SIA Engineering Company

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#81
(21-11-2011, 10:05 PM)corporatefatcat Wrote: I enjoyed reading your analysis MusicWhiz, so do you think that with the budget long haul flights and so forth as mentioned in your blog there is room for organic growth?

Anyway on a side note, I really liked how you have cash flows and other data dating really far back, did you manually go through each Report to adjust and get this data, or did you get it off a program, eg. DBSVickers Clarity

But thanks for that, I am sure a lot of us can benefit and take away something from your analysis.

Also, what is worrying is the drastic drop in cash inflow, greatly reducing the FCF, and what if capex increases...
Was there a reason for this? Would a economic downturn and decreased tourism affect SIA Engineering's Cash flow.

Hello Corporatefatcat,

Thanks. I think there will be room for growth but it will be slow and steady and in spurts as orders will need to be placed for aircraft, which will only be delivered in phases. But as the airline industry expands and more consumer segments are being tapped, this can only mean more business for all MRO players eventually.

I went through each Annual Report to extract the numbers - no software was used. This way, I can verify and check through the numbers myself instead of being too reliant on software.

Thus far there is no evidence that a severe downturn would crimp OCF a lot, and even when there was a major recession like in 2008-2009 there was also little requirement for capex (and therefore no need for leverage). The business model is as such as for the forseeable future, I believe it will continue to be so. But I am continually monitoring developments in the industry nonetheless. No room for complacency. Big Grin
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#82
(21-11-2011, 10:51 PM)Musicwhiz Wrote:
(21-11-2011, 10:05 PM)corporatefatcat Wrote: I enjoyed reading your analysis MusicWhiz, so do you think that with the budget long haul flights and so forth as mentioned in your blog there is room for organic growth?

Anyway on a side note, I really liked how you have cash flows and other data dating really far back, did you manually go through each Report to adjust and get this data, or did you get it off a program, eg. DBSVickers Clarity

But thanks for that, I am sure a lot of us can benefit and take away something from your analysis.

Also, what is worrying is the drastic drop in cash inflow, greatly reducing the FCF, and what if capex increases...
Was there a reason for this? Would a economic downturn and decreased tourism affect SIA Engineering's Cash flow.

Hello Corporatefatcat,

Thanks. I think there will be room for growth but it will be slow and steady and in spurts as orders will need to be placed for aircraft, which will only be delivered in phases. But as the airline industry expands and more consumer segments are being tapped, this can only mean more business for all MRO players eventually.

I went through each Annual Report to extract the numbers - no software was used. This way, I can verify and check through the numbers myself instead of being too reliant on software.

Thus far there is no evidence that a severe downturn would crimp OCF a lot, and even when there was a major recession like in 2008-2009 there was also little requirement for capex (and therefore no need for leverage). The business model is as such as for the forseeable future, I believe it will continue to be so. But I am continually monitoring developments in the industry nonetheless. No room for complacency. Big Grin

Thanks for your insights MusicWhiz. This will be a great company to watch.
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#83
Just received SIA Engineering's interim dividend of 6 cents/share today and feeling very pleased! Will save the money and compound it by purchasing more shares in companies with good valuations, cash flows and profits at a margin of safety!

Incidentally, SIAEC also announced, this morning, a 6-year contract signed with Airbus for MRO services. Details can be found here:-

http://info.sgx.com/webcoranncatth.nsf/V...6003CA487/$file/SGXNET-2011_11_29-A330.pdf?openelement

(Appended latest DBSV Report on SIAEC)


Attached Files
.pdf   November 29, 2011 - SIA Engineering (DBS).pdf (Size: 134.77 KB / Downloads: 20)
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#84
Bumping this thread up for a recent article post by IATA.

