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September 2017

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The HAECO Group reported an attributable profit of HK$348 million for 1H17. This compares with a profit of HK$1.111 billion for the equivalent period in 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 (SAESL).

 

More airframe and line services work was done by HAECO in Hong Kong in 1H17 than in the 1H16. The increase in airframe services work reflected higher demand and the deferral of some customers’ work from 2016. Line services benefited from more aircraft movements. HAECO ITM recorded a higher profit, which reflected more repair business. The share of HAESL’s profit increased and the shareholding increased from 45% to 50%. More engines were overhauled and more work was done per engine.

 

HAECO Americas recorded a higher loss in 1H17 than in 1H16. This reflected lower demand for its airframe services, lower margins on seats sold and the completion of fewer interior reconfigurations. The results were also adversely affected by the non-recognition of deferred tax assets in respect of the 1H17 tax losses and lower than expected contributions from certain programmes (with efforts to improve efficiency not yet having borne fruit). The non-recognition of deferred tax assets reflects the loss of significant work from a major customer from August 2017.

 

The profit of Taikoo (Xiamen) Aircraft Engineering Company (HAECO Xiamen) increased in 1H17 compared with 1H16. This principally reflected higher demand for its airframe services. The profit of Taikoo Engine Services (Xiamen) Company Limited (TEXL) increased, with more engine performance restorations and more component repair work. Taikoo (Xiamen) Landing Gear Services Company Limited (HAECO Landing Gear Services) incurred a smaller loss than in 1H16. The overall contribution from the Group’s other activities in mainland China improved.

 

The Group continued to invest in order to increase the scale of its operations and technical capabilities, and to improve and widen the range of services it can offer to customers. Total capital expenditure during 1H17 was HK$355 million, whilst capital expenditure committed at 30 June 2017 was HK$1.315 billion.

 

The workload for HAECO Hong Kong’s airframe maintenance services is expected to be less in the second half than in the first half of 2017 for normal seasonal reasons and because of the deferral of work by some customers. Demand for its line services is expected to be stable. Demand for HAECO Americas’ airframe services is expected to decrease in 2H17 compared with 1H17 due to the loss (with effect from August) of significant US work from a major customer, in addition to normal seasonal reasons. Airframe services results will also be adversely affected by the additional costs of training and recruiting staff in preparation for the opening of a fifth hangar at Greensboro, North Carolina, in 2018. The growth in demand for seats in 2H17 is expected to continue but margins are expected to be lower. Forward bookings for cabin integration work are weak. More Panasonic communication equipment installation kit work is expected in the second half of 2017 than in the first half. Demand for HAECO Xiamen’s airframe services is expected to be less in 2H17 than in 1H17, for normal seasonal reasons. Demand for line services is expected to be stable. Demand for TEXL’s engine overhaul services is expected to be stable in 2H17. HAESL’s results in 2H17 are expected to be adversely affected by higher depreciation and training costs associated with developing the capability to overhaul Trent XWB engines. Overall, the HAECO Group’s adjusted profit for 2017 is expected to be below that of 2016.

 

The municipal government of Xiamen has announced a proposal to relocate the Gaoqi Airport to a new airport in the Xiang’an district. This is subject to central government 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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