The takeaway: Losses at Haeco Americas grew in 2016, but Haeco Group is confident that the former Timco operation, now focused exclusively on MRO and cabin services, is on the right track.
Haeco Corp. is confident that its money-losing Americas division is on the right track, as efficiency gains will help boost airframe MRO margins. while increasing demand and a new cabin-material supply contract with an unidentified OEM will pay medium-term dividends on the cabin sales side.
Americas’ losses rose to HK$523 million in 2016, compared to $158 million in 2015, parent company Haeco Group reported March 14 as part of its full-year financial results. The results include a HK$285 charge related to the cabin business. The charge “reflects a reduction in the expected profitability of the seats business and a weak cabin integration order book,” the group said in its annual financial review.
Cabin services lost money, as cabin reconfigurations fell from 40 in 2015 to 30 last year, caused in part by some rescheduling, the company said. Total seats sold also fell, from 4,200 to 3,400, in part because its newest models were not available the second quarter, creating a gap as demand for its older seats fell. The company launched its new Vector line in 2014.
Haeco’s cabin-services strength is in reconfiguration design engineering, but a “downtick” in demand has slowed work, group CEO Augustus Tang told analysts. Some of it is being offset by “more demand in maximizing density in the cabin” and related in-flight entertainment installations, he added. “We are expecting more business in this [area].”
The seats business also will get a boost from a new OEM contract. Americas has won a contract to supply “interior products” to an aircraft manufacturer, Tang said. A formal announcement is expected by May, and deliveries are slated to begin in 2018.
Tang emphasized that the Americas’ interiors unit is “still in the investment stage,” and the group is working to build the product portfolio. “This is very much a work in progress,” he said. “There is a a lot of attention to accelerate the business.”
On the MRO side, Americas boosted airframe hours 7% to 3.24 million, up from 3.02 million in 2015. Total airframe overhauls and per-check margins both increased, but the gains “were offset in part by expenditure incurred with a view to improving efficiency and work flow,” the company said.
“I’m very very positive about the prospects on the MRO side,” Tang said. “We’re trying to match the demand and maximize the demand with the most efficient, effective process,” with specific investments in both the planning and delivery.
The group in 2016 made the strategic decision to exit its U.S. line-maintenance business and focus on its core airframe services and cabin products businesses.