HAECO

Background

HAECO is an Asian aircraft maintenance, repair and overhaul (MRO) company. Via 17 operating subsidiaries and joint ventures it offers airframe and line maintenance, engine and landing gear overhauls, cabin reconfiguration, and so on. In 2013, it sold 6.24m airframe maintenance man hours, handled line maintenance services for an average of 415 flights per day and repaired and overhauled 252 engines.


Basics

Man hours and line services

10m man hours per year likely

TEXL getting more impt

Sales breakdown

HK and TEXL big, Xiamen not so good

Expenses: labour and material mainly

Strong player

Revenue trend and expenses again

Asset breakdown

OP breakdown

Trends

OP trend not too great
US still unprofitable

Thesis

Growth in air travel - requires more maintenance
Limited players in Asia
Restructuring in US and TEXL, more growth
10% FCF yield


Positives

Almost all is non guaranteed at this stage

Turnaround in US business
Growth in manhours to continue (vol expansion)
Cost control (labour) positive
Swire Group support
Debt restructuring - EV equity improvement angle
Margin and ROE improvement

Financials

Risks

Debt
Net debt of 4 billion HKD, 2 year duration 2.6%
Berg shows 3.5bn in operating leases on top of debt

Salaries
Allowance is 50% of total staff cost at 2.5bn vs 4.8bn HKD (Directors and Exec Officer costs 50m HKD)
Firm has a defined benefit retirement scheme worth HKD 2.6bn


Concentration
67% of sales and 48% of purchases attributed to the Group five largest customers and suppliers.
GE accounts for 27% of sales and 40% of purchases.

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