MW-san, your latest post attachment seems unable to work.
Can you post again? Thanks. Smile

**Not vested in SIA Eng**



Eurozone Crisis Biggest Risk to Profits - Regional Differences Widen

Geneva –The International Air Transport Association (IATA) announced revisions to its industry outlook. For 2011, profitability remains weak but unchanged at $6.9 billion for a net margin of 1.2%. Looking ahead to 2012, IATA downgraded its central forecast for airline profits from $4.9 billion to $3.5 billion for a net margin of 0.6%.

The Eurozone crisis puts severe downside risk on the 2012 outlook as illustrated by the recently published OECD economic outlook. In a worst case scenario, should the Eurozone crisis evolve into a full-blown banking crises and European recession, IATA estimates that the global aviation industry could suffer losses exceeding $8 billion in 2012.

“The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the Eurozone sovereign debt crisis. Such an outcome could lead to losses of over $8 billion—the largest since the 2008 financial crisis,” said Tony Tyler, IATA’s Director General and CEO.

2011

“The global forecast for 2011 is unchanged at $6.9 billion. But regional differences have widened, reflecting the very different economic environments facing airlines in different parts of the world. And the overall margin of 1.2% tells you just how difficult the battle for profitability in this business is,” said Tyler.

Highlights of regional performance:

European carriers are by far in the most challenging position. Higher passenger taxes and weak home market economies have limited profitability in Europe. The region’s carriers are forecast to generate a collective profit of just $1.0 billion, down from the previously forecast $1.4 billion, and an EBIT margin of 1.2%. Low profitability has been despite European airlines being one of the fastest growing regions in terms of traffic this year. Yields have suffered and the base of strong demand grows more fragile as the sovereign debt crisis escalates.
North American carriers are in a much more benign environment. They have seen yield and load factor improvements as a result of tight capacity management, which has improved profitability to $2.0 billion (up from the previously forecast $1.5 billion). The US economy has also grown at a faster pace than Europe. This gives the region the strongest EBIT margin of 3.2%. None-the-less, the bankruptcy filing of American Airlines indicates that the region faces intense competitive challenges as well.
Asia-Pacific carriers also saw stronger though varied trading conditions. Japan’s domestic market still has not fully recovered from the March earthquake and tsunami, and load factors remain under pressure. By contrast airlines have improved load factors and profitability on China’s expanding domestic market. We have upgraded our forecast for the region by $800 million to a $3.3 billion profit. This is the largest absolute profit among the regions.
Middle East carriers are expected to see profits of $400 million (down from the previously forecast $800 million) as high fuel costs squeezed profit margins on the more price sensitive long-haul traffic connecting over Middle Eastern hubs.
In a similar pattern Latin American profits will see a downgrade to $200 million (from the previously forecast $600 million). Performance has been mixed across the region with much of the downgrade due to the impact of intense competition and falling load factors on Brazil’s domestic market.
African carriers are still expected to break-even. New trade lanes with Asia are developing and markets within the continent are reflecting the improvement in economic development in many African economies. However, competition has been fierce and the region’s airlines have struggled to keep load factors at profitable levels.

At the global level, passenger demand is expected to expand by 6.1% which is stronger than the 5.9% forecast in September. Air travel growth has persisted at a stronger pace than we had expected. This travel strength, along with tight capacity management, particularly in North America, has kept load factors high and is supporting a 4.0% increase in yields. This has helped a modest increase in forecast revenues, which we expect to total $596 billion this year.
This slightly stronger-than-expected passenger performance is offsetting (1) worse-than-expected cargo performance and (2) somewhat higher-than-anticipated oil prices. At an average oil price of $112 per barrel, the industry’s 2011 fuel bill is expected to be $178 billion (up $2 billion from previous expectations). A downward trend in cargo since mid-year means that cargo likely will finish the year with a 0.5% contraction in volumes and flat yields.

2012—Central Forecast

Even if government intervention averts a banking crisis it is unlikely that Europe will avoid a brief recession. Business and consumer confidence has already fallen too far. Global GDP growth forecasts for 2012 have been revised downwards to 2.1%. Historically the airline industry has seen profit turn into loss whenever global GDP growth falls below 2%. This is driving the downgrade in the 2012 outlook.

