Tweaking JV would topple SIA Engineering’s sole centre of excellence status: UOBKH

Paving the way for heated competition, they said.

The aerospace engineering firm’s strategic restructuring of its joint venture with Rolls-Royce comes at a price, it would seem, as analysts say SIA Engineering in effect would lose its competitive footing as the sole centre of excellence in Asia.

According to a report by UOB Kay Hian, the restructuring involves the termination of territory-based rights, therefore opening the way to increased competition.

“The appointment of HAECO and HAESL for on-wing support services for Trent 500, 700, 800 engine maintenance implies that SIAEC and SAESL have in principle lost their Centre of Excellence status for Trent MRO for Asia Pacific,” the report said.

UOB Kay Hian also opined that the divestment gains to SIA Engineering includes compensation for its loss of exclusivity.

“Quantum of guaranteed work is unknown; and that the effective guarantee is for 15 years raises risk profile. Although SAESL will receive additional overhaul work from Rolls-Royce, which could partially mitigate competitive pressures, the quantum is unknown,” the report said.

“Moreover, HAECO intends to extend on-wing services subsequently to the Trent 900, 1000 and XWB models as well, which will overlap with SAESL’s new MRO capabilities to be added. Thus, we believe SIAEC’s earnings will be negatively impacted in the long term,” the report added.