Changi Airport Grp has shortlisted 4 companies to submit bids for Changi’s 3rd ground handling license - AirAsia, Jetstar, Aircraft Service Int'l & SIA Engrg. CAG has also extended the tenure of the license to 10 yrs from 5 yrs. Tender will close on 17 Sep and the new operator is expected to commence business in 1Q11.
We expect any new entrant to face difficulties in securing market share from the incumbents given the long term tenure of existing contracts (at least 3 yrs) and lack of economies of scale. Previous entrant Swissport also tried but failed to muscle into this space and eventually closed it business in 2009 after 4 yrs of losses.
As the lowest cost operator, SATS is well positioned to defend its market share from the threat of new entrants and any impact is likely to be minimal and can be offset by its new venture into the technical ramp business. The group is poised to benefit from the strong upturn in regional air traffic. Stock is trading at 15x FY10 P/E backed by an attractive yield of 5.8%.
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