What The Singapore Airshow Is Telling Us About The Aviation Industry

The biennial Singapore Airshow came to a close yesterday. As one of the largest aviation events in Asia, the airshow is a major event for deal making in the aviation space. In the last Singapore Airshow back in 2014, there were 20 deals announced, amounting to more than S$40.5 billion in value.

But, the most recent edition of the trade show only concluded with 11 deals worth a total of S$17.9 billion. What does this mean for some of Singapore’s largest aviation-related companies like SIA Engineering Company Ltd (SGX: S59) and Singapore Technologies Engineering Ltd (SGX: S63)?

In the 2016 Singapore Airshow, SIA Engineering, which focuses on aircraft maintenance, repair, and overhaul (MRO), announced that it had been appointed by Rolls-Royce as an On-Wing Services Provider for the Trent family of engines, a type of engine that powers the Boeing 787 Dreamliner aircraft.

In a separate announcement made by SIA Engineering which may or may not be linked to the Singapore Airshow, the company announced that it will be forming a new joint venture with Airbus  S.A.S. to provide airframe maintenance, cabin upgrade, and modification services for Airbus A380, A350 and A330 aircraft. The joint venture’s clients will be airlines in the Asia-Pacific region.

For me, the deals that SIA Engineering had struck indicates the strong position that both Singapore and the company have in being the partner of choice for aircraft manufacturers when they are choosing a hub for maintaining their planes for customers.

But, the huge reduction in deal value this year also highlights a key risk for the company. News reports have indicated that aircraft sales in the commercial sector are weak this year in the Singapore Airshow. Given SIA Engineering’s line of business, with fewer new planes coming into the market, the growth for the company in the near-future might be limited.

The story is quite different for ST Engineering, which does plenty of defence-related engineering work: Defence sales in the 2016 Singapore Airshow are up.

With the increasing threat of terrorism and other multi-lateral disputes between nations, many governments are beefing up their defenses. All these may be good news for ST Engineering. The company took the chance at the trade show to showcase many of its innovative products, such as its drones, new military wearables, and unmanned vehicles.

Although no major deals for ST Engineering were announced during the show, any trend of increased military spending in the region is likely to be a tailwind for the company.

Foolish Summary

The current market seems mixed for the aviation companies in Singapore. But, the Singapore government is determined to make the country an important regional air hub. As Singapore becomes an even more important destination in the international aviation industry, there could be plenty of growth potential for Singapore-based aviation companies such as SIA Engineering and ST Engineering.

That being said, whether the two companies can turn the opportunity to profitability is another story altogether.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.