COVID-19 vaccines could be the aviation sector's saving grace: analyst

SATS’ Coolport@Changi may play a critical role in vaccines' mass distribution across APAC.

The aviation sector is not expected to make any improvement by end-2020 as borders remained close in Q4, reports UOB Kay Hian. But one saving grace remains: the development of a vaccine by Q1 2021, which will benefit the sector even before air traffic begins to recover.

Right now orders are expected to remain closed, possibly even until Q1 2021, which will weigh on the sector. Even if they open up, majority of Asian countries continues to impose 14-day quarantine on all arrivals, and the prospects of a cumulative 28-day quarantine will likely discourage travel, noted UOB Kay Hian analyst K Ajith.

The development of a vaccine is then critical for companies within the sector, as they are expected to be the direct beneficiary of its mass distribution.

News on vaccine development is notedly positive, with the general expectation being that a working vaccine would be available by early-2021. Meanwhile, the World Health Organisation (WHO) expects mass vaccination to commence only by mid-2021.

Amongst companies, SATS is expected to directly benefit thanks to Coolport@Changi, which is ISO certified and is the world’s first centre of excellence for pharmaceutical handling. This is likely to be used for critical pharmaceutical logistics and the handling of vaccines for the APAC region, according to Ajith.

“Given Singapore’s status as a key transshipment hub, SATS is likely to play a significant role in the transportation and storage of vaccines to the APAC region,” the analyst added.

SATS’ Indonesian associate PT JAS is also certified to handle pharmaceutical products.

ST Engineeering (STE) also stands to benefit from higher maintenance works on return-to-service checks for grounded aircraft ahead of an anticipated traffic recovery. The company has aircraft maintenance hangars in China and the US.

STE will also benefit from extensive flight worthiness check on airlines grounded for longer periods, although this is likely to take place in early-2021 at best.

Meanwhile, whilst SIA would theoretically be the most direct beneficiary of vaccine development, its financial position could possibly be severely weakened prior to a global distribution of vaccines.

The airlines may potentially exhaust its $8.8b in rights and convertible debt proceeds by end-Mar 2021 unless it manages to defer a large part of the $2b in advance payments for flights, Ajith warned.

As of August, the carrier had already utilised $4.4b of the proceeds with $2.9b used for debt repayment and $1.1b for ticket refunds and settlement of fuel hedging contracts.

Photo courtesy of Changi Airport website.