SIA Engineering embarks on three-pronged approach to capture growth 

SIA Engineering : S59 +0.86% is looking to three areas for expansion and building capabilities &ndash its core business, joint ventures (JVs) as well as mergers and acquisitions (M& As) &ndash even as it copes with the upcoming full recovery at Changi and captures opportunities from airlines racing to reinstate their flights.

 

Chin Yau Seng, chief executive officer, said: &ldquo Obviously, each of those three components (core business, JVs and M& As) will occupy different degrees of our bandwidth and time on the management side.  

 

&ldquo In today&rsquo s world, you cannot do things sequentially, there are many things that have to be done in parallel, because the opportunities don&rsquo t come knocking twice.&rdquo

 

Chin took over the reins of the Singapore Airlines&rsquo (SIA) : C6L +0.32% listed aircraft maintenance, repair and overhaul (MRO) subsidiary in October, crossing over from the airline&rsquo s cargo division.

 

SIA Engineering has four segments in its core business: line maintenance, base maintenance, engine services and component services. 

 

Line maintenance involves services carried out at the airport apron during transits and night stops, such as pre-flight aircraft checks and certification, scheduled light checks and maintenance, and cabin maintenance. 

 

Base maintenance entails scheduled heavy checks carried out in a hangar for airframe structural repair and modification to ensure aircraft airworthiness, as well as cabin refurbishment and modification. These require more time and resources. 

 

Maintaining its lead

SIA Engineering uses a network strategy for both line- and base-maintenance operations.

 

It is investing in new ventures, including one each in South Korea and Cambodia, to expand its line maintenance network. Currently, it has a presence in 36 airports in seven countries and a territory, excluding the two latest ventures.

 

Customers would then be able to undergo line maintenance over at these stations instead of at only one location, with the maintenance broken into several tasks at several airports.

 

For base maintenance, SIA Engineering has sites in Singapore and the Philippines. It is now in the process of setting up a base with two widebody hangars in Malaysia.   PHOTO: CHERYL ONG, BT

Chin noted: &ldquo If certain things cannot be accomplished in Singapore, because (there is) not enough ground time as the aircraft is being utilised very, very highly, we then will be able to plan such that we accomplish some of these tasks somewhere in the network.&rdquo  

 

He added that the new generation aircraft spend a lot less time at the hangar but more at the line.

 

For base maintenance, SIA Engineering has sites in Singapore and the Philippines. It is now in the process of setting up a base with two widebody aircraft hangars in Malaysia. &ldquo We are now no longer shackled to just what we have in Singapore, but able to offer that network or that suite of offerings. Singapore will continue to be the key centre, because a lot of key capabilities are here.&rdquo

 

SIA Engineering aims to offer the same quality, reliability and turnaround times to customers at the overseas sites that they have enjoyed in Singapore. That will be a challenge to the firm, to make sure its operating system is applied consistently across the network.  

 

Queried about any possible overcapacity, Chin said that SIA Engineering assesses demand based on aircraft growth. &ldquo So, (if) you look at the fleet orders, (you will know) the aircraft are coming. You have to create the capacity hangars are not built overnight.&rdquo

 

SIA Engineering will also seek out opportunities through its joint ventures and associated companies, which contributed S$50 million in earnings to the MRO player &ndash the lion&rsquo s share of the group&rsquo s net profit of S$59.3 million &ndash in the first half of FY2024 to September. 

 

Its JVs in the engine and component segments accounted for 97 per cent of the S$50 million profit due to faster recovery and their ability to pass on more cost increase to customers. 

 

The group has 24 subsidiaries, JVs and associated companies, which revolve around its core MRO business in both the airframe- and line-maintenance segments and the engine and component segments. Its partners in many of these JVs are the original equipment manufacturers (OEMs).

 

For example, the firm has two engine JVs: Eagle Services Asia, with Pratt & Whitney and Singapore Aero Engine Services (SAESL) with Rolls-Royce. Both are based in Singapore, and SAESL is the world&rsquo s largest MRO facility for all variants of the Rolls-Royce Trent engines.

 

SIA Engineering is working with both of them to expand their businesses further to capture the &ldquo tremendous&rdquo growth opportunities. &ldquo That&rsquo s just one example&hellip we think there&rsquo s a lot more opportunity to grow in the JV space. And that would be a good source of returns going forward, you know, as we continue to invest in those businesses,&rdquo Chin said.

 

SIA Engineering uses a network strategy for both line- and base-maintenance operations. PHOTO: CHERYL ONG, BT

Meanwhile, SIA Engineering is looking out for takeover targets to expand the scope of its business and to capture new opportunities, for instance, in new aircraft technology. 

