Paul Lewis/SINGAPORE
At a glance, aircraft, armoured vehicles, automated taxi-dispatchers and container ships would appear to have little in common. Not so, says Singapore Technologies Aerospace (ST Aero), which has just merged with its ST sister companies, Automotive, Marine and Electronics, to form a single S$3.5 billion ($2 billion) listed entity.
The rationale behind the newly formed ST Engineering Group is to bring a greater financial and technological critical mass to bear and to pursue more ambitious programmes once considered the preserve of larger players. To this end, the group quartet has been reinforced by the creation of an Advanced Engineering Centre and New Businesses unit.
"Their charter is to go out and look for business that transcends each of us and put it together, so that we can approach it as a combined entity. If you look at the four companies, you have a smattering of a lot of skills. It is now better packaged and able to focus on very big engineering programmes," explains Wee Siew Kim, ST Aero's recently appointed president.
The area of unmanned vehicles is one under study, where each company could bring its respective disciplines into play. ST Aero would be responsible for the platform and ST Electronics the command and control systems, while ST Automotive and ST Marine would provide, respectively, vehicle and warship integration.
Under the new corporate structure, Wee, who formerly headed ST Aero's Commercial Business Group (CBG), replaces Boon Swan Foo, who in turn has been elevated to the position of president and chief executive of the new parent organisation. Within ST Engineering, aerospace is the biggest single concern, representing 52% of total turnover and generating 46% of the group's $33 million first-half net earnings in 1997.
The merger entailed ST Engineering publicly re-listing 34% of its stock in December, with Government-owned Singapore Technologies retaining the balance. Despite a market meltdown and a 20% slide in Singapore stocks since the start of the year, the float has been positively received and continues to trade well above its S$1.03 opening price. "A lot of analysts look at us as a very defensive play with a strong backlog-if you want to put money into equity, this is probably a safer stock than others," claims Wee.
SINGAPORE SWING
The bullish response reflects a turnaround in ST Aero's financial performance since the end of 1995, when it recorded a net loss of more than S$48 million. A 24% rise in CBG turnover powered the company back into the black in 1996 to the tune of S$27.8 million. With a further 38% jump in civil revenue in the first six months of 1997, it has already more than matched net profits for the whole of 1997.
Much of this can be attributed to the recovery in the civil-aircraft maintenance, repair and overhaul industry over the past 18 months. ST Aviation Services (SASCO) has enjoyed an almost 100% occupancy rate in 1997, even with the recent addition of a third widebody bay at its Paya Lebar plant. At the same time, labour rates have firmed up at over $45/h, compared to a low of $25-30.
SASCO and the company's US subsidiary, ST Mobile Aerospace Engineering (MAE) in Alabama, have pooled expertise, capabilities and marketing. This cross-feeding has expanded MAE's range of competency to include Boeing 747 section 41 and strut modifications, while its Singapore sister is certified for MD-11 heavy maintenance up to C4 and M checks.
ST Aero's North American presence has provided it with affordable room to grow the business. Wee calculates that it requires 200 more skilled workers to bring a new 747 bay on line and, rather than re-convert a second military hangar at Paya Lebar, the company has opted to acquire a second site in the USA, where costs are lower than in Singapore.
Labour rates were not the only factor in ST Aero's decision, however. North America represents one of the largest narrowbody-aircraft markets in the world. With companies such as FedEx, Japan Airlines, Northwest and United Airlines eating up widebody capacity at Changi, Mobile and Paya Lebar, there was a need for a better-tailored site.
DALFORT DECISION
In mid-November, ST Aero concluded a $14.25 million agreement to purchase Dalfort Aviation in Dallas, Texas. The renamed Dalfort Aerospace boasts 13,000m2 (140,000ft2) of hangar space, sufficient to accommodate up to eight narrowbody jet airliners simultaneously, and a further 33,400m2 of component workshops, offices and warehousing
Closer to home, recent innovative schemes to generate additional maintenance work have been slower to get off the ground. SASCO had hoped by the end of 1996 to gain access to a planned new narrowbody site on the neighbouring Indonesian island of Batam. ST Aero has an agreement with four Indonesian partners to take a 25% stake in the operation of PT Batam Aircraft Maintenance, once its opens.
