Reliable aircraft engines spell doom for struggling SIA Engineering

Industry headwinds are delaying its take-off.

Newer, more reliable engines are generally good news for the aviation industry, accounting for hassle-free flights and safer travels. However, it has been the opposite for the aircraft MRO industry.

According to analysts from OCBC, SIA Engineering has to deal with declining earnings from its airframe and component overhaul services (ACS) segment, as new generation aircraft lead to a decline in work content and longer check intervals.

OCBC says this decline had been, and will continue to affect SIA Engineering’s associated and JV companies.

Meanwhile, its line maintenance segment has been helping to offset the decline.

“For LM, 1HFY16 revenue and operating profit grew 2.7% and 20.3% YoY, respectively, alongside Changi Airport‟s 2.5% growth in commercial aircraft traffic over the same period, while FMP revenue remained largely flat,” OCBC said.

“While efforts on tight cost management and productivity improvement are bearing fruits, we think the decline in operating expenses and growth from LM segment are unlikely to fully offset the weak industry outlook,” OCBC added.