Key variables driving this downgrade:

Demand: Passenger demand is expected to grow by 4.0% (down from previously forecast 4.6%), while cargo is expected to show flat growth (down from the previously forecast 4.2% expansion).
Yields: Passenger and cargo yields are expected to remain flat in 2012. While this is unchanged for cargo, passenger yields were previously forecast to grow by 1.7%.
Fuel: Fuel costs are relatively unchanged from the previous forecast at $198 billion. That is based on oil at $99 per barrel (against a previous forecast of $100 per barrel).
Revenues and Costs: Industry revenues are expected to grow by 3.7% to $618 billion. This will be outstripped by cost increases of 4.5% to $609 billion.
All regions are expected to show profit deterioration from 2011. However, the regional differences in 2012 are stark:

European carriers are expected to fall into losses of $600 million, hit by the weakness of their home market economies and further increases in passenger taxes.
North American carriers are expected to generate profits of $1.7 billion, maintaining the strongest EBIT margin of 2.4%, as limited capacity growth is providing some protection against the downward pressure on profits.
Asia-Pacific carriers are expected to deliver the largest absolute profit at $2.1 billion. This is weaker than 2011’s performance but the deterioration is limited by high load factors on markets such as China, where the increases in demand are structural and to some extent shielded from the cycle.
Middle East carriers are expected to post a $300 million profit, less than half the previously forecast $700 million profit, as long-haul market conditions deteriorate, in particular those linked to the weak European economies.
Latin American carriers will see profits decline to $100 million—a $400 million negative swing from the previous forecast, partly a carry-over from the recent weakness of profitability in the large Brazil market.
African carriers will fall into losses of $100 million, unchanged from the previous forecast. Economies and air transport markets continue to grow in the region, but load factors are not expected to be strong enough to offset the impact of weaker yields on profitability.
“Even our best case scenario for 2012 is for a net margin of just 0.6% on revenues of $618 billion. But the industry is really moving at two speeds with highly taxed European carriers headed into the red,” Tyler said.

2012—The Threat of a Banking Crisis

The OECD’s last economic outlook carried a risk assessment on the European sovereign debt crisis, which caused IATA to develop a second scenario for 2012 taking into account the possibility of the Eurozone crisis deteriorating into a renewed banking crisis. Based on the OECD’s view that this scenario would cut global GDP growth to 0.8%, IATA estimates that this has the potential to cause global industry losses of $8.3 billion.

In this scenario, all regions would fall into losses. Europe would be expected to post the deepest losses at $4.4 billion, followed by North America at $1.8 billion and Asia-Pacific at $1.1 billion. The Middle East and Latin America would both be expected to post $400 million losses, while Africa would be $200 million in the red.

Tyler said, “This admittedly worst-case—but by no means unimaginable—scenario should serve as a wake-up call to governments around the world. In a good year, the airline industry does not cover its cost of capital, much less in a bad one. But in a bad year, aviation’s ability to deliver connectivity and keep the heart of the global economy pumping becomes even more vital to initiating a recovery. Government policies need to recognize aviation’s vital contribution to the health of the economy.”

This scenario is based on global GDP growth falling to 0.8% in 2012 driven by Europe descending into deep recession. Historically, GDP growth rates below 2.0% have resulted in the airline industry producing a net global loss. In this scenario, airlines would see growth in passenger demand grind to a halt and a 4.7% contraction in cargo markets. Both passenger and cargo yields would fall by 1.5%.