Because of repeated delays in construction, the new hanger will not now be completed until the third quarter of 1998 at the earliest. Given Indonesia's deteriorating economic situation in recent months, there is now some doubt whether even this date can be met. "I've not given up on Batam, but things look more remote in the last couple of months than ever before," acknowledges Wee.
ST Aviation Resources (STAR), a second joint venture launched in 1996 as a 50:50 partnership with parent company ST, has also had mixed results. The plan was to expand into narrowbody-aircraft leasing and, in the process, to generate support work for SASCO, and UK-based sister company Airline Rotables, by offering operators a single overall deal.
Other than taking a 15% stake in the lease of a 747-400F to Asiana Airlines, the one-stop concept has proved difficult to sell. "There are not many deals that allow you that neat packaging, because, where you might be able to provide maintenance, someone else can come in with cheaper financing. We're still working this idea, but the market is not as strong as three months ago," concedes Wee.
MILITARY BUSINESS
Civil activity is not confined solely to the CBG, but also involves to a certain extent the five aerospace divisions which make up the Military Business Group (MBG). The proportion of commercial work varies between 15% for ST Aerospace Engineering, to as high as 45% in the case of ST Aerospace Engines.
Intermingled with the heavy throughput of depot-level maintenance on domestic and foreign Lockheed Martin C-130 military transports at Paya Lebar and Bell and Eurocopter helicopters at Seletar, are typically civilian Lockheed Martin L-100s, Bell 214s and Eurocopter Super Pumas. A substantial amount of engine-overhaul work is also derived from commercial Pratt & Whitney JT8D powerplants.
MBG responsibilities also extend to smaller joint ventures covering civil and military work. They include Singapore Precision Repair and Overhaul, a joint operation with Messier Bugatti to service landing gear, wheels, brakes and hydraulics, and Perth-based Aerospace Engineering Services, providing support for the Republic of Singapore Air Force's (RSAF) local detachment of Agusta S211 trainers.
The MBG's biggest programme is its avionics upgrade of the Northrop F-5E/F fighter for the RSAF. With the improved F-5S/T now entering operational service, the company is looking to export its garnered expertise. ST Aero's efforts were recently rewarded when, with partners Israel Aircraft Industries and Elbit, it won a $75 million deal from Turkey for an F-5A/B avionics modernisation.
UPGRADE POTENTIAL
MBG deputy president and chief operating officer Tay Kok Khiang says: "There is a lot of upgrade potential. Despite the desire to buy better and faster types like the Lockheed Martin F-16, the F-5 still has the promise to be a cost-effective aircraft, especially for advanced lead-in fighter training".
ST Aero has a lot of experience in upgrades, starting in the mid-1980s with the McDonnell Douglas A/TA-4SU Super Skyhawk for the RSAF. Aside from re-engineing the aircraft and fitting new avionics, the company converted many to two-seaters, the last being completed in 1993. Its A-4 work now centres on overhaul and corrosion-prevention programmes.
The company's future plans are focused on transferring its structural and avionics skills, honed on the A-4 and F-5, to newer-generation aircraft. "We're always on the look-out for new opportunities, and probably one of the primary areas we will branch into will be more F-16 capability," suggests Tay.
Work has begun on an F-16A/B structural-modification programme for the RSAF, but there is as yet no interest in the more comprehensive avionics mid-life upgrade. STA Engines, however, will be able to offer F-16 operators a full P&W F100-220/229 turbofan overhaul capability from September, including module breakdown and component repair.
The C-130 should offer scope for growth, building on ST Aero's experience, which includes years of depot-level support for the US Navy and tanker conversions for the RSAF.
Looking to the future, Tay concludes: "We're offering a one-stop concept, with a complete airframe, engine, component and spare-parts capability, giving value-added service to the customer. We're also capable of designing and integrating various systems. It's all a question of what the customer wants."
Source: Flight International
