SIA Engineering braces for near-term heavy maintenance headwinds

New aircrafts require fewer maintenance, leading to losses.

A budding trend of phasing in newer aircrafts plague the aircraft MRO company’s future development as it struggles to adjust to dwindling maintenance earnings.

“Despite overall steady growth trends in MRO industry, SIE’s heavy maintenance business has been affected by the induction of newer aircraft, especially in parent SIA’s fleet,” a report from DBS said.

Meanwhile, recent letdowns have analysts fastening their seatbelts for a SIA Engineering resurgence, as they expect the company to improve their operations and make the necessary corporate adjustments.

"Concurrently, SIE’s engine MRO JVs are also facing the reality of older engine models being retired on an accelerated basis, and new models requiring fewer shop visits," the report said.

To address these issues, analysts are suggesting a merger or a partnership with third party MROs with parallel business models.

"Given its share price decline in recent months, valuations are more amenable to a merger or takeover situation," the report said.

"We believe the merits of a combination of SIA Engineering and ST Aerospace will better consolidate Singapore’s credentials as an aviation hub as synergies are realised in the form of bigger scale, cost efficiencies and breadth of offerings," the report added.