Cathay Pacific

Outsourcing helps Haeco engineer 25pc profit rise

PUBLISHED : Wednesday, 10 August, 2005, 12:00am
UPDATED : Wednesday, 10 August, 2005, 12:00am

Hong Kong Aircraft Engineering Co (Haeco) rewarded shareholders' faith yesterday with a 25 per cent increase in interim earnings to $289 million, from which a 50 cents a share dividend was distributed.

Profit growth was driven partly by Haeco's decision to embrace an industry-wide trend which is seeing more airlines farm out their aircraft maintenance needs to third-party providers.

The Haeco board returned 28.7 per cent of interim net profit, or $83 million, in the form of a 50 cents per share dividend, which is sure to please shareholders who saw their company's shares hit a 19-year high on Wednesday last week of $53.50. They closed down 10 cents yesterday, at $53.20.

'Every year we find a way to improve ourselves, internally. Our rates may be higher than others but our turnaround times and the quality of our work more than compensates for that,' chief executive Chan Ping-kit said yesterday. 'When we get new customers we keep them.'

Group sales, which include contributions from subsidiaries such as Xiamen-based Taeco and Hong Kong Aero Engine Services, and other jointly controlled entities, rose 12 per cent to $4.84 billion, 69 per cent of which was generated in Hong Kong.

Haeco and its sister firms are benefitting from an airline industry shift to outsourcing non-core activities, everything from routine cleaning between flights to annual maintenance checks and inventory management of spare parts.

Haeco's 'line maintenance', or routine aircraft cleaning, rate at Chek Lap Kok grew 12 per cent in the first half to 239 aircraft a day. Its product portfolio has grown in the past few years, offering a more comprehensive suite of services and widening its revenue base.

'Originally, airlines tried to keep everything in-house. But today they recognise [maintenance, repair and overall] activities are a cost base, it's a burden to them,' Mr Chan said.

'We have also changed over the past three to four years. We are no longer looking purely for ordinary labour activities. We are starting to diversify into inventory management, technical management and engineering design, or higher-value services.'

In December, Haeco agreed to manage the inventory for Asiana Airlines' A330 fleet.

It has a second hangar coming online at the airport in 2007. In the interim the company intends to serve demands by increasing overtime for its workforce which group-wide reached 7,800 last year.