Singapore Airport Terminal Services 3 February 2025_EN

LATEST COMPANY ANNOUNCEMENT

SATS LTD - Singapore Airport Terminal Services.

SG1I52882764

Q2 FY24/25

03 February 2025

Associate: Anne Ching

MEDIA RELEASE

SATS POSTS 2Q NET PROFIT OF S$69.7 MILLION

• 2Q revenue grew 14.1% YoY to S$1.45B, driven primarily by continuing growth in

air cargo volumes and aviation meals

• 2Q EBITDA reached S$265.7M, expanding YoY margin from 15.2% to 18.3%
• Secured S$68M of the targeted annualised run rate of S$100M EBITDA

integration synergies

• SATS declares an interim dividend of 1.5 cents (S$) per share

Singapore, 7 November 2024 - SATS Ltd. (SATS) today reported its unaudited results for the six months ended 30 September 2024 (1H FY25).

HIGHLIGHTS OF THE GROUP'S UNAUDITED RESULTS:

Notes: (1) FY25 refers to the financial year from 1 April 2024 to 31 March 2025 (2) 1H FY24 figures were restated retrospectively to reflect discontinued operation due to the disposal of a subsidiary in March 2024 (3) D&A refers to depreciation and amortisation (4) EBITDA refers to earnings before interest, tax, depreciation and amortisation (5) SoAJV refers to the share of associates/joint ventures, net of tax (6) n.m. - not meaningful

GROUP EARNINGS

2Q FY25 (1 July 2024 to 30 September 2024)

In 2Q FY25, SATS Group's revenue increased by 14.1% to S$1.45 billion compared to the same period last year due to business volume growth, rate increases and a three-month revenue catch up recorded in 2Q FY25 upon finalisation of a contract renewal.

Revenue for Gateway Services increased by 10.3% YoY to S$1.10 billion as the cargo market growth was supported by increasing e-commerce demand and continued disruption to sea freight from the Red Sea crisis.

Food Solutions' revenue increased by 28.0% to S$352.8 million as compared to prior year fuelled by the increased demand for inflight meals as travel recovers.

The Group's expenditure (excluding depreciation and amortisation) increased by 9.9% to S$1.18 billion YoY, in line with the increase in business volume. Included in 2Q FY25 expenditure was an unrealised foreign exchange loss of S$21.6 million, mainly due to translation of USD and Euro intercompany loan balances at the end of the second quarter.

In 2Q FY25, SATS operating profit doubled to S$127.2 million from S$64.1 million.

Operating profit margin also improved from 5.0% to 8.8% driven by operational leverage as revenue growth outpaced the increase in expenditure.

The share of earnings of associates and joint ventures increased by 28.6% to S$29.7million mainly due to a reclassification adjustment relating to purchase price allocation in the prior period between share of earnings of associates and joint ventures, and depreciation and amortisation charges.

In 2Q FY25, SATS posted PATMI of S$69.7 million reflecting an improvement of S$47.5 million YoY. This better performance was attributed to scale leverage derived from higher business volume and rate increases from customers.

1H FY25 (1 April 2024 to 30 September 2024)

SATS Group's 1H FY25 revenue increased by 14.8 % to S$2.82 billion YoY due to business volume growth as well as rate increases from customers. Revenue for Gateway Services increased by 11.1% YoY to S$2.16 billion. This growth was due to the increase in air cargo volume driven by high-tech shipments, growth of eCommerce, and the shift from ocean freight to air freight due to the Red Sea crisis.

Food Solutions' revenue improved by 28.6% to S$663.5 million as aviation travel continues to recover and the demand for inflight meals increased.

The Group's expenditure (excluding depreciation and amortisation) increased by 9.3% to S$2.31 billion YoY, in line with the increase in business volume. Included in 1H FY25 expenditure was a charge of S$22.9 million for unrealised foreign exchange losses, mainly due to translation of USD and Euro intercompany loan balances at the end of the period.

