Investors bail out of air traffic controller Adacel as profit guidance is slashed

Air traffic controller Adacel Technologies has been hammered this morning after the loss of a US Federal Aviation Administration contract caused a profit downgrade.

Adacel (ASX:ADA) makes advanced simulation and training solutions and operational air traffic management systems. In February this year it won a $4 million contract to modernise Fiji’s Nadi Airport air traffic.

The company told investors this morning that its profit for the first half of the 2019 financial year would be “65 to 70 per cent lower” than the $3.5m Adacel reported for the first half of the 2018 financial year.

It said its first-half performance was impacted by the loss of a US Federal Aviation Administration contract for field support to a new entrant in the US.

That news was first reported hidden deep within the chairman’s address to shareholders at the company’s 2017 AGM.

“In the last 24 hours we have been notified that the Federal Aviation Administration intends to award components of a new field support contract, currently provided by Adacel, to a small engineering and support services company,” chairman Peter Landos said at the time.

Strikingly, he then said “the financial impact for the 2018 financial year is not anticipated to be material”.

Adacel’s shares fell 46 per cent on the news, down to 82c.

Adacel shares (ASX:ADA) over the past year.

The company said the second half of the financial year would be stronger, but that full-year profit would be 25 to 35 per cent lower than the $8.4m reported for 2018.

It said that the reduced forecast included increased investment in research and development, sales and marketing.

It is also suing Adsync Technologies, the small engineering and support services company that took the FAA contract, for “breach of contract and infringement of intellectual property rights”.

“The company is pursuing all available legal avenues, including recoupment of appropriate financial damages and costs,” it said.

“We are also mindful to the importance of our long-standing and strong relationship with the FAA, one of the company’s oldest customers. We will work hard to ensure this relationship remains positive and that opportunities for us to work closely with the FAA on their air traffic control training requirements will continue to meet the high standards Adacel has delivered for many years.”

It will remove all revenue connected with the FAA from its FY19 forecasts “until a resolution is clear”.