SIA Engineering braces for greater earnings deterioration as headwinds intensify

Repair and overhaul business will disappoint.

SIA Engineering's shareholders should brace for a steeper decline in earnings in coming quarters.

According to a report by UOB Kay Hian, SIAEC's repair and overhaul business are under threat from less maintenance-intensive new aircraft.

Fewer engine checks are the main reason behind the 8.8% decline in SIAEC's repair and overhaul revenue for FY15.

The report also noted that almost half of the engine shop visits in FY15 was Pratt & Whitney’s PW4000 variant, which is used in older aircrafts such as B747, B777-200s and A300’s.

These aircrafts are increasingly being phased out, and UOB Kay Hian noted that the Pratt & Whitney JV’s contribution is likely to decline over the next 2-3 years.

"Earnings are likely to decline over the next two years. We believe consensus will be cutting earnings and the relatively high PE multiples can no longer be justified,” stated UOB Kay Hian.