Swire Group

2012 outlook to temper strong Haeco earnings

PUBLISHED : Monday, 12 March, 2012, 12:00am
UPDATED : Monday, 12 March, 2012, 12:00am

Hong Kong Aircraft Engineering Company (Haeco), Swire Pacific's aircraft-maintenance subsidiary, is set to post substantial increases in net profit and revenue when it releases its year-end results tomorrow.

But the company also faces a raft of challenges as it grapples with a downturn in the air cargo market which will impact on its aircraft-conversion work in the mainland.

Analysts said turnover was likely to top HK$4.92 billion last year, up 15.3 per cent compared with HK$4.27 billion in 2010. Net profit could also exceed HK$800 million, up from HK$701 million a year earlier, although much will depend on the performance of its mainland offshoot, Taikoo (Xiamen) Aircraft Engineering Company (Taeco).

While Haeco contributed the lion's share of total group profit for the first half of last year, HK$195 million out of HK$425 million, Taeco saw its own net profit double to HK$78 million. The surge reflected a recovery in demand for heavy aircraft maintenance at the Xiamen facility.

But at the time of the interim results Haeco chairman Chris Pratt said: 'Forward bookings for Taeco's airframe heavy maintenance in the second half' last year were weak.

Demand for aircraft conversions, where passenger aircraft are converted to cargo planes at Xiamen, has been adversely affected by the downturn in the airfreight market caused by global economic worries.

After converting three Boeing 747-400 aircraft into freighters in 2010, Taeco carried out just one conversion in the first half of last year.

Taeco is developing other sources of revenue to broaden its capabilities while helping to offset the drop in conversion work. This includes the design and fitting-out of aircraft interiors for executive and business jets, such as large Airbus corporate jets, and expanding its line maintenance operations that covers minor maintenance work to aircraft parked at terminal gates.

In December, Taeco and Haeco also acquired a 49 per cent stake in a company that carries out minor maintenance work on aircraft at Shanghai's Pudong International Airport. The company, which has been renamed Shanghai Taikoo Aircraft Engineering Services, had 39 airline customers. Taeco has similar line maintenance operations at Beijing, Tiangin and Xiamen.

But Pratt said demand for Haeco's heavy and line maintenance services in Hong Kong were expected to remain strong.

About 73 per cent of the heavy maintenance in the first half was for foreign airlines including United States, Japanese and some European airlines.

A long-standing contract with US carrier Delta Air Lines to upgrade the cabin interiors of its aircraft came to an end in the middle of the year after work on the final aircraft was completed.

Offsetting the end of this contract, Haeco won a deal from Virgin Atlantic Airways in December to upgrade and reconfigure the cabins of the airline's fleet of Boeing 747-400 aircraft. The work involves the installation of new seats and a replacement inflight entertainment system.

Haeco also carried out a programme of structural alterations to United Airlines aircraft that included the installation of winglets to improve fuel economy and reduce carbon dioxide emissions.

Haeco's line maintenance work was also buoyant. Based upon Airport Authority figures, Haeco carried out line, or minor, maintenance work on the equivalent of more than half the aircraft landing and taking off from Hong Kong airport last year.

Pratt said these line maintenance services involved an average of 299 aircraft per day in the first half of last year compared with an average of 446 aircraft arriving and departing the airport. This was an increase on 2010 and reflected the rising in air traffic as new airlines started flying to Hong Kong and existing carriers increased the number of flights.

Haeco's two aircraft engine overhaul companies, Hong Kong Aero Engine Services Limited (Haesl) and Singapore Aero Engine Services, are also expected to see strong result for last year, although Haesl's operations were expected to be adversely affected by continued delays in parts supplies. The two firms posted a combined 16 per cent increase in net profit to HK$194 million in the first half of last year.

The picture for last year was mixed with buoyant operations at Haeco in Hong Kong offset by weaker demand at its mainland joint ventures which include component overhaul companies in Shandong and Sichuan.

While Haeco is mulling plans for the construction of a fourth hangar at Hong Kong International Airport. That has led it explore a possible reduction in heavy aircraft maintenance as carriers invest in new aircraft such as Boeing 787s and Airbus A350s.

The increase in the use of composite materials, including carbon fibre, will create a more challenging maintenance environment which Haeco is already adapting to as a result of specialist training. Calls to revamp cabin interiors, with the installation of the latest generation of lie-flat beds and inflight entertainment systems, could also rise as passengers become more demanding.


the number of aircraft Haeco mainland offshoot Taeco can handle at conversion facilities in Xiamen, including up to 12 wide-body planes