Weak EU hits ST Aerospace profits

The continuing lacklustre economic situation in Europe was one of the factors cited by Singapore Technologies Aerospace (ST Aerospace) behind its 19 per cent fall in profits in Q3.

The MRO published its Q3 results today (November 7) arguing that the S$15m ($11.6m) slump in pre-tax profits compared with 2013 was caused by the “weaker performance” of its European operations, coupled with costs of a restructure and the write down of assets.

The figures reveal that revenues posted by ST Aerospace’s European companies fell by 34.8 per cent in Q3 2014 compared with 2013. 

The results also show a significant drop in revenues and profits generated by ST Aerospace’s component and engine repair and overhaul division. In Q3 2014 revenues from these services fell by more than 21 per cent year on year, while pre-tax profits from the division fell by 83 per cent to S$2.4m ($1.8) from S$14m ($10.8m) in 2013. 

At the same time ST Aerospace has increased revenues from its engineering and material services division by 10 per cent, but here too profits are lower – 7.1 per cent than in 2013 – indicating that margins for MRO services is tightening.

Looking at the figures for the year to date, ST Aerospace’s revenues are up 1.2 percent, but profits have declined 8.7 per cent, with the component and engine MRO division alone seeing profits over the first nine months of 2014 falling by more than 45 per cent on 2013 figures. 

While in the past MROs based in Asia Pacific have benefited from lower labour costs than those in Europe and North America, this is changing with tough competition with other sectors for skilled engineers pushing up pay rates.

In August, John Slosar, chairman of Hong Kong-based MRO HAECO argued that shortages of skilled workers had impacted its airframe service capacity contributing to a 21 per cent fall in its profits for the first half of 2014.

Looking ahead to its full year results ST Aerospace confirms that while it expects revenues to remain on par with 2013, its pretax profits will fall. 

This decline in profits might also be explained by the “speculate to accumulate” approach ST Aerospace appears to be taking. In the past two months, the firm confirmed it was injecting a further $20.8m into its engine MRO joint venture STATCO and a further $4.9m in its pilot training school

With new, more reliable engine programmes on the way, there will be even greater demand to offer added value in MRO work. Only time will tell if ST Aerospace's investments will help to provide this value and boost revenues.

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