What Does Singapore Airline Ltd’s Latest Joint Venture Mean For Its Business?

What: Last week, Singapore Airlines Ltd (SGX: C6L) had opened a pilot training centre joint venture – together with aircraft maker Airbus – as part of a strategy to help sustain the long-term growth of the airline.

The US$100 million joint-venture, named Airbus Asia Training Centre (AATC), is 45% owned by SIA. The remaining 55% of AATC is owned by Airbus.

When fully operational, the AATC is expected to have eight full-flight simulators, six fixed cockpit training devices, and the capacity to train up to 10,000 trainees.

So what: The AATC joint-venture may seem small in relation to Singapore Airlines’ business. After all, the centre had cost ‘only’ US$100 million whereas Singapore Airlines currently has total assets of S$23.9 billion.

But, the joint-venture can provide a different type of revenue stream for Singapore Airlines. Contrary to the nature of the airline business which is competitive and capital intensive, the pilot training centre might be a source of stable income for Singapore Airlines. Not only can the airline provide training to its own pilots, it can even provide training to pilots of other airlines and generate income from them.

Meanwhile, the participation of Airbus indicates its confidence in the growth of the aviation industry in the Asia Pacific region.

Indeed, Airbus predicts that the Asia-Pacific region will lead demand for new aircraft in the years ahead, with the size of the in-service fleet expected to nearly triple from 5,600 aircraft today to 14,000 in the next two decades. The size of the active flight crew of airlines in the region is also forecast to jump by a similar magnitude from 65,000 to 170,000.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.