Sunday, January 31, 2016

This company detects aircraft cracking and its shares are up 287 percent this year

Delta Air Lines is using Structural Monitoring System's sensors to detect fatigue on some of its aircraft.

It is every airline's worst nightmare: an undetected crack developing on an aircraft that leads to an extreme event in flight, such as the explosive decompression of Aloha Airlines flight 243 that swept a flight attendant outside the Boeing 737 to her death in 1988.

US carrier Delta Air Lines, which has an average fleet age of 17 years - more than double that of Qantas - has become the first airline to use technology developed by locally-listed Structural Management Systems (SMS) in Perth to monitor aircraft structural fatigue with an array of sensors.

SMS shares have risen by 40 percent to $1.47 since it received approval in late December from the US Federal Aviation Administration (FAA) and Boeing for its technology after a test program with some of Delta's 737s.

Overall, SMS shares have risen by 287 percent over the last 12 months, compared with a 10.1 percent fall in the benchmark S&P/ASX200 index over the same period.

The FAA and Boeing approvals mean SMS has the only commercially-approved technology for on-aircraft monitoring of cracking and structural fatigue in the world. The sensors are placed on the aircraft and help provide early warning of any developing cracks.

SMS managing director Toby Chandler said the technology worked on aluminium and composite airframes and therefore could be employed on commercial aircraft from all manufacturers, including Boeing, Airbus, Embraer and Bombardier, as well as on helicopters.

He said the initial FAA and Boeing approvals meant it should be much faster and easier to gain additional approvals for various types of applications on aircraft in the future.

"Going forward the ability to identify new applications which would be done in partnership with operators and [aircraft manufacturers] will be simpler," Mr Chandler said. 

"For Delta and a lot of operators, the long term iteration for our technology will be to have the [manufacturers] delivering new aircraft with structural health monitoring systems installed at the point of sale."

For the customer, the cost of the sensor arrays, which are manufactured in Canada, is typically at most up to $US20,000. That is significantly less than the typical loss of revenue from an airline grounding an aircraft for a mandated inspection under an airworthiness directive related to fatigue.

The SMS technology has been approved by Boeing as an alternate maintenance program to conventional inspections.

Mr. Chandler said SMS has had programs underway with Airbus and Embraer for some time to develop sensors appropriate for use on those aircraft.

SMS is working to develop a business model that centres on licensing the technology rather than just selling the physical equipment.

He said this year would prove key for the company, which listed more than 10 years ago but has not been in a position to broadly commercialise the technology until now.

"We are now going to move into a much more proactive commercial phase," Mr Chandler said. 

The company had $482,000 of cash as of December 31, but it has already warned investors it plans to undertake a capital raising of around $1.5 million later this year to help it hire more employees in North America and Europe.

Based on its current market value of $146 million, that would involve minimal dilution to existing shareholders, including Mr Chandler.

Mr. Chandler sold $3 million of shares in the company in January alongside smaller sales by two other directors, but he still holds a 5 per cent stake and said he has no plans to sell further shares anytime soon.

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