Bermuda Aviation Services Ltd. (BAS) boosted its profits by almost $2.5 million during fiscal 2010 after Government was ordered by Bermuda's Supreme Court to pay more than $445,000 in damages and costs for contravening the company's exclusive rights to offer private jet services at LF Wade International Airport.

The company reported net income of $5.5 million during the year compared to $3 million in fiscal 2009, despite revenue being down slightly at $50.5 million from $55.7 million over the same period.

BAS was awarded damages of more than $202,000 and was reimbursed almost $243,000 in legal fees following the court ruling last year and the company agreed to waive its exclusivity to offer the service in exchange for all leases held by BAS and its subsidiary Aircraft Services Bermuda Ltd. (ASB) with Government being extended to 2019 with rental increases restricted to inflation and its subsidiary BAS-Serco having its service contract with Government extended from 2012 to 2014.

Also BAS's contract to operate the private jet base was extended from 2014 to 2019 and it was agreed that if, through any act of Government, the company had to cease operating the base, it would be compensated with an amount equal to the average earnings of the base for the previous three years and be no less than $1.2 million.

In addition BAS was reimbursed $750,000 for the investment it made in Apron II and compensated $2 million in potential lost revenue from giving up its exclusivity.

"While we expect that Government has intentions of facilitating the start up of another private jet base we feel it is important to note that in the intervening nine months, since we had signed the agreement and the writing of this report, BAS has remained the only provider of private jet services at the LF Wade International Airport," wrote Ken Joaquin, group president and CEO in his management report.

"Management, seizing the opportunity, has used the proceeds from the agreement to unencumber the BAS balance sheet and settle the remaining $2.6 million borrowed to finance previous acquisitions.

"It is management's opinion that the local economy will remain in a lull for the next 18 to 24 months and therefore a key objective was to take action to secure the company's cash flows and position it to take advantage of any opportunities that might arise.

"Setting the company's debt was seen as pivotal to accomplishing this objective."

Mr. Joaquin went on to say that the agreement reached with Government was vindicated as the company focused on cost containment and cash preservation going into 2010, with Bermuda's economy showing clear signs of being in a slump highlighted by a slow down in construction, falling retail sales and rising unemployment.

The impact was felt by BAS, he said, with revenues down $5 million on the previous year, but that was partially offset by a reduction in overall operating expenses by about $4 million from $52 million in 2009 to $48 million in 2010.

And despite the economic conditions, Mr. Joaquin said, the fact that the company had made an operating income of $2.4 million, albeit down from $3.7 million in the prior year, performing well with several parts of the business excelling over the period. ASB was the only subsidiary which struggled due to a lacklustre aviation industry through a continued decline in commercial airline traffic and new competition in ground-handling.

Having lost three legacy carrier contracts, ASB was forced to adjust its staffing levels and incur significant redundancy costs.

"Challenged with aggressive competition in a smaller aviation market against a competitor with non-unionised personnel has forced a re-think of our business processes," said Mr. Joaquin in his report.

"Where initially it was thought the loss of three legacy carriers would prove devastating it has actually proven to be opportunistic. It has allowed ASB to restructure its labour overhead by right-sizing the company and to focus on niche ancillary services.

"While the company has incurred expensive restructuring costs, we believe ASB will emerge better for it as we have devised ways to do more with less."

Meanwhile BAS-Serco exceeded corporate expectations and last year's operating result by 44 percent and 15 percent respectively, while fellow subsidiary Weir Enterprises has proved to be immune to any detrimental changes in the economy, following up on last year's record earnings with operating results that exceeded the previous year by 24 percent.

Elsewhere subsidiary IBC exceeded both budgetary expectaElsewhere subsidiary IBC exceeded both budgetary expectations and last year's earnings with a revenue base almost 15 percent lower than in 2009.

"Whilst we want to believe local and global economic recovery is a certainty, particularly in the local context, we anticipate a slow, gradual recovery over the long-term," wrote Mr. Joaquin.

"Consequently, like the fiscal year just ended, our focus for the next 12 months will remain on cost containment and cash preservation. Despite the slightly pessimistic economic outlook, we still think that these are exciting times for BAS.

"As the company enters the second debate of the new millennium we believe BAS is well positioned to take advantage of opportunities that may arise in Bermuda's shifting economy."

Michael Darling, chairman of BAS, writing in the same annual report, said that despite going through one of the most difficult economic periods since the early 1980s, the company had come out of this year with "positive and very satisfactory results".

He pointed to the company's strength in diversity and attributed BAS's shares trading below $5 despite consistent profitability and dividend distribution, in part, to the overall decline of the Bermuda Stock Exchange.

"I believe that we will continue to face challenges in the year ahead as the local economy remains depressed," he wrote. "However, we are optimistic that despite this, through aggressive management, we will steer a steady course."