 

In May 2022, the Singapore firm purchased a 75 per cent stake in a component MRO shop, SR Technics Malaysia (now renamed as Asia Pacific Aircraft Component Services or Apacs), with the original Swiss owner retaining the remaining 25 per cent stake. 

 

Apacs recently obtained additional licences from Honeywell, enabling it to perform repair activities on more of the American maker&rsquo s aircraft component types, thereby growing both its capability as well as revenue, Chin noted.

 

Geographically, South-east Asia will be SIA Engineering&rsquo s prime focus, so as to be a &ldquo very strong player in this part of the world&rdquo . 

 

However, it is also eyeing India and mainland China, the two booming aviation markets.

 

SIA Engineering does not have a presence in mainland China currently, but it recently signed a memorandum of understanding to explore opportunities in Fujian.

 

SIA Engineering has provided some MRO works to Air India in Singapore when the airline put more of its planes to the skies after being acquired by Tata Group. &ldquo We supported them and created quite a good working relationship that allows us to build for the future.&rdquo

 

However, it would be &ldquo commercial&rdquo without any edge over others for SIA Engineering in getting more business from Air India, Chin said. This is despite SIA set to own about 25 per cent of the Indian carrier and Air India now being helmed by Campbell Wilson, former chief executive officer of Scoot, the low-cost subsidiary of SIA. 

 

Chin Yau Seng, SIA Engineering chief executive, says: &ldquo In today&rsquo s world, you cannot do things sequentially, there are many things that have to be done in parallel, because the opportunities don&rsquo t come knocking twice.&rdquo PHOTO: CHERYL ONG, BT

Budget airline turbulence

SIA Engineering slipped into an operating loss of about S$300,000 for the second quarter, partly due to the debt impairment provision arising from the suspension of its Malaysian customer MYAirline. It declined to disclose the allowance set aside for uncollected payments from the low-cost airline.

 

MYAirline announced in October that it had suspended all operations with immediate effect, citing financial problems. It came a year following a 10-year agreement with SIA Engineering for support services.

 

Currently, 21 per cent of the MRO firm&rsquo s line maintenance customers at Changi Airport are low-cost carriers, up from 18 per cent as at the end of pre-pandemic Q2 FY2020.

 

Chin said that the firm already has a credit control programme, but MYAirline&rsquo s suspension came abruptly. 

 

&ldquo We were caught out a little bit. But the exposure, I would say, it&rsquo s not so huge. Having said that, we have some lessons learnt there, for us to be able to monitor even more actively than in the past. Today, we already have a very structured programme to monitor the credit now (we are) just looking at being able to refine it to capture cases like that where the risk is heightened, so to speak.&rdquo

SIA Engineering Company : S59 +0.88% (SIAEC) recorded an 82.6 per cent increase in profit to S$59.3 million for the six months ended Sep 30, 2023, from S$32.5 million the year before.

 

Revenue rose 41.9 per cent to nearly S$514 million in H1, from S$362.2 million a year ago, on the back of a rebound in the travel sector, with flight activities growing post-pandemic, said the group in a bourse filing on Thursday (Nov 2). 

 

This brings earnings per share to 5.28 Singapore cents, up from 2.89 Singapore cents the previous year. 

 

An interim dividend of two Singapore cents per share was declared for the half year, which will be paid out on Nov 29. No dividend was declared in the preceding year-ago period.

 

Revenue was higher across all operating segments, the aircraft maintenance provider noted. The engine and component segment grew 67.5 per cent year on year to S$115.4 million in H1. Meanwhile, revenue came in at S$398.6 million for the airframe overhaul and line maintenance segment, up 35.9 per cent from the previous year. 

 

Share of profits of associated and joint-venture companies rose 20.8 per cent year on year to S$50 million in the half year. This was driven by an increase in demand for aircraft maintenance, repair and overhaul services (MRO) as flight activities recovered, SIAEC said.

 

&ldquo With robust traffic recovery in Changi Airport, the number of flights handled by our line maintenance unit in Singapore reached 87 per cent of pre-pandemic levels in the period, compared to 55 per cent a year ago.&rdquo  

 

Volume of inductions at the group&rsquo s joint-venture engine and component shops also climbed in H1 despite supply chain disruption and parts shortages, it pointed out. 

 

Meanwhile, expenditure rose 37.8 per cent to S$513.9 million, due to an increase in manpower, materials and equipment costs, as well as a debt impairment provision for a customer that has suspended operations, it said. 