SATS' 1H FY25 operating profit increased YoY to S$240.1 million from S$72.0 million.

Operating profit margin also expanded from 2.9% to 8.5% driven by favourable operating leverage as revenue growth outpaced that of expenditure.

The share of earnings of associates and joint ventures increased by 47.1% to S$65.3 million, driven by travel recovery and higher cargo volumes.

In 1H FY25, SATS posted PATMI of S$134.7 million reflecting a significant improvement of S$142.5 million YoY. This improved performance was attributed to the scale and operating leverage derived from higher volume of business handled, and rate increases from customers.

GROUP FINANCIAL POSITION (as at 30 September 2024)

Total equity increased by S$127.6 million, reaching S$2.69 billion as of 30 September 2024, compared to 31 March 2024. This increase was primarily attributed to the profit generated in 1H FY25.

Non-current assets decreased by S$162.6 million to S$6.37 billion as of 30 September 2024. This reduction was mainly due to lower right-of-use assets and intangible assets resulting from depreciation and amortisation. Additionally, there was a decrease in investment in joint ventures arising from dividends received during the period.

Current assets reduced by S$47.0 million to S$1.90 billion, driven by lower cash balance partially offset by higher trade and other receivables.

Total liabilities decreased by S$337.2 million to S$5.58 billion, primarily due to the repayment of S$72.0 million of debt, lower lease liabilities and lower trade payables balance.

For 1H FY25, operating cash flow increased to S$208.9 million, compared to S$75.5 million recorded in the corresponding period last year. SATS' free cash flow for 1H

FY25 was negative S$69.3 million, reflecting an improvement of S$142.1 million YoY, driven mainly by higher YoY operating profit for the half year period. The negative free cash flow in 2Q FY25 was attributed primarily to the increase in working capital requirement due to annual bonus payout and the increase in trade receivables attributed to the contract rate adjustments during the quarter.

INTERIM DIVIDEND

In view of the Group's financial performance in 1H FY25, the Board of Directors has declared an interim dividend of 1.5 cents (S$) per share, payable on 6 December 2024.

The book closure date is 22 November 2024.

OUTLOOK

SATS expects the positive momentum to continue in the next quarter as the demand for travel and cargo reaches its seasonal year-end peak. With our global network and expanded scale, we will continue to leverage the strong growth trends by improving operational efficiency and introducing new product offerings, further solidifying our global leadership position.

Looking ahead, SATS is committed to scaling the business to achieve sustainable revenue growth, driving operational leverage to improve cost efficiency, and investing in platform capabilities and innovation as we navigate a complicated geopolitical environment.

Kerry Mok, President and Chief Executive Officer of SATS, said, "We are pleased with the progress of our integration and the sustained improvements in operating results. This quarter's good performance is further proof that our strategy is delivering. During the second quarter, we continued to drive operational excellence and signed new strategic partnerships to maintain our competitive advantage in an evolving marketplace. We restructured the Gateway Services business in the Asia-Pacific into Singapore Hub and Gateway Services Asia-Pacific, underscoring our commitment to

Singapore's aviation ecosystem while scaling our international presence to capture growth opportunities overseas.

As the leading global provider of aviation solutions, SATS will leverage its capabilities and network to deliver sustained value for shareholders."

Source: sats-2q-1h-fy25-media-releaseb1cf51f891db484fb7cb30e938d2d67c.pdf

COMPANY PROFILE

SATS LTD - Singapore Airport Terminal Services

Incorporated in: SINGAPORE

Incorporated on: 15 Dec 1972

ISIN Code: SG1I52882764

With over 60 years of operating experience and an emerging global presence, SATS - Singapore Airport Terminal Services - is a provider of Airport Services and Food Solutions. Its comprehensive scope of airport services encompasses airfreight handling, passenger services, ramp handling, baggage handling, aviation security and aircraft interior cleaning, while its food solutions business comprises inflight catering, food distribution and logistics, industrial catering as well as chilled and frozen food manufacturing. Today, its network of ground handling and inflight catering operations spans nearly 40 airports in the Asia Pacific region. SATS has been listed on the Singapore Exchange since May 2000.

