BAS Submits Chairman's Report To BSX

"Each year offers us new challenges at Bermuda Aviation Services Limited (BAS), with this most recent fiscal year being no exception. Despite the difficult environment, and because of our diverse holdings, fiscal 2003 has proven to be the second best year in the company's history in terms of net earnings and earnings from operations.

Whilst revenues in our aviation businesses declined $1.4 million, total consolidated revenues were ahead by 2% or $0.4 million to $19.5 million. Earnings from operations for the period were ahead by 18% or $0.3 million to $1.9 million. Net earnings for the period were ahead $0.2 million or 11% to $1.7 million whilst expenses during the period increased by a mere 1.1%. The company not only performed well, but performed to our expectations during the period and we are extremely appreciative of the efforts of the more than 240 dedicated and hard working people that contributed to this success. They again pulled together to deliver these excellent results allowing most of our businesses and divisions to perform to plan and increase our earnings per share by 11% to $1.64.

The dividend of $0.60 per share paid during the year in review equates to 37% of the company's net profits having been returned to its shareholders. Trading in our shares, as usual, was very light with the highest trade during the year being $7.50.

These achievements came in a year when the entire aviation industry was thrown into fiscal turmoil as increased costs, decreasing passenger loads, the onset of SARS and new security regulations and increased competition caused massive losses. Each of the carriers serving Bermuda faced real challenges, with some posting unprecedented losses. Bankruptcy became a real consideration for more than one. Those that managed to post modest profits, although faring better, were by no means less challenged. At the time of this writing those challenges have not abated. As a result of the difficulties they, our customers, faced, the company was forced to reduce its costs of service in an effort to assist. These factors made for a difficult year putting pressure on our revenues that were further compounded by lower passenger loads and much reduced schedules, particularly in the last six months.

The divisions of Aircraft Services Bermuda Limited (ASB) were the main contributors to the profits posted in the aviation sectors of the company. Bermuda Aviation Services which is comprised of our catering kitchen, terminal bar and central services did not fare quite as well. With revenue in this company falling $1.5 million, it suffered a sizeable loss. A good portion of this loss can be attributed to a $1.6 million decline in revenues in our in-flight catering department. The division did produce an operating profit for the full year.

Our catering division will continue to challenge us as revenues in this division will continue to decline. In May of this year we received notice from American Airlines that they would no longer require these services from BAS as they plan to either eliminate catering altogether or have supplies on board on arrival. British Airways has also made their intention known that they will reduce their requirements sometime in 2003. Management continues to make the appropriate operational changes to ensure that the division remains viable and is able to provide the services required whilst maintaining the ability to make a reasonable contribution.

Weir Enterprises Limited has proven to be a great investment with its performance exceeding expectations. This major change in our business portfolio has contributed significantly to our earnings. The acquisition has strengthened BAS and should assist in producing gratifying results for you, our shareholder, for years to come. Customer satisfaction in this division remains exceedingly high.

All other companies performed to plan with Crow Lane Bakery Limited showing a 12% increase in its bottom line over the same period a year ago. The company continues to gain market share as we focus on both the quality of our product and the service we provide to our clients. The bakery saw a small decline in revenues, but control of costs helped to produce the increase in profit. We are extremely pleased with the consistent contributions it has made over the years and acknowledge the fine management and staff of this company. Management is presently reviewing the operation with a view to making a determination as to whether further investment will realize a commensurate increase in market share and profits.

D. E. Mortimer also posted improved results. The company continues to introduce new products and is diligent in its efforts to affirm its commitment to service and quality and good value to its customers. Sales for the year were ahead 7%. After receiving an offer from the original shareholders, BAS is considering the sale of this business. There is no formal plan of disposal at this time and the business continues to operate as normal. If the sale option is pursued, BAS will continue to be involved in D. E. Mortimer through the management of their accounting. BAS will also continue to rent to them facilities that will remain the property of BAS.

We continue to market the services of BAS-Serco to both the public and private sector. And although we have not been successful in being awarded any new contracts, interest remains very high. BAS-Serco continues to enjoy success in the two major contracts it has in Bermuda.

The management of BAS remains diligent in its efforts to look for new opportunities in an effort to generate revenue and raise in particular, the performance of the aviation business. In July of 2002 the company entered into a joint venture with Safeguard Security Services Limited to form a new security company, specifically to provide security services at the Bermuda International Airport. Regretfully our bid was unsuccessful.

There is no doubt that the business climate for some of our companies will be difficult in the near term. Conflict in the Middle East, SARS and a soft economy in our major market, the United States, has thrown another layer of cloud on the prospects of meaningful improvement in Aviation in general and tourism in particular. Nonetheless BAS has proven to be a strong company during very difficult times and has the will and competencies to successfully overcome such hurdles. We will continue to seek new opportunities and act decisively when they are presented. We will not however, lose focus on the disciplines needed to deliver the desired results that our shareholders expect as we pursue new ventures. Our focus on cost and capital management will continue. With these disciplines and an aggressive goal designed to accelerate the reduction of our long term debt, we are confident that we can continue to deliver solid earnings. Your company has developed solid leadership and sound strategies in each of its businesses. Your board has every confidence that they will continue to provide a good environment for our staff and good return to you, our shareholders."

Signed by:

W. Neville Conyers

Chairman