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How To Invest In the Airline Industry Without Investing In The Airlines

airplane Richard Branson famously once said that if you want to be a millionaire, start with a billion dollars and launch an airline. There are some investors who wouldn’t go near an airline stock with a ten foot pole. But there are ways of investing in the airline industry without investing directly in the airlines themselves.

On the SGX, beyond investing in the airlines like Singapore Airlines Limited (SGX: C6L) and Tiger Airways Holdings Limited (SGX: J7X),  there are also companies providing support services to the airlines.  These companies include SIA Engineering Company Limited (SIAEC) (SGX: S59) and SATS Limited (SGX: S58). Let’s take a closer look at these two companies.

SIAEC

SIAEC is a maintenance, repair, and overhaul (MRO) company that provides engineering services to the airlines. SIAEC has clientele from over 80 international carriers that include Cathay Pacific, United Airlines and Air Canada.

SIAEC also has around 25 joint ventures and subsidiaries across nine countries. The joint ventures include that with engine-maker, Rolls-Royce, in-flight entertainment and communications maintenance and repair company, Panasonic Avionics and Pratt & Whitney, another engine-maker. The joint venture companies contributed 58.9% of SIAEC’s net profits for Financial Year 2013.

Revenue for the past nine years from 2004 to 2013 has been growing at a compounded annual growth rate (CAGR) of 6%. Net profits for the same period grew 7.6% per annum. Its net margin stands at 23.6% for Financial Year (FY) 2013.

The company’s debt stands at S$5.7 million against a cash hoard of S$522.9 million. Its ROE is at 20.7%. SIAEC also has low capital expenditure. Its PE ratio is currently at around 20 and it yields about 4%.

SATS

SATS is the chief ground-handling and in-flight catering service provider at Singapore Changi Airport. SATS controls about 80% of Changi Airport’s ground handling and catering business. It also runs ground handling and airline catering operations at nearly 40 airports across the region. Besides its operations in Singapore, SATS has also established a network in Asia through various joint ventures.

Revenue for the past nine years from 2004 to 2013 has been growing at a compounded annual growth rate (CAGR) of 8.6%. Net profits for the same period went down -0.3%. Its net margin stands at 10.2% for Financial Year (FY) 2013.

It has total debt of S$125.2 million and its cash balance stands at S$405.5. Therefore, it is in net cash position of S$280.3 million. Its ROE stands at 13.2%.

SATS has low capital expenditure requirements just like SIAEC. Its PE ratio is at around 20 and the yield is approximately 3%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.