(17-08-2023, 10:51 AM)weijian Wrote: [ -> ]I thought the portion about changing customer behavior is pretty alarming. In the years ahead, will SATS follow the fate of another fallen aviation favorite SIA Engineering?
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1. SIA EC had different issues:
i. Shift from 4-engine (B747, A380) to 2-engine planes (A350, B777, B787).
This obviously halved the amount of work per plane. Not SIAEC fault.
ii. Improved reliability of engines
No engine manufacturer will sell a new engine that is less reliable i.e. maintenance intervals increase. This translates to fewer workshop visits over the engine's lifetime. Not SIAEC fault.
iii. Competition from engine manufacturers
Rolls Royce went into leasing, and thus doing their own maintenance, which means they took those workshop hours directly away from SIAEC. Not SIAEC fault.
For (i) and (iii) the loss in revenues has already happened. (ii) is an ongoing issue that has to be offset by continued growth in total flight hours.
During Covid, SIAEC's pristine balance sheet (no debt, lots of cash) enabled it to survive even with basically no business. Business recovery will depend on airlines resuming their flight schedules. SIA is basically back to pre-Covid levels, other airlines should be back this year or next year.
Longer term, SIAEC is dependent on both SIA and regional airlines i.e. ASEAN. North Asia (China, Japan, Korea) already has maintenance companies e.g. HAECO, Lufthansa Flugtechnik, Air China-RR JV, GAMECO etc.
2. SATS issues are rather different and relate primarily to capital allocation.
i. Acquisition of SFI
The deal was almost certainly a non-commercial decision, with zero synergy with the airport catering business. Nobody is going to use SATS' kitchens at Changi to cook food to be transported to army camps, nor vice-versa. And SATS' own purchasing volume is large enough that SFI couldn't possibly get it to the next level of purchasing discounts.
ii. Pig farms in Jilin
Another head-scratcher. SATS is not shipping pork from Jilin to Singapore for use in its catering operations. And running an airport kitchen has nothing to do with running a pig farm. Zero synergy.
iii. TFK, GTRH etc
The acquisition of smaller catering/handling businesses overseas also made no sense. SATS' own experience dominating Changi should have made it obvious that the incumbent has tremendous cost (and therefore profit) advantages i.e. unless you can buy the top player in a given airport, don't bother. dnata for instance has been a perennial 2nd player at Changi since 2004 and has made basically zero progress. Swissport tried to be the 3rd player at Changi and quit after 4 years and $50m in losses.
iv. WFS
WFS has had 5 owners in less than 20 years, 4 in the last 8 years alone.
pre-2006: Vinci
2006-2015: LBO France
2015-2018: Platinum Equity
2018-2023: Cerberus
2023-now: SATS
There were 3 private equity firms between Vinci and SATS. I wonder why Platinum and Cerberus were so quick to sell. Did they find that WFS wasn't all that great once they'd bought in and picked off the low-hanging fruit?
SATS didn't get a bargain either, paying 9.7x EV/EBITDA for a business that's presumably already had all the fat stripped from it by previous owners. So there's likely little scope to improve EBITDA by reducing waste or improving operations.
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So in conclusion, SIAEC's problems are outside their control. SATS' problems are largely self-inflicted. YMMV.