We had warned that 4Q09 weakness (-17% QoQ, if adjusted for the Jobs Credit Scheme aid and a lower corporate tax rate) would carry forward into 2010. While revenue in 1Q10 fell only 2% to $244m, net profit fell a much larger 23% YoY (-31% QoQ) to $45.1m, about 24% of our full year forecast of $191m, due mainly to higher material costs, a 25% fall in associate contributions and a $6.1m forex loss.

Airframe maintenance and component overhaul was affected by SIA’s fleet renewal program that continued to reduce the number of heavier checks. This was partly mitigated by higher line maintenance revenue as SIE did more overseas jobs and higher manpower rate modular work. While SIA has cut fleet capacity, it was reported that it is in the process of reconfiguring and refurbishing its idle planes.

Although global passenger and freight traffic have stabilised of late, a sustainable recovery is not yet in sight given still-weak economic conditions and lingering flu concerns. Although SIA’s load factors have improved recently, SIA Engineering is still very dependent on its parent company, which accounts for an estimated 40% of group revenue (higher 68% dependence in Singapore). And unlike SATS, it does not have SFI to buffer the decline in aviation revenue.