Tuesday, April 28, 2015


Aviation: Changi Airport has announced several reductions and rebates to aeronautical fees, which includes reductions to passenger service fees for transfer/transit passengers, landing fees for larger aircraft types, and franchise fees for flight catering and ground handling services. Existing rebates on landing fees for long-haul flights, aircraft parking and aerobridge charges will also be extended.

The latest move should increase the competitiveness of Singapore as an air hub and boost traffic flow, boding well for aviation services companies. Aviation services companies, such as SATS and Dnata (private), will also receive a 20% rebate on inflight catering and ground handling fees from May ‘15 to Mar ’17, while receive grants to support their productivity drive over the next two years.

SATS incurs licencing fees of around $77m a year (4% of sales). Assuming a 20% reduction in total licencing fees, Maybank-KE expects an EBIT uplift of 8%, ceteris paribus, and view the latest development as positive for SATS. The house is however maintaining its Hold call (TP $2.80) on the counter as valuations appear fair even after taking into account the potential earnings boost.

Other aviation service providers, such as SIA Engineering (Sell, TP $3.50) and ST Engineering (Hold, TP $3.45), could also benefit from the higher traffic throughput at the airport, although Maybank-KE believes that the impact is less immediate.

The house is still maintaining a negative stance on SIA Engineering as the overarching theme of lower engine maintenance workload will continue to weigh on near-term earnings. Meanwhile, airport operations are a small part of ST Engineering’s business and this announcement should not have a material stock impact.

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