http://www.sats.com.sg/

BOARD OF DIRCETOR

NAME	DESIGNATION
Irving Tan	Chairman
Kerry Mok Tee Heong	Director
Achal Agarwal Director	Director
Vinita Bali Director	Director
Chan Lai Fung Director	Director
Chia Kim Huat Director	Director
Eng Aik Meng	Director
Mak Swee Wah	Director
Deborah Ong	Director
Pier Luigi Sigismondi	Director
Jessica Tan Soon Neo	Director

Our Leadership (sats.com.sg)

KEY MANAGEMENT TEAM

NAME	DESIGNATION
Kerry Mok	President and CEO
Manfred Seah	Chief Financial Officer
François Mirallié	Deputy CEO WFS, A Member of the SATS Group
Stanley Goh	CEO, Food Solutions
Bob Chi	CEO, Gateway Services and CEO-designate Gateway Services Asia Pacific
Michael Simpson	CEO, Americas WFS, A Member of the SATS Group
John Batten	CEO, EMEAA WFS, A Member of the SATS Group
Tan Chee Wei	Chief Human Capital Officer
Henry Low	Chief Operating Officer and CEO-designate Singapore Hub
Véronique Cremades Mathis	Chief Strategy and Commercial Officer
Ian Chye	Chief Legal Officer

Our Leadership (sats.com.sg)

CORPORATE SOCIAL RESPONSIBILITY

Giving Migrant Workers a Taste of Home

SATS' five-month journey to feed thousands of migrant workers

Singapore's COVID-19 Circuit Breaker in early-April 2020 marked the beginning of SATS' five-month journey to feed thousands of migrant workers, when a growing cluster emerged in one of the dormitories.

SATS prepared over 45,000 meals daily at the peak of this massive undertaking. Teams across its Food Solutions business had less than 48 hours to gather resources to provide three meals a day with snack packs to migrant workers housed in various locations and to several government quarantine facilities nation-wide.

Amidst challenges such as a reduced workforce, tight timelines, and having to reconfigure operations to produce hot food cooked just in time instead of chilled ambient meals, everyone came together for the greater good. Staff from various catering teams, Aero Laundry, Gateway Services, and even management joined the efforts to pack meals.

Providing meals from their homelands is the least we could do for the sacrifices these people have made for us.

Production supervisor Eileen Hoong and duty manager David Ho were instrumental in keeping production running smoothly. Eileen recollects, "it took a lot of cooperation and coordination to get the food delivered safely to residents in a timely manner." Experienced executive sous-chef Jordi Noguera and chef Jennifer Teo oversaw kitchen operations and menu development alongside executive sous-chef Saravjit Singh, or chef Saini as he is better known, to create new Bengali menus too.

"Food is a staple part of life and good food reminds people of home, their friends and family," shares chef Saini. To give the migrant workers a taste of home, the team specially brought in Ponni rice and mangoes as a treat. Other ethnic groups also savoured the familiar taste of Sichuan cuisine and celebratory food and drink like dumplings and bandung, amongst others, during the Dragon Boat Festival and Hari Raya.

Source: Giving Migrant Workers a Taste of Home (sats.com.sg)

Trial of Zero-waste Ecosystem Solution

In November 2019, SATS partnered the Singapore Institute of Technology (SIT) to conduct a three-week trial programme at one of SIT's campus canteens, iEat Café, which turns food and food packaging waste into fertiliser.

