of the Pro Forma results.

  10 The forecast for the year ending 30 June 2012 assumes that the Shares are allocated on Tuesday, 20 December 2011.

  11 The assumptions underlying the forecast are contained in Section 4.

  12 Earnings per Share represents NPAT divided by the number of Shares on a fully diluted basis.

  13 Please refer to section 4.4.3 which outlines Alliance’s loan covenants and how they are calculated. The key ratios above are calculated differently to the loan covenants and are more reflective of common financial stability ratios.

  14 This ratio is a measure of leverage and gives an indication as to whether a company has the ability to repay its debt.

  15 Commonly referred to as an interest coverage ratio. An interest coverage ratio gives an indication of a company’s ability to meet its interest payments.

  16 Gearing ratio is defined as Pro Forma net debt divided by the market capitalisation at the Offer Price plus Pro Forma net debt. A gearing ratio indicates the extent to which a company is funded by debt.

• What is the purpose of the Offer?

  The Offer is expected to raise approximately $74.1 million. The proceeds of the Offer will be used by Alliance to:
  

  • pay down debt;
  • fund the cash component of the acquisition of the Alliance Entities; and
  • pay expenses of the Offer.

  The allocation of funds is summarised below:

   

  NOTES

  17. This $13.5 million will be paid in the following proportions – $303,513 to Steve Padgett, $122,408 to Scott McMillan, $4,092,223 to Hugh Jones, $4,092,223 to Steven Bond and $4,875,920 to Charles Jacobsen.
  

D. Key risks

• Reduction in the level of mining activity

  • The Company’s key customers are concentrated in the mining and energy sector and a reduction in the level of mining activity may negatively influence demand for the Company’s services.

• Accidents or incidents may occur

  • The Company’s activities involve the operation of aircraft and other heavy machinery and, if an accident or incident occurs, it may adversely affect the Company’s operations, reputation and ability to win future tenders.

• There may be mechanical problems or spare parts may be unavailable

  • Aircraft may be temporarily grounded due to the unavailability of spare parts as the Company operates a fleet of Fokker aircraft which are no longer in production. Mechanical problems may also cause aircraft to be temporarily grounded. This may, depending on the severity of the issue, adversely impact the Company’s ability to conduct its business.

• Increased competition

  • Increased competition faced by the Company could result in price reductions, loss of contracts, reduced operating margins and loss of sector share.

• Loss of a key customer

  • The Company derives a majority of its revenue from a number of key customers. 44% of its revenue in FY2011 was derived from separate entities within the BHP Billiton group.
  • Alliance’s FIFO contracts generally contain termination for convenience provisions which customers may exercise. Some contracts require customers to make an exit payment to Alliance if they elect to terminate for convenience, however these payments do not equal lost revenue.

• There are a limited number of Fokker aircraft to expand fleet

  • There are a limited number of Fokker aircraft available globally that the Company may purchase to expand its fleet, as the Company operates a fleet of Fokker aircraft which are no longer in production. If Alliance is forced to purchase a different type of aircraft it may result in increased costs to the Company.

• Insurance may not apply to all losses

  • Alliance’s insurance coverage may be inadequate to cover all of its losses. Also, Alliance has not insured against certain losses such as loss of profit, loss of revenue and the costs associated with mechanical breakdown. Aviation insurers may increase their premiums or reduce the availability of insurance if events such as terrorist attacks, hijackings or airline accidents or incidents occur.

• The 47.8% holding of the Existing Shareholders may adversely affect other Shareholders

  • The 47.8% of Shares the Existing Shareholders will collectively hold post Listing may adversely affect other Shareholders if one or more of the Existing Shareholders sell their respective holdings in a poorly managed sell down (especially on cessation of the escrow restrictions that apply to the Existing Shareholders – see section 9.5.2) or if Existing Shareholders decide to act collectively as a group.

• Political, legislative or regulatory intervention

  • A failure to comply with current and future laws, regulations and CASA requirements, may result in the Company not being able to conduct operations.

E. Key strengths

• Strong position in the contracted FIFO sector and national presence

  • Alliance is a dedicated FIFO operator and offers a unique, Australia-wide network of aviation services which means it has the ability to be responsive and flexible. Its national presence provides diversification benefits.

• Secure earnings derived from long-term customer relationships with a predominantly blue-chip customer base

  • Alliance has established, long-term customer relationships with corporate and Government customers such as BHP Billiton, Newcrest, CITIC Pacific, Incitec Pivot, MMG, Santos and OZ Minerals. Approximately 75% of Alliance’s revenue (FY2011) was subject to contract.

• Essential and tailored services to the growing Australian mining and energy sector

  • Alliance provides tailored services by offering optimal flight schedules, cost efficiencies and a sufficient level of capacity to meet emerging customers’ requirements.

• In-house heavy maintenance capability

  Alliance maintains its own in-house heavy maintenance capability, which means it has the benefit of:

  • quality control;
  • lower cost;
  • optimising asset utilisation;
  • maximising availability; and
  • limited third party reliance.

• Robust contracting model

  • The impact of changes in Alliance’s operating costs such as exchange rate and fuel price fluctuations, CPI movements and variable service charges such as security, passenger taxes and catering, are typically passed through to the customer.
  • Contracts are also typically negotiated on a per flight basis rather than by number of passengers.

