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September 2016

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The HAECO Group reported an attributable profit of HK$1,111 million for the first six months of 2016, which included a gain of HK$805 million on disposal of the interest of Hong Kong Aero Engine Services Limited (HAESL) in Singapore Aero Engine Services Limited (SAESL). This compares with a profit of HK$254 million for the equivalent period in 2015. 

 

Demand for airframe services provided by HAECO in Hong Kong was less in the first half of 2016 than in the first half of 2015. Line services benefited from increased aircraft movements and more work being done per movement. More component maintenance manhours were sold in Hong Kong. The operating profit of HAECO ITM increased as services were provided for more aircraft, but increased finance charges resulted in reduced attributable profits. The profits of HAESL increased. More engines were overhauled and more work was done per engine.

 

The agreements for the restructuring of shareholdings in HAESL and SAESL were completed on 30th June 2016. The gain to HAESL arising from selling its 20% shareholding in SAESL was $229 million. Forty-five percent of the gain to HAESL, equivalent to approximately HK$805 million, has been included in the profit of the group for the first half of the year. Under the restructuring, HAECO increased its shareholding in HAESL from 45% to 50% and HAESL no longer has any shareholding in SAESL.

 

HAECO Americas made a loss in the first half of 2016 similar to that in the first half of 2015. The airframe services performance was better, but fewer seats were sold. The pre-tax profit of Taikoo (Xiamen) Aircraft Engineering (HAECO Xiamen) decreased in the first half of 2016 compared with the first half of 2015. Demand for its airframe services was weak. Its post-tax profit improved as a result of a lower tax rate. Taikoo Engine Services (Xiamen) (TEXL) performed well, with more engines having been overhauled and more component repair work. Taikoo (Xiamen) Landing Gear Services Company Limited (HAECO Landing Gear Services) incurred a loss comparable to the first half of 2015. The overall contribution from the group’s other activities in mainland China improved.

 

The group continued to invest in expanding its facilities and technical capabilities and to improve and widen the range of services it can offer to customers. Total capital expenditure during the first half of 2016 was HK$328 million. Capital expenditure committed by 30 June 2016 was HK$1,514 million.

 

Demand for HAECO Hong Kong’s airframe and component maintenance services is expected to be roughly stable in the second half of 2016. Demand for its line services is expected to be firm. Demand for HAECO Americas’ airframe services is expected to increase compared with the second half of 2015 but seasonal factors mean that less work will be done than in the first half of 2016. The seat business will continue to be adversely affected by reduction in demand for our older model seats. Forward bookings for cabin integration work are weak but there will be more Panasonic Global Communication Suite work. Demand for HAECO Xiamen’s airframe services is expected to be weak in the second half of 2016. HAESL’s results in the second half of the year are expected to be adversely affected by reduced demand for its engine overhaul services although results for the whole of 2016 are likely to be better than those of 2015. TEXL’s engine output is expected to remain stable. The results of HAECO Landing Gear Services will continue to be adversely affected by strong competition.

 

The municipal government of Xiamen has announced that the proposed new airport at Xiang’an will commence operations in 2020. This is subject to the National Development and Reform Commission’s approval. Management maintains regular communications with the local authorities about the new airport and its opening, which will be material to the operations of the HAECO Group in Xiamen.

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