SIA Engineering sees strong recovery, but requires substantially more activities to be operationally profitable

SIA Engineering Company may have experienced the strongest recovery in flights handled in April, but the maintenance, repair and overhaul service provider would require the volume of activities to be substantially more before it can break even operationally.

Ng Lay Pheng, SIA Engineering’s chief financial officer, said at an earnings briefing on Friday (May 6) that the mainboard-listed subsidiary of Singapore Airlines (SIA) would perhaps need to achieve more than 50 per cent of pre-pandemic levels of flights handled - a bit more substantial than the current level of volume - for it to be operationally profitable.

In April, the group handled flights at 45 per cent of pre-pandemic levels as SIA and other carriers mounted more flights in response to the reopening of borders in Singapore and the region.

Ng also noted that expenditure would rise in tandem with the addition of headcount and resources ahead of the expected further ramp-up in flight activities. But the government wage support, which has padded up SIA Engineering’s bottom line, will be tapering off in the coming months. 

The group cannot say for sure how much staff would be added as it depends on the pace of recovery. Chief executive Ng Chin Hwee said that the total headcount, when it has achieved full recovery, would be lower than pre-pandemic levels because of higher productivity achieved through transformation efforts.

He also noted that the pace of recovery depends on that of its airline clients, which in turn hinges on how fast they can ramp up resources and raise flight frequencies to capture demand.

“All I can say is that all of this augurs well for us, we are happy to see that kind of growth. It’s very hard to be able to point to a number but I think the 45 per cent restoration to pre-Covid level for April, we see it as a good sign. Is it the proverbial swallow? We are not so sure,” Ng commented.

SIA Engineering Company was still ringing up operating losses in the latest set of financial results, with its full-year bottom line sustained only by what it called “substantial government wage support”.

Earnings for its H2 FY2022 surged to S$42.6 million from S$7.8 million in the corresponding period ended March 2021, as turnover grew by 37.5 per cent year on year, to S$302.6 million from S$220 million. As a result, the group posted full-year earnings of S$67.6 million, reversing the loss of S$11.2 million in the year-ago period, as revenue rose by 27.8 per cent to S$566.1 million from S$443 million.

SIA Engineering Company would have recorded a full-year loss of S$25.9 million without the uplift from government wage support grants. 

Even with revenue improvement, which was attributed to a higher number of flights handled, the group continued to notch operating losses, amid rises in staff, sub-contracting and other costs. The operating loss in the second half was S$15.1 million, compared with an operating profit of S$2.2 million previously, as the higher revenue  was insufficient to offset costs from the rollback of government wage support and manpower measures. But it saw a 12.8 per cent reduction in operating loss from S$25 million in the year before to S$21.8 million for FY2022 

Earnings per share (EPS) stood at 3.79 Singapore cents for the 6 months, up from 0.69 cent previously, while the full-year EPS was 6.02 cents, against a loss per share of 1 cent before. Net asset value was 143.5 cents a share, compared with 136.8 cents as at end-March 2021. 

With operating losses, the group’s operating cash flow of S$29.2 million was inadequate to cover the S$35.7 million used in financing activities such as repayment of lease liabilities, although overall it was in a positive net cash flow position  - thanks to net cash generated from investing activities. The group, however, has “very little borrowing”, and also expects the impact of rising interest rates to be “not significant” because the exposure has been hedged.

As for Russia’s invasion of Ukraine, the group has so far not been affected materially, although it did experience “instances of supply chain issues affecting the ability for some of our shops to meet the turnaround time”. 

But Ng thinks the inflationary pressure rising from the geopolitical conflict will put pressure on the group’s costs.

SIA Engineering Company shares closed S$0.05 lower at S$2.61 on Friday.