UK's Menzies sets out case for keeping company united

* Menzies CEO wants to keep both businesses together

* Problems at Gatwick, Spanish contract loss hit profits (Adds financial results, context)

By Esha Vaish

Aug 18 (Reuters) - John Menzies Plc (LSE: MNZS.L - news) , facing pressure from investors to consider splitting its two businesses, said that keeping its newspaper and magazine distribution and aviation units together was the "best way forward".

The more cash-generative distribution arm could provide the firepower needed to expand an aviation business that offers baggage handling and other airport services, Chief Executive Jeremy Stafford told Reuters on Tuesday.

"The aviation business has a great deal of opportunity around the world and as we take full advantage of that opportunity it requires substantial amount of cash to sustain our leading position in that market," Stafford said.

"Having a very strong cash-generative business working alongside it gives us a winning formula."

The pressure on Menzies management to deliver on its strategy is likely to grow after it reported a near 60 percent fall in pretax profit to 5.8 million pounds ($9 million) in the six months ended June 30.

Operational problems at London's Gatwick airport and the loss of a major contract with Spanish airports hurt its aviation unit, the company said on Tuesday.

Shares (Berlin: DI6.BE - news) in the company fell as much as 7.5 percent, before paring some losses. They were down 3.5 percent at 475 pence at 0940 GMT.

Shareholder Lakestreet Capital Partners AG suggested in April that Menzies should consider splitting up, believing that both the units would be worth more separately.

While Kabouter Management, Menzies' largest independent investor with a stake of about 10 percent, echoed the sentiment, it was unclear if Lakestreet was able to garner the support of the Menzies family, which controls just over a fifth of the company's shares through various holdings.

Menzies has been seeking to expand its aviation business as dwindling demand had limited growth at the arm that distributes the Financial Times and the Independent in Britain.

Lakestreet is now among Menzies' top 5 shareholders after disclosing in a filing on July 3 that it had raised its stake to 6.027 percent from the about 3 percent held at the time of its April statement.

Menzies' stock had risen roughly 26 percent since Lakestreet's April statement, valuing Lakestreet's holding at slightly over 18 million pounds. ($1 = 0.6416 pounds) (Editing by Keith Weir)