 

SIAEC said that although the rebound in its performance is encouraging, headwinds still lie ahead &ndash namely macroeconomic and geopolitical uncertainties, inflationary pressures, supply chain disruptions and a tight labour market. 

 

&ldquo These could weigh on business demand and operating margin recovery in the near term,&rdquo it said. &ldquo As part of our ongoing efforts to stay competitive, we continue to drive productivity and efficiency through our continuous improvement programme while closely managing costs amid inflationary pressures.&rdquo  

 

The group added that it will continue to seek organic and inorganic growth opportunities to broaden its customer base and strengthen its position as &ldquo a leading provider of MRO services in the Asia-Pacific region&rdquo . 

 

SIA Engineering Company S59 -1.67% has signed a legally non-binding memorandum of understanding (MOU) with Xiamen Iport Group (Iport Group). Iport Group owns and operates airports in Xiamen, Fuzhou, Wuyishan and Longyan in China.

 

The objective of the MOU is to establish a framework for both SIA Engineering Company and Xiamen Iport Group to work together and identify potential areas of collaboration.

 

Under the MOU, both parties will explore maintenance, repair and overhaul (MRO) opportunities in Fujian, China. The MOU will leverage SIA Engineering Company&rsquo s comprehensive MRO service offerings, certifications and maintenance capabilities and Iport Group&rsquo s extensive infrastructure and resources in Fujian.

 

No definitive or binding agreements have been entered into with SIA Engineering Company yet.

 

ON THE back of a steady recovery of the travel sector post-Covid-19, aircraft maintenance provider SIA Engineering Company&rsquo s : S59 -1.63% (SIAEC) net profit more than doubled to S$27 million for the first quarter of the financial year 2023 and 2024 ended Jun 30, compared with S$12.8 million in the same period a year ago.

 

Gross revenue for the quarter jumped 52.7 per cent to S$261.9 million from S$171.5 million over the same period, driven by higher demand for the maintenance, repair and overhaul (MRO) of aircrafts, reported the mainboard-listed company in a bourse filing on Tuesday (Jul 25).

 

Basic earnings per share as at June 30 was 2.41 Singapore cents, up from 1.14 cents a year ago.

 

Operating profit was black for the first time since the onset of the pandemic at S$0.4 million, compared with a loss of S$4 million a year ago.

 

Expenditure also increased, but at a slightly lower rate of 49.0 per cent, to $261.5 million. This was mainly due to higher manpower costs and material costs, as well as the absence of government wage support.

 

The number of flights handled by SIAEC&rsquo s line maintenance unit in Singapore recovered to 84 per cent of pre-pandemic levels.

 

The company also said that more hangar checks were completed, while its component and engine shops continued to see a sustained increase in work demand, consistent with increased flight activities.

 

A similar trend was observed in the work volume from airline customers under the inventory technical management programme.

 

However, SIAEC also noted that, even as demand has been increasing, supply chain issues still persist in some parts of the business. Nonetheless, the operational impact still remains manageable.

 

SIAEC said that the outlook for global air travel demand continues to be strong.

 

&ldquo While this bodes well for demand for MRO services, further recovery in MRO demand will be at a slower pace than the rate of recovery over the past year as airlines manage various constraints to return fully to pre-pandemic flight levels,&rdquo read the filing.

 

&ldquo In addition, ongoing geopolitical tensions and macroeconomic uncertainties, inflationary pressure and supply chain disruptions present challenges to business recovery and operating margins.&rdquo

 

SIAEC said it will continue to be vigilant in managing cost and to drive improvements in productivity and efficiency.

 

&ldquo The Group will continue to seize opportunities to invest in broadening our MRO capabilities and expanding our geographical presence for further growth, while nurturing and managing our portfolio of partnerships and joint ventures,&rdquo read the filing.

AIRCRAFT maintenance provider handled 78.7 per cent of pre-pandemic flight volumes in March this year, but the next 20 per cent of recovery will not be as certain, chief executive Ng Chin Hwee said on Tuesday (May 9).

 

At a media and analyst briefing, he said macroeconomic factors could weigh on further growth.

 

Ng noted that airlines face aircraft availability constraints and difficulties recruiting crew. Inflation and a tight labour market, meanwhile, have placed upward pressure on wages.

 

In the second half of the group&rsquo s FY2023, net profit fell 20.4 per cent to S$33.9 million. This was despite a 43.4 per cent rise in revenue to S$433.8 million.

 

Notably, staff costs rose by 51.3 per cent to S$234.4 million with the government&rsquo s pullback of its wage support measures.

 

Chief financial officer Ng Lay Pheng said the rise in staff costs could also be attributed to increases in headcount and overtime pay as well as the lifting of pandemic-era pay cuts and no-pay-leave arrangements.

