Bermuda Aviation Services Ltd. has posted record results for the second year running - but the company predicted a softening economy with lower revenues as airlines demand cheaper products.

BAS' net income rose by a massive 63 percent, to $2.1 million, and revenue was $19.7 million, up $19.7 million from the year before.

Bermuda Aviation Services Chairman, W. Neville Conyers, warned the challenge in the future would be to keep up the profitability levels achieved over the past five years.

He said: " With an economy that is softening, and an ever declining tourist base, our airport operations will continue to come under pressure. And whilst we welcome any initiatives that will improve our visitor numbers, we are painfully aware that growth if any, will be minimal."

He said that the way to maintain profitability was to diversify to provide extra revenue:

"Continued diversification we believe, is our best opportunity for growth and increased profitability."

He added: "Contract negotiations with our airline clients although cordial, have been long and arduous as they face their own challenges and rightfully point out how expensive it is to operate in this jurisdiction.

"They demand we become more efficient, rather than look to them to compensate for what they perceive as jurisdictional challenges."

He said BAS will continue to reset its financial goals, both top line and bottom line, to adjust for "what will be a difficult industry for some years to come".

He said: "Whilst the potential of lower revenues are worrying, we will compensate by applying the appropriate resources to the demands of the market."

He said that 2001 was a year of significant progress in the company's efforts to improve it profitability and its performance shows significant gains over the previous record year of 1999 when new levels were set for revenue, net income, and earnings per share.

He said: "Whilst the fiscal year under review certainly offered its share of challenges, Bermuda Aviation Services not only remained profitable, but continued to maintain a position of minimal long or short term debt."

The only grey cloud for last year was BAS stock which the company said had a relatively low valuation during the year, closing at $6.50 at the company's year-end.

Mr. Conyers said: "With earnings per share increased from $1.22 to $1.99, our shares represent a good investment for those holding them."

In addition to the increase in revenue and earnings, operating profits were up 56 percent to $2.15 million.

Mr. Conyers said: "The results underscore the focus of our management as they correctly forecasted the declines in our core businesses and made the necessary adjustments to compensate.

"We are again fortunate that all divisions of the company continue to contribute to our success with the one exception being our bars and restaurant business at the airport.

"The bakery and retail divisions continue to attain our targeted revenue growth, and although bottom line results have not kept pace we are pleased with our gains in market share."Mr Conyers said the company continued to invest in the infrastructure of the division and this year will complete the upgrading of all outlets to a standard that he said will meet the demands of their customers.

He added: "Our immediate challenge will be to maintain the same acceptable levels of profitability we have enjoyed for the past five years."

In his letter to shareholders, he said contributions from non core businesses and new initiatives will mitigate some of the expected declines.

He said the company's strategy was to continue to use cash flows to fuel expansion and acquisitions that will benefit the existing businesses.

Mr. Conyers said that the company's focus will be on less labour intense projects, which will offer better opportunities for growth without significant expansion of capital, and the company is now investing in developing back office and financial support systems.

He said that the company was entering 2002 with positive momentum.

He said: "Our sustained successes are not the act of any one person in the organisation, instead they have been realised by the acts of many. So many people deserve thanks for their tireless efforts and support."

The company also declared a dividend of 15 cents per share to shareholders of record august 3, 2001, representing a 7 percent increase in the quarterly dividend. The directors of the company declared a special dividend of 5 cents per share to all shareholders of record.