SATS – BT

SATS shows great timing

SINGAPORE Airport Terminal Services’ (SATS) efforts to beef up its portfolio through the acquisition of a major stake in Japan-based airline caterer TFK Corporation seem to have been timed quite nicely.

After confirming it was in talks last week, the ground-handler announced on Monday that it is purchasing – via its wholly owned subsidiary SATS Investments – a 50.7 per cent stake in TFK from Japan Airlines International Co (JALI) for 7.8 billion yen (S$122.3 million).

TFK, which has operations at Japan’s Narita and Haneda Airports, serves about 30 international airlines. TFK’s other shareholders include its founder, the Nomaguchi family, with 43.2 per cent, and Air France with 0.3 per cent.

The acquisition, for starters, gives SATS a foothold in the Japanese catering market at a time when Japan’s aviation industry is expected to receive a boost from the recent opening of a new international terminal at Haneda Airport, which will enable more international airlines to touch down in Tokyo. Japan’s Ministry of Land Infrastructure, Transportation and Tourism had released projections earlier this year, declaring its intent to increase yearly slots at Narita and Haneda Airports by 80,000 and 87,000 respectively to 300,000 and 447,000 slots by 2014 – which suggests further potential for SATS to grow its business by leveraging on TFK.

Synergies

One research house pointed out, however, that SATS could have been a little more circumspect with its acquisition price. While it is unclear at this point exactly how the acquisition will boost SATS’ earnings, the net asset value for JALI’s shareholding in TFK was $90 million for the financial year ended March 31, 2010.

SATS is looking to complete the purchase by this month but also said the acquisition is not expected to have any material impact on the group’s earnings per share or net tangible assets per share for the current financial year ending March 31, 2011.

The acquisition will also mean synergies, especially when it comes to areas such as procurement and training, which should help the company keep a lid on costs.

Aside from its gateway services business, SATS also provides food solutions such as in-flight catering, food distribution and industrial catering.

Liberalising

But perhaps more importantly, the buy comes at a point when Changi Airport is poised to welcome a third ground-handler – another attempt at liberalising the sector after heavy losses forced Swissport International to pull out in March last year.

Four companies have been shortlisted so far, including Jetstar and SIA Engineering Company (SIAEC), and the third ground-handler will join incumbents SATS and Changi International Airport Services in the first quarter of 2011.

While SATS currently nets the bulk of the business at Changi Airport, the entry of a new player could mean stiffer competition down the line, especially if that player turns out to be SIAEC, given that SIAEC is part of the Singapore Airlines (SIA) group.

If nothing else, this latest acquisition will ‘help to diversify SATS’ customer base and reduce its reliance on the SIA Group (which accounts for some 60 per cent of SATS’ aviation revenue)’, CIMB pointed out in a report.

So for SATS, which has been talking about growing its core businesses both in and out of Singapore, it appears that the opportunity to snap up TFK couldn’t have come at a more opportune moment.

SATS – BT

SATS shows great timing

SINGAPORE Airport Terminal Services’ (SATS) efforts to beef up its portfolio through the acquisition of a major stake in Japan-based airline caterer TFK Corporation seem to have been timed quite nicely.

After confirming it was in talks last week, the ground-handler announced on Monday that it is purchasing – via its wholly owned subsidiary SATS Investments – a 50.7 per cent stake in TFK from Japan Airlines International Co (JALI) for 7.8 billion yen (S$122.3 million).

TFK, which has operations at Japan’s Narita and Haneda Airports, serves about 30 international airlines. TFK’s other shareholders include its founder, the Nomaguchi family, with 43.2 per cent, and Air France with 0.3 per cent.

The acquisition, for starters, gives SATS a foothold in the Japanese catering market at a time when Japan’s aviation industry is expected to receive a boost from the recent opening of a new international terminal at Haneda Airport, which will enable more international airlines to touch down in Tokyo. Japan’s Ministry of Land Infrastructure, Transportation and Tourism had released projections earlier this year, declaring its intent to increase yearly slots at Narita and Haneda Airports by 80,000 and 87,000 respectively to 300,000 and 447,000 slots by 2014 – which suggests further potential for SATS to grow its business by leveraging on TFK.

Synergies

One research house pointed out, however, that SATS could have been a little more circumspect with its acquisition price. While it is unclear at this point exactly how the acquisition will boost SATS’ earnings, the net asset value for JALI’s shareholding in TFK was $90 million for the financial year ended March 31, 2010.

SATS is looking to complete the purchase by this month but also said the acquisition is not expected to have any material impact on the group’s earnings per share or net tangible assets per share for the current financial year ending March 31, 2011.

The acquisition will also mean synergies, especially when it comes to areas such as procurement and training, which should help the company keep a lid on costs.

Aside from its gateway services business, SATS also provides food solutions such as in-flight catering, food distribution and industrial catering.

Liberalising

But perhaps more importantly, the buy comes at a point when Changi Airport is poised to welcome a third ground-handler – another attempt at liberalising the sector after heavy losses forced Swissport International to pull out in March last year.

Four companies have been shortlisted so far, including Jetstar and SIA Engineering Company (SIAEC), and the third ground-handler will join incumbents SATS and Changi International Airport Services in the first quarter of 2011.

While SATS currently nets the bulk of the business at Changi Airport, the entry of a new player could mean stiffer competition down the line, especially if that player turns out to be SIAEC, given that SIAEC is part of the Singapore Airlines (SIA) group.

If nothing else, this latest acquisition will ‘help to diversify SATS’ customer base and reduce its reliance on the SIA Group (which accounts for some 60 per cent of SATS’ aviation revenue)’, CIMB pointed out in a report.

So for SATS, which has been talking about growing its core businesses both in and out of Singapore, it appears that the opportunity to snap up TFK couldn’t have come at a more opportune moment.

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