 

CEO Ng stressed that the company has been able to retain workers despite the headwinds that the industry faced during the pandemic.

 

&ldquo The labour market, obviously, is generally very tight... The aviation industry, at one point in the depths of the (Covid-19) crisis, was no longer seen as sexy...

 

&ldquo That posed some challenges (as we tried) to ramp up the recruitment of technicians as well as engineers, but it has not gone to the extent of affecting or disrupting our operations,&rdquo he said.

 

Of SIAEC&rsquo s line maintenance operations, the CEO said staff strength is almost 90 per cent of pre-pandemic capacity.

 

He noted that the company has had &ldquo some measure of success&rdquo passing through some of the wage cost increases, although it is also focused on driving higher productivity.

 

The company managed to sign new contracts with airlines such as Qantas and Air Macau, and renew contracts with others such as Air India and Thai Airways.

 

Work has been significantly skewed towards light maintenance checks over heavy checks. Light checks require fewer man hours, which could potentially mean lower revenue.

 

The number of light checks conducted at SIAEC&rsquo s Singapore base rose 63.2 per cent to 568, while the number of heavy checks went up by only 1.1 per cent to 94.

 

CEO Ng said that this was due to newer aircraft &ndash such as the Boeing 787 and the Airbus A350 &ndash requiring fewer man hours for checks.

 

&ldquo One can also make money from light checks. The secret is, obviously, to stay very efficient, to stay lean in our operations.

 

&ldquo Where there are light checks, we make sure we compact them and try to reduce the turnaround time so that more aircraft can come in,&rdquo he said.

 

Despite the drive to stay efficient, supply chain disruptions may also lead to parts shortages that could affect turnaround times.

 

&ldquo There are clearly some issues also with supply chains and that, indeed, can constrain the ability of the shops to... achieve the turnaround time,&rdquo CEO Ng said.

 

But he noted that such issues have largely been manageable, although he could not foresee how long the supply chain constraints would last.

 

SIAEC&rsquo s share price closed S$0.07 or 3.2 per cent higher at S$2.29 on Tuesday.

 

A DBS analyst report released on May 9 noted that the declared final dividend of S$0.055 per share was higher than expected, implying a dividend payout ratio of 93 per cent. It also represents a dividend yield of 2.4 per cent.

 

The chief executive said that while the company does not have a dividend policy, it aims to restore pre-pandemic levels of dividend payouts to shareholders.

 

AIRCRAFT maintenance provider SIA Engineering Company : S59 0% (SIAEC) recorded a 20.4 per cent fall in net profit to S$33.9 million for the six months ended Mar 31, 2023, from S$42.6 million the year before.

 

This is while revenue for the second half rose 43.4 per cent to S$433.8 million, from S$302.6 million a year earlier, as an increase in flight activities continued to drive demand for aircraft maintenance and overhaul services, said the mainboard-listed company in a regulatory filing on Monday (May 8) night.

 

While the recovery of flight activities following the lifting of pandemic-era border restrictions have led to a pick-up in demand for maintenance and overhaul services, the group saw expenditure rise by 39.9 per cent due to the progressive step-down of government wage support, as well as higher manpower and material costs.

 

Earnings per share stood at 3.02 Singapore cents for the six months, down from 3.79 cents the previous year.

 

A final dividend of 5.5 cents per share was declared for the full year. The dividend will be paid on Aug 11, after books closure on Jul 27.

 

For the full year ended Mar 31, 2023, net profit fell 1.8 per cent to S$66.4 million, while revenue was up 40.6 per cent to S$796 million.

 

Aviation traffic in Singapore and the Asia-Pacific continues to improve as airlines in the region see higher demand following the reopening of China&rsquo s borders and the removal of most remaining travel restrictions, noted the group.

 

But with flight recovery already close to 80 per cent, &ldquo the pace of recovery is expected to be slower than last year&rdquo , it warned.

 

&ldquo In addition, the interplay of geopolitical tensions, a looming economic slowdown in many major economies, supply chain disruptions and persistent high inflation could pose risks to the continued recovery, with downstream impact on demand for maintenance, repairs and overhaul,&rdquo said SIAEC.

 

Nevertheless, the group said it will continue to be vigilant in managing rising costs, as well as drive productivity and efficiency across its operations.

 

SIA Engineering Company : S59 +1.33% (SIAEC) announced Monday (Apr 3) that chief executive officer Ng Chin Hwee, 62, will step down from his role in the company on Oct 1.