Developed by TRIA, a Singapore based company that develops sustainable food packaging, the Bio24 programme (https://triabio24.com) is a zero-waste ecosystem solution that turns single-use foodware, packaging, and food waste into farm-ready fertiliser. By replacing the plastics used in single-use foodware with a plant-based material called NEUTRIA, foodservice waste can be streamlined into a single organic waste stream. This can then be digested by TRIA's patented biodigester, which turns the waste into fertiliser within 24 hours. The main objective of the trial was to better understand the digestibility of food and packaging waste materials as well as the viability of operational adoption. In addition to iEat Café's operations, about 600 kg of food waste was collected from SATS Inflight Catering Centre (SICC) 1 and successfully digested into compost in order to test the quality of the resultant digestate. By the end of the trial period, iEat Café managed to achieve zero waste on 91.5% of their foodservice by-products by turning food and packaging waste into nutrient-rich compost.

Advocating sustainable behaviour among our employees

Sustainability is a holistic approach that determines the way we operate as a business and the choices we make as individuals. To build a corporate culture that promotes sustainability through behavioural change, we regularly communicate our sustainability pillars to our employees through many different platforms to encourage the rethinking of individual consumption patterns in our daily lives.

To promote this shift in mindset and serve as a source of inspiration, SATS has started an initiative to feature 'sustainability champions', individuals who display sustainable and responsible behaviour. One such champion featured in our internal newsletter was Meng Leyin, a coordinator of our closed-loop plastics recycling programme with Plaslife. Since its inception in September 2019, the programme has enabled SATS to recycle 3,910 kg of our plastic waste materials into new plastic bags and trash bags which were purchased and reused in our production kitchens. Leyin made it her personal mission to ensure the programme's success, going above and beyond her responsibilities to collect plastic samples from the kitchens and encourage colleagues and cleaners to sort the plastics for recycling.

Source: Trial of Zero-waste Ecosystem Solution (sats.com.sg)

Sustainability Report 2023

President and CEO Statement

Dear Shareholders,

Feeding more people, connecting more communities

This is SATS' first Sustainability Report following Worldwide Flight Services (WFS) integration in April 2023. Our transformational journey is progressing well. As a larger and more globalised combined entity, we have expanded our reach and significantly enhanced our ability to make a positive global impact across cultures. This is aligned with our purpose of feeding and connecting communities responsibly. We are committed to taking on this role for the benefit of our company, partners, stakeholders, and, ultimately, future generations. To achieve this, we have reaffirmed our commitment to environmental, social, and governance (ESG) and transformed ourselves to take on a greater challenge. We reviewed our sustainability status, re-baselined and set new targets for ESG aspirations. We have also refreshed our Group Sustainability Framework by setting new ambitions and goals.

Delighted people, delighting people

Our business and sustainability ambitions are driven by our people. Our success is built on the knowledge, expertise and performance of every single member of the team. Our people help build strong relationships with our customers, stakeholders and the communities we serve. SATS employs close to 50,000 people representing 45 nationalities who are collectively responsible for the safety of our customers' passengers and consumers. Our employees are not just instrumental in responsibly and sustainably feeding and connecting communities; they are indispensable to us. Our people are at the heart of our organisation, and we have taken action to reinforce this. We have revamped our values, replacing "Core Values" with "People Values" to underscore our commitment to prioritising our employees. This change reflects our unwavering dedication to placing our people first and embedding this ethos across our entire company.

Building the foundation

In our first year of integration with WFS, we are laying the groundwork for long-term success. We have agreed on the issues that are crucial to our business as a combined company. These critical issues have been integrated into our updated sustainability framework, which includes clear ambitions and targets. We have established a robust governance structure to foster active participation and ensure accountability at all levels of our organisation. To underscore the value of sustainability in the face of evolving societal and business landscapes for building a lasting competitive edge for SATS, we have established the Safety, Sustainability, and Risk Committee (SSRC) at the board level. Furthermore, a dedicated Safety, Sustainability, and Risk Management Committee (SSRMC) has been implemented at the executive management level to reinforce the integration of sustainability into the company's operations and ensure the allocation of adequate resources to support sustainability initiatives. We have strategically restructured the ESG Councils at the operational level to ensure our four business units, Food Solutions, Gateway Asia, Gateway EMEA and Gateway Americas, get the opportunity to share global best practices and develop their specific sustainability initiatives. The combination of sustainability expertise from SATS and WFS has resulted in a substantial and ever-growing knowledge base of ESG. Leveraging our culture of collaboration, we actively promote the sharing of data, knowledge, and best practices at these council meetings. Our aim is to inspire and empower our global teams to utilise our collective insights to drive significant positive impact across our business and industry.

