SATS – DBSV

3rd Ground-Handling Licence at Changi Airport awarded to ASIG

• Long-awaited 3rd Ground Handler announced – ASIG gets 10-year licence

• Impact minimal, but competition expect to stiffen

• Lower market share for SATS has already been factored in

• Maintain HOLD and TP S$2.91 TP.

News:

Changi Airport Group (CAG) announced yesterday that it has awarded the 3rd Ground Handling licence to US based Aircraft Service International Group (ASIG), from a tender exercise which saw proposals from 3 parties. The 10-year licence allows ASIG to provide the full suite of passenger, apron and cargo handling services to airlines operating at Changi Airport. We believe the other notable contender was SIA Engineering. ASIG is a US-based ground handling, fueling, cargo and ancillary services company based in 60 cities with operations in North America, Europe and Asia. It is a wholly-owned subsidiary of BBA Aviation [BBA LN].

Our views:

Stage is set with uncertainty cleared. The award of this 3rd licence has been long awaited, as it was originally announced that the 3rd operator is “expected to commence operations by mid-2010”, in CAG’s media release on 17 Nov 2009, when it first called for tender. Furthermore, there has been market concern that SATS’ contract with SIA could be at risk if SIA Engineering wins the tender.

Impact is minimal at this stage, but more competition ahead is expected. At this point, we see minimal impact on SATS given that ASIG does not yet have any significant presence in Asia, except for a refueling operation in Thailand’s Suvarnabhumi Airport. While we believe ASIG could likely see Singapore as its first significant operation base in Asia, we do note that it would take a while before operations could be scaled up sufficiently. That said, we believe competition is likely to pick up as the new entrant establishes its foothold in this market.

We have already factored in lower market share over the next few years. The re-introduction of a 3rd ground handler is not something new as CAG had first called for submission of plans more than a year and half ago in Nov 2009. As such, we have already factored in an erosion of market share by SATS over the next couple of years. We have assumed that SATS’ market share in passenger handling, flights and cargo handled to drop by c.2ppt per year till 2013.

No changes to our forecasts at this stage. Maintain Hold, TP S$2.91.

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