 

Ng was appointed CEO of SIAEC in April 2020, and had guided the aircraft maintenance, repair and overhaul (MRO) services provider through the Covid-19 pandemic.

 

The mainboard-listed company will appoint Chin Yau Seng, the senior vice-president of Singapore Airlines&rsquo : C6L +1.05% (SIA) cargo division, as CEO-designate with effect from Jun 1.

 

Chin will take over the helm from Ng when the latter retires in October.

 

In a bourse filing, SIAEC said Chin, 51, is well-suited for the role as its next CEO given his extensive experience in aviation, business and operations.

 

The board also recorded its deep appreciation of Ng&rsquo s contributions to the company.

 

SIAEC chairman Tang Kin Fei noted that during his term as CEO, Ng and the senior management team swiftly minimised disruptions to the company&rsquo s operations, maintained service delivery and introduced new service offerings to support SIAEC&rsquo s customers.

 

Meanwhile, SIA said Marvin Tan, the senior-vice president of its customer services and operations division, will replace Chin as senior vice-president of cargo.

 

In separate filings on Monday, SIA also announced changes to other key management positions.

 

Mak Swee Wah, 62, will be appointed SIA&rsquo s chief operations officer from Jun 1, while Lee Lik Hsin, the executive vice-president of commercial, will step up as SIA&rsquo s chief commercial officer.

 

SIA Engineering S59 0.00% Company (SIAEC) S59 0.00% has signed a comprehensive services agreement with Singapore Airlines C6L 0.17% (SIA) C6L 0.17% on March 29.

 

The agreement will commence on April 1 and will last for two years with an option to extend for a further period of one year. The new agreement will also supersede the previous agreement entered into with SIA in April 2019.

 

The agreement will see SIAEC supporting SIA&rsquo s fleet of aircraft through services such as maintenance, repair and overhaul (MRO) and fleet management support. The agreement is expected to yield a labour revenue of $1.14 billion, including the one-year extension.

 

The transaction is not expected to have a material impact on the net tangible assets (NTA) per share or the earnings per share (EPS) of SIAEC for the FY2024 ending March 21, 2024.

 

Other than Goh Choon Phong, a director of SIAEC who also sits on the board of SIA, none of the directors and controlling shareholders of SIAEC has any interest in the transaction.

 

DESPITE higher revenue, SIA Engineering Company (SIAEC) reported on Friday (Feb 17) lower net profit for its third quarter (Q3) ended Dec 31, 2022, as pandemic-related wage support ended.

 

Net profit for the three months fell to S$12.8 million, down 61.4 per cent from S$33.2 million in the corresponding period a year earlier. On a per-share basis, earnings fell to S$0.0114 in Q3 FY23, from S$0.0296 in Q3 FY22.

 

The lower net profit came amid higher group expenditure, mainly due to the absence of wage support. SIAEC said in its business update on the Singapore Exchange that this was the first quarter since the pandemic with no wage support.

 

Excluding last year&rsquo s wage support and one-time tax write-back, SIAEC said net profit would have been S$19.8 million higher year on year.

 

The group reported revenue of S$208.1 million for Q3 FY23, an increase of 48.6 per cent on year, as flight activities continued to recover during the quarter. Revenue growth was registered across all business segments, said SIAEC.

 

However expenditures also rose 49.3 per cent to S$220.6 milllion, mainly due to the absence of wage support. Excluding the impact of wage support, expenditure was up 35.5 per cent, mainly due to manpower costs.

 

SIAEC said that excluding the impact of wage support and exchange loss arising from the weakening of the US dollar against the Singapore dollar, operating performance in Q3 improved year on year and quarter on quarter.

 

For the nine months ended December 2022, SIAEC revenue rose to S$570.3 million, from S$403.5 million in the year-ago period. Net profit for the 9 months fell to S$45.3 million from S$58.2 million a year earlier.

 

As at Dec 31, 2022, net asset value per share stood at S$1.472. The group had total assets of S$1.9 billion, and it had a cash balance of S$576.8 million, with no borrowings.

 

SIAEC said the reopening of China&rsquo s borders is a &ldquo positive development for a faster and full recovery of the aviation industry&rdquo .

 

But it noted that challenges such as risk of global recession, inflationary pressures and geopolitical uncertainties still remain on the path to recovery.

 

&ldquo As the group ramps up resources in anticipation of further recovery, we will closely manage the rising costs and continue to scale up our efforts in automation and lean practice adoption,&rdquo SIAEC said.

 

&ldquo We will seize opportunities to broaden our customer base, develop new capabilities and expand our geographical presence through acquisitions and partnerships to achieve sustainable business growth.&rdquo