Singapore Technologies Engineering Ltd., Southeast Asia's biggest defense company, plans to set up an aircraft maintenance and repair center in Eastern Europe to replace a UK location it shut down in December.
ST Engineering is considering three locations in the region, where it expects costs to be about 40% lower than in Western Europe, CEO Tan Pheng Hock said. The Singapore-based company is expanding in Europe to tap rising demand for travel on budget carriers, he said. „Today, people are worried about costs,” Tan said in a February 14 interview in Singapore. „If the price is attractive enough, people will wake up” and use its proposed aircraft center instead of Western European locations. ST Engineering's focusing on costs as discount airlines increase their share of the European travel market, growing to 24% of total seating capacity in 2006 from 15% in 2005, according to data by OAG Worldwide. Budget carriers RyanAir Holdings Plc and EasyJet Plc are among Europe's five largest airlines by market value, Bloomberg data shows. Budget carriers are also expected to farm out more aircraft-maintenance and repair services as they expand, instead of managing these operations themselves, analysts such as OCBC Investment Research Pte's Kelly Chia said.
„It is less feasible for these carriers to possess such overhaul facilities,” said Singapore-based Chia, who has a „hold” recommendation on the stock. „These carriers are an avenue for them to fuel the growth there.” To be sure, ST Engineering's Tan said he hasn't secured customers for long-term repair and maintenance contracts for its new aircraft center since it shut down its UK operation. Not many aircraft-maintenance centers in Eastern Europe have been profitable, he added, citing his own research. ST Engineering shares have risen 7.8% since the start of the year, compared with an 8.3% gain in the Singapore benchmark Straits Times Index. ST Engineering said February 13 its 2006 profit rose 12% to S$445 million ($290 million) after winning more orders to maintain and repair aircraft. The company has secured more than S$1 billion in orders so far this year, compared with S$4.3 billion for whole of 2006. (Bloomberg)