Avoid the descent at BBA

The biggest concern for investors is the slowdown in business jet flying activity in the US - the most important market for companies like BBA. During the recession, it was thought demand would pick up as wages and budgets recovered. But it seems there's been a shift in the corporate conscience, and flying executives in private jets around the world is increasingly considered indulgent. BBA, which mainly offers after-market and flight support services, is therefore bound to struggle to match its pre-recession workload, even with a tailwind from lower fuel prices.

Last year, the after-market division (which accounts for 41 per cent of BBA's operating profit) reported softer than anticipated revenue and, despite a resilient performance from the flight support division (59 per cent of operating profit), the group's overall operating profit rose by just 1 per cent to $201m (£132m).

At the time, BBA perceived an uptick in the US business and general aviation market. The company was right to think so. In March, after a stagnant start to the year, US business jet flying activity rose by over 3 per cent year on year. However, the improvement was shortlived and in April and May this year demand softened once more. According to the Federal Aviation Administration (FAA), four of the past five months have shown growth of less than 1 per cent in the US, compared with market assumptions of 4 to 5 per cent growth a year. That leaves bullish investors relying on an acceleration in growth to above-average rates if expectations are to be met this year. The story is even worse in Europe. Of the past 44 months, 36 have seen year-on-year declines in business jet flying activity, and over the past 12 months the number of flights has fallen to a nine-year low.

As such, analysts at Liberum have cut EPS forecasts for BBA for the current financial year, saying it's getting harder to dismiss slowing growth as the result of winter weather disruption or timing of public holidays. Instead, we may be seeing a structural shift in the market, which would result in weak demand for BBA's Signature Flight Support business in the longer term. However, even the broker's revised estimates reflect a recovery next year, despite little evidence such a recovery will materialise.