SIA Engineering Company

(18-05-2015, 11:21 PM)specuvestor Wrote: There is usually around 3-6 months lag to adjustments:
http://www.straitstimes.com/news/world/m...t-prices-a
http://www.straitstimes.com/news/singapo...s-20150214

I'm not a frequent flyer so need others to guesstimate if this is reasonable historically for Cathay:
http://www.flyertalk.com/forum/cathay-pa...arges.html

Minimal changes to passenger demand despite holding firm to prices.
GROUP AIRLINES (PASSENGER) Apr 2015 Apr 2014 %change
Passenger load factor (%) 75.9 76.8 -0.9 p

^^ oil plunge happened in 2H14 so using Apr 14 as guide may not be indicative

SIA load factor for the various quarters is as follows (Note March year end):

2Q14 81.1%
3Q14 79.4%
4Q14 77%
1Q15 77.7%
2Q15 81.9%
3Q15 78.3%
4Q15 76.1%

You can see the hedged fuel prices and their breakeven load factor in their 4Q presentation.

(25-05-2015, 12:51 PM)specuvestor Wrote: ^^ oil plunge happened in 2H14 so using Apr 14 as guide may not be indicative

SIA load factor for the various quarters is as follows (Note March year end):

2Q14 81.1%
3Q14 79.4%
4Q14 77%
1Q15 77.7%
2Q15 81.9%
3Q15 78.3%
4Q15 76.1%

You can see the hedged fuel prices and their breakeven load factor in their 4Q presentation.

What i am trying to show is:
SIA is not reducing fares, despite a drop in oil prices. As a consequence of not reducing fares, there is a drop in PLF. But the drop is not significant, which means demand is relatively stable.

In Apr 14, oil prices are high, which means other airlines are not likely to reduce surcharge on their fares then.
In Apr 15, you rightly pointed out that airlines might be reducing their fares due to a drop in oil prices. I think some airlines are doing so, but SIA is holding prices firm, which results in drop in PLF.

My previous links are saying that SIA eventually has to lower their fuel surcharge to compete with the likes of Cathay.

Their presentation shows their passenger business is losing money so maybe their strategy is keeping fare constant (assuming you right) but declining PLF. It's a rock and a hard place.

Anyway I'm trying to draw a correlation between SIA business and SIAEC which anecdotally seemed to be the case.

Tough times - renewal of 5y services agreement with SilkAir is for 197mio - compared with 300mio for the one signed in 2010. Not sure if the scope for the contracts are identical though.

*************************

SINGAPORE, 26 June 2015 - Mainboard-listed SIA Engineering Company Limited
(SIAEC) is pleased to announce the renewal of its Services Agreement with SilkAir.
The new agreement covers a broad spectrum of maintenance, repair and overhaul
(MRO) and fleet management services for SilkAir’s fleet of A319/A320 aircraft. The
agreement is firm for five years, with a one-year extension option. The total value of
the contract is $197 million.

SINGAPORE, 9 December 2010 - Mainboard-listed SIA Engineering Company
Limited (SIAEC) is pleased to announce the renewal of its comprehensive Services
Agreement with SilkAir.
The existing Services Agreement with SilkAir expires in 2010. The new agreement,
firm for five years, covers a broad spectrum of maintenance, repair and overhaul
(MRO) and fleet management services for the SilkAir fleet. The 5-year contract is
expected to add $300 million in labour revenue to SIAEC’s order books.

Usually the best chance to invest in a quality company like SIA Engineering is during a downcycle. Longer term, Changi should remains as a world leading airport/transport hub so business will be there, its just a matter of earning more or less, tough times also still earn.

-n v on radar-

(26-06-2015, 08:21 PM)AQ. Wrote: Tough times - renewal of 5y services agreement with SilkAir is for 197mio - compared with 300mio for the one signed in 2010. Not sure if the scope for the contracts are identical though.

*************************

SINGAPORE, 26 June 2015 - Mainboard-listed SIA Engineering Company Limited
(SIAEC) is pleased to announce the renewal of its Services Agreement with SilkAir.
The new agreement covers a broad spectrum of maintenance, repair and overhaul
(MRO) and fleet management services for SilkAir’s fleet of A319/A320 aircraft. The
agreement is firm for five years, with a one-year extension option. The total value of
the contract is $197 million.