• Excellent record of meeting customer requirements: safety, reliability and on-time performance

  Alliance has a track record of meeting and exceeding performance and reliability standards achieved through:

  • owning and operating its fleet of aircraft;
  • operating in-house heavy and line maintenance facilities;
  • not operating RPT services; and
  • having the ability to tailor operations to the needs of its FIFO customers.

• Highly experienced Board of Directors and management team focussed on financial control and profitability

  • Many of Alliance’s Directors and senior managers have significant periods of service with the Company. The team has delivered strong growth in revenue and profit for almost a decade.

• High levels of staff retention and industry leading industrial relations

  • Alliance maintains high levels of staff retention with an average term of employment of permanent employees of 3.1 years and has a strong industrial relations track record with no industrial disputes or adverse industrial actions during its history.

F. Key information on the experience and background of the Directors and key management

• Who is in control of Alliance and what is their expertise?

  The Directors are Steve Padgett (non executive Chairman), Scott McMillan (Managing Director & CEO), Hugh Jones (non executive Director), Peter Housden (non executive Director) and
  

  David Crombie (non executive Director).

  The senior management of the Company are Scott McMillan (Managing Director & CEO), Jeff Childs (Chief Financial Officer), Ken Crawford (General Manager – Commercial), Craig Duncan (General Manager – Network & Operations), Chris Slack (General Manager – Engineering), Tracie West (General Manager – Human Resources & Development) and Phil James (Flight Operations Manager – Chief Pilot).

  The interests of Directors and senior management are set out in part G of Section 1 and Sections 6.3, 7.1.6, 9.4 and 9.5.4.

G. Significant interests of key people and related party transactions

• Who are the Existing Shareholders and what will be their interest at Completion of the Offer?

  

  The Existing Shareholders are the current owners of the Alliance Entities. The Alliance Entities will be sold to the Company for $111.4 million, comprising approximately $41.8 million cash (37.5%) out of the proceeds of the Offer, and $69.6 million scrip (62.5%) pursuant to the Share Sale Agreement.

  The Existing Shareholders have agreed to enter into voluntary escrow deeds in respect of their respective shareholdings retained following the Offer. Subject to certain exceptions, the escrow will apply from Listing until the date Alliance releases its audited financial accounts for the period ending 30 June 2012.

  The escrowed Shares may be disposed of in certain circumstances if a takeover offer is made to acquire all of the Shares or there is a merger by way of a scheme of arrangement.

  As stated in part C of Section 1, loans from Existing Shareholders to the Alliance Entities will also be repaid out of the proceeds of the Offer.

• What is the Existing Shareholders’ relationship with Alliance?

  • Scott McMillan is the Managing Director of Alliance.
  • Steve Padgett and Hugh Jones are Directors of Alliance.
  • Stephen Bond and Charles Jacobsen are directors of the Alliance Entities and will resign from these offices on completion of the Share Sale Agreement and prior to Listing.

• What significant benefits and interests are payable to Directors and other persons connected with the issuer or the Offer?

  These are the interests of Directors:

   

  Other management are entitled to remuneration.

  Advisers and other service providers are entitled to fees for services.

  Further details of these benefits and interests are set out in Sections 6.3, 7.1.6 and 9.4.

H. Key terms and conditions of the Offer

• What is the Offer?

  The Offer is an initial public offering of 46.5 million Shares to be newly issued by Alliance Aviation Services Limited.

  The Shares being offered will represent approximately 51.6% of the Shares on issue on Completion of the Offer, and are being offered at an Offer Price of $1.60 per Share.

• Is the Offer underwritten?

  The Offer is fully underwritten by Credit Suisse.

• Will the Shares be listed?

  Alliance has applied to ASX for admission to the official list of ASX and quotation of Shares on ASX under the code AQZ. Completion of the Offer is conditional on ASX approving this application.

• How is the Offer structured?

  The Offer comprises:
  

  • the Broker Firm Offer;   
  • the Institutional Offer; and
  • the Employee Offer.

I. Dividends

• When will dividends on the Shares be paid?

  The ability to pay dividends and frank dividends depends on a number of factors. Directors anticipate an annual dividend payout ratio of up to 60% of net profit after tax. It is expected that dividends will be fully franked and paid in April and October each year, with the first dividend paid in October 2012.

  Shares issued under this Prospectus will rank equally with those shares issued to Existing Shareholders pursuant to the Share Sale Agreement. Accordingly, they will be entitled to any final dividend payable in October 2012 declared out of the profits of the Company for the six month period to 30 June 2012.

  The ability to pay dividends depends on a number of factors. The Directors do not provide any assurance of the future level of dividends or the extent to which they are fully franked. However, as the majority of Alliance’s profits are derived in Australia, franking credits should be generated.

J. Further Information and withdrawal of Offer

• Where can I find more information about this Prospectus or the Offer?

  Customer service representatives are available between 8:30 am and 5:00 pm (Brisbane time), during the Broker Firm Offer period (Monday, 12 December 2011 to Tuesday, 13 December 2011), by calling the Share Registry on 1300 553 490 (within Australia) or +61 2 8280 7914 (outside Australia).

  For investment advice, Applicants should contact a financial or other professional adviser.

• Can the Offer be withdrawn?

  Alliance reserves the right not to proceed with the Offer at any time before the issue of Shares to successful Applicants.

  If the Offer does not proceed, Application Monies will be refunded. No interest will be paid on any Application Monies refunded as a result of the withdrawal of the Offer.