SIA Engineering to reap benefits from increased engine repair demand in Asia

Engine repair demand in Asia
Representational image Pixabay

SIA Engineering Company (SIAEC) was not able to give a spectacular show in 2017, but analysts at UOB KayHian believe that it could spark a turnaround as its engine maintenance, repair, and overhaul (MRO) becomes an earnings catalyst.

Analyst K Ajith said the acceleration of engine shop visits in the Asia Pacific this year gives SIAEC the opportunity to show its capability to perform checks for most of the engine types. In turn, this should boost its engine MRO earnings from a six-year low.

"According to Aviation Week, the Asia Pacific region will lead in the surge in engine MRO demand in 2018. Aviation Week also stated that the CFM-56 family (used on A320 and B737s), V2500 (used on A320s), GE-90-115B (B777s) and Rolls Royce Trent 700 will see the greatest number of checks in 2018," Ajith explained.

Additionally, the original equipment manufacturer of Rolls Royce Trent 1000 engines has offered upgrade solutions to select engines including those of Scoot after several problems with engine blades. Given SIAEC's joint venture with Rolls Royce, the group's aero services unit will benefit from more checks.

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Ajith noted that engine MRO profits only grew 3.7% as at the first half of SIAEC's FY18, failing to contribute significantly to the group's joint venture (JV) and associates income.

"If the engine MROs for the aforementioned variants kick in, it would have a significant impact on the bottom line. We raise our assumption on associate and JV contribution for FY19 by 7.1%, factoring in higher engine MRO profits. The JV and associates segment's net profit is now expected to grow by 20.3% in FY19 vs 12.5% and 2.4% for FY18 and FY17, respectively." Ajith said.

Meanwhile, another thing to watch out for this year is SIAEC's line maintenance, as the group gains momentum in its operations in Kansai and at JFK.

To recall, SIAEC began operations at Kansai airport in June 2017 and it has yet to break even.

"As SIAEC receives certification for higher value-added work such as on-wing, engine checks, margins for the division will improve," Ajith said.

This article was first published on February 2, 2018