SINGAPORE, 9 December 2010 - Mainboard-listed SIA Engineering Company
Limited (SIAEC) is pleased to announce the renewal of its comprehensive Services
Agreement with SilkAir.
The existing Services Agreement with SilkAir expires in 2010. The new agreement,
firm for five years, covers a broad spectrum of maintenance, repair and overhaul
(MRO) and fleet management services for the SilkAir fleet. The 5-year contract is
expected to add $300 million in labour revenue to SIAEC’s order books.

Silkair is retiring its fleet of A319/A320 and replacing them with Boeing B737NG and B737MAX. The reduction in revenue from A319/A320 from FMP services is expected. The question to ask is, whether they are able to secure fleet management services for B737NG/MAX.

(26-06-2015, 09:06 PM)BlueKelah Wrote: Usually the best chance to invest in a quality company like SIA Engineering is during a downcycle. Longer term, Changi should remains as a world leading airport/transport hub so business will be there, its just a matter of earning more or less, tough times also still earn.

-n v on radar-

Maintenance business of SIAEC is not a direct function of growth of airport traffic. Line maintenance business will grow as it is basically a captive business. Turnaround and technical handling services will need to be done by a local MRO player. In this case SIAEC stands to benefit.

But airlines need not necessary choose SIAEC for base/heavy maintenance, which are long down time in nature. Since base maintenance are feeder business to components business, and to a lesser extend engine business, the periphery business (components, engines) will be affected if base maintenance business declines. Contracts for base/heavy maintenance are awarded based on quality, turnaround time and price. Base maintenance dovetailing a revenue flight is more of a bonus. Separately, next gen aircraft also require lower base/heavy maintenance, and this further compounds to the future business prospects of SIAEC.

Quality wise I cannot be sure. See the link below. ST Aerospace(SASCO) wins a Singapore Airlines A330 maintenance contract. How can SIAEC lose an SIA maintenance business, that is captive in nature? Its either SASCO is very good, or SIAEC has quality issues. Either case, its bad news for SIAEC.
http://www.aviationpros.com/press_releas...upport-sia

(26-06-2015, 11:03 PM)csl123 Wrote:

(26-06-2015, 09:06 PM)BlueKelah Wrote: Usually the best chance to invest in a quality company like SIA Engineering is during a downcycle. Longer term, Changi should remains as a world leading airport/transport hub so business will be there, its just a matter of earning more or less, tough times also still earn.

-n v on radar-

Maintenance business of SIAEC is not a direct function of growth of airport traffic. Line maintenance business will grow as it is basically a captive business. Turnaround and technical handling services will need to be done by a local MRO player. In this case SIAEC stands to benefit.

But airlines need not necessary choose SIAEC for base/heavy maintenance, which are long down time in nature. Since base maintenance are feeder business to components business, and to a lesser extend engine business, the periphery business (components, engines) will be affected if base maintenance business declines. Contracts for base/heavy maintenance are awarded based on quality, turnaround time and price. Base maintenance dovetailing a revenue flight is more of a bonus. Separately, next gen aircraft also require lower base/heavy maintenance, and this further compounds to the future business prospects of SIAEC.

Quality wise I cannot be sure. See the link below. ST Aerospace(SASCO) wins a Singapore Airlines A330 maintenance contract. How can SIAEC lose an SIA maintenance business, that is captive in nature? Its either SASCO is very good, or SIAEC has quality issues. Either case, its bad news for SIAEC.
http://www.aviationpros.com/press_releas...upport-sia

Yes future prospects dun seem to be looking too good at the moment.
question is will SIA Engineering ever become loss making?

If the answer is probably not, then to invest in this company, it will just be a matter of judging where the earnings might be bottoming out and at what price is a cheap price to buy the business and assets.

So long one is not buying into a story of growth, I am pretty sure SIA Eng will continue to bring in the money, though the story may be very boring in the years to come. Note balance sheet is still pretty solid with Net cash of almost 10% of Mcap.

(26-06-2015, 10:40 PM)csl123 Wrote: Silkair is retiring its fleet of A319/A320 and replacing them with Boeing B737NG and B737MAX. The reduction in revenue from A319/A320 from FMP services is expected. The question to ask is, whether they are able to secure fleet management services for B737NG/MAX.

Thks for the info - inline with my guesses that the scope for the contracts are different.

How do you think the change in fleet will affect the MRO arm (not just the FMP)? B737MAX uses the CFM LEAP (I think A320neo has the option to use CFM as well) - does SIAEC has the capability to perform MRO on these engines?

A visit to SIAEC's website shows it being able to service the below GE engines:

GE90-115B series
GE Snecma CFM-56 series
GE CF6-80 series
GE CF6-50 series