Some relief in the fuel price would be expected. Based on oil at $85 per barrel, the fuel bill would be $183 billion and consume 31% of costs. However, overall expenses would be expected to grow by 1.9% (compared to 2011) to $592 billion. Revenues would see a fall of 1.3% (compared to 2011) to $589 billion. The net result would be an $8.3 billion loss and net margin of minus 1.4%.

http://www.iata.org/pressroom/pr/Pages/2...07-01.aspx

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#85
Hi Arthur,

Erm, link seems to work for me leh. Could you perhaps try again?

Thanks for the article btw. Smile
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#86
will SIA EC be reporting their 3rd quarter result? They will always announce the result release date in advance, but this time round there is none and today is already 30th Jan. anyone knows why?
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#87
(30-01-2012, 07:08 PM)shanrui_91 Wrote: will SIA EC be reporting their 3rd quarter result? They will always announce the result release date in advance, but this time round there is none and today is already 30th Jan. anyone knows why?

I emailed the IR today. He said SIAEC will be releasing its 3Q 2012 results tomorrow (Jan 31, 2012) after market close.
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#88
Anyone in the industry to share insights on competitiveness between SIA Engineering and ST Aerospace?

This has become my next darling...


Singapore, 27 January 2012 - ST Engineering's aerospace arm announced it has sealed new contracts valued at about $350m in the fourth quarter of 2011. These contracts will be carried out at its network of facilities and affiliates in the Americas, Asia Pacific and Europe.

The Aircraft Maintenance & Modification business group secured new airframe contracts involving base maintenance, heavy maintenance, passenger-to-freighter (PTF) conversion and interior refurbishment on various commercial and military aircraft platforms.

The Component Total Support business group secured new component contracts, including Maintenance-By-the-Hour (MBHTM), repair management, avionics and mechanical component maintenance, aerostructures and thrust reverser repair, and landing gear repair and overhaul.

The Engine Total Support business group clinched new engine maintenance contracts, which includes on-wing maintenance, off-wing maintenance, technical management and asset management on various engines types, including CFM56, Pratt & Whitney JT8D, F100, F110, Rolls-Royce Allison T56, General Electric J85, F404, Honeywell T53 and Turbomeca Makila. Besides engine maintenance, its leasing joint venture was awarded a contract from Lion Air for the lease of three CFM56-7B engines over 10 years. This contract is in addition to the total contracts' value for the fourth quarter of 2011.

At quarter end, ST Aerospace redelivered 101 aircraft for airframe related maintenance and modification work. For PTF conversions, it redelivered five Boeing 757-200 converted freighters to FedEx Express. Besides airframe redeliveries, ST Aerospace serviced 72 engines and 13,382 components for both commercial and military customers.

On engine capability development, ST Aerospace's engine maintenance, repair and overhaul (MRO) facility in Xiamen commenced operations, providing MRO and total support for the CFM56-7B and CFM56-5B series of engines. Additionally, its affiliate Vision Technologies Aerospace Incorporated has entered into an agreement with Pratt & Whitney to invest in a 50.1% stake in EcoServices, LLC to enhance the Group's focus on green aftermarket solutions. Subject to regulatory approvals and customary conditions precedent, this transaction is anticipated to close around March 2012.
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#89
Ok if i am not mistaken, compared to ST Engr, SIA Engr has better skill sets, which they can service wide range of aircrafts such as A380 even before it comes on shore to Singapore. SIA Engr mostly use joint venture and associates to venture oversea.

Where as ST Aerospace, it offers mass labour focused on common aircrafts such as A320. I guess they offers cheap price and has work bases in US. Anyway still good money but the margin might not as high as SIA Engr. If i am not wrong, last time they have labour issue in US.

These are my general impression so far. Someone might want to correct me. Overall repairing airplanes are good money.

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#90
Correct me if I'm not wrong, ST Eng provides some upgrades and refurbishment for military aricrafts such as the F5 Tigershark as well as the A4 Super Skyhawk to various 3rd world countries airforces.

Military industries have always tend to be more of a defensive stance unless the country is undergoing cost cutting measures like America or Britain.

This is something that SIA Eng doesn't do so.

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