SIA Engineering's profit crash blamed on Malaysia Airlines restructuring woes

Headwinds at its engine shops will persist for some time.

After reporting a stunning 25.3% crash in operating profit for the quarter ended June 30, analysts now claim that SIA Engineering’s bottomline may be bearing the brunt of Malaysia Airlines’ twin tragedies.

According to a report by Maybank Kim Eng, both MH 370 and MH 17 were powered by Trent 800 engines. During its recent results briefing, HAECO blamed the weakness at Singapore Aero Engine Services Limited (SAESL) on fewer engine shop visits for the Trent 800 series of engines that power B777s.

“Even though the four engines lost in the two incidents accounted for less than 2% of the Trent engine fleet at SAESL's customers, these engines probably require higher maintenance work than newer models, in our view. The aircraft used on the two flights were almost 12 and 17 years old respectively. Furthermore, lower passenger traffic and ongoing restructuring at MAS are likely to affect utilisation for the rest of its B777s and lower its demand for maintenance work,” noted the report.

Here’s more from Maybank Kim Eng:

While better reliability of the Trent 700 that power the A330s was cited as the reason for lower shop visits at HAESL, management said "improved reliability and the change in engine profile of its customers" were behind SAESL’s poorer performance.

While no specific customers were mentioned, we note that the two unfortunate incidents at Malaysia Airlines (MAS) (MH370 and MH17) involved B777s powered by Trent 800 engines.

Coupled with improved Trent 700 reliability, we believe headwinds at these Rolls-Royce engine shops could persist for some quarters.