Driving sustainability globally and locally

As a global player, we must do our part to move forward on sustainability development efforts. Our extensive capabilities and expanded network empower us to collaborate with various industry players of different sizes to develop global solutions that will transform our operations and those of our partners, making them more sustainable.

Read more in our Sustainability Report 2024: sats-sustainability-report.pdf

COMPETITORS

SINGAPORE AIRLINES LIMITED(SG1V61937297)

Singapore Airlines Limited ("Singapore Airlines") was incorporated as a public company with limited liability and a wholly-owned subsidiary of Temasek Holdings (Private) Limited on 28 January 1972. Its history began in 1947 when a twin-engined Airspeed Consul under the Malayan Airways Ltd's insignia started scheduled services between Singapore, Kuala Lumpur, Ipoh and Penang. Malayan Airways Ltd grew steadily and by 1955, international services were added to its operations. With the formation of the Federation of Malaysia in 1963, the airline was renamed Malaysian Airways Ltd. In 1966 the governments of Malaysia and Singapore acquired joint control of the airline, which was then renamed Malaysia-Singapore Airlines Ltd ("MSA"). In 1971, MSA was restructured into 2 entities: Singapore Airlines and Malaysia Airline System. Singapore Airlines, a full member of the global Star Alliance, is one of the world's premium airlines, with the distinction of operating a young and modern fleet. The Singapore Airlines route network extends across 105 destinations in 37 countries, including those served by its subsidiaries, Singapore Airlines Cargo and SilkAir. The Singapore Airlines Group has over 20 subsidiaries, covering a range of airline-related services, from cargo to engine overhaul. Its subsidiaries also include SIA Engineering Company, Scoot, Tiger Airways, Singapore Flying College and Tradewinds Tours and Travel. Principal activities of the Group consist of air transportation, engineering services and other airline related activities.

http://www.singaporeair.com/

AIRPORTS OF THAILAND TH SDR (SGXE27499115)

Airports of Thailand (AOT) is a leading state-owned enterprise responsible for the operation and management of major airports in Thailand. With a strong presence in the aviation industry, AOT oversees the strategic development and efficient operation of six international airports, including Suvarnabhumi Airport and Don Mueang International Airport in Bangkok. AOT's comprehensive range of services encompasses passenger facilitation, ground handling, retail and commercial operations, and airport infrastructure management. With a commitment to providing world-class airport experiences, AOT continuously invests in modernization and expansion projects to accommodate the growing demand for air travel. As a pivotal driver of Thailand's tourism and transportation sectors, AOT plays a crucial role in connecting Thailand with the world and fostering economic growth.

AIRPORTS OF THAILAND TH SDR | SDR (singaporedr.com)

SIA ENGINEERING COMPANY LIMITED (SG1I53882771)

The company began its business as the engineering division of Singapore Airlines. In 1992, Singapore Airlines transferred its aircraft maintenance, repair and overhaul (MRO) activities into an existing subsidiary to form SIA Engineering Company (SIAEC). SIAEC is a major provider of MRO services in Asia-Pacific, with a client base of more than 80 international carriers and aerospace equipment manufacturers. It provides line maintenance services at more than 25 airports in 7 countries, as well as airframe, engine and component services on some of the most advanced and widely used commercial aircraft in the world. Over 20 subsidiaries and joint ventures with original equipment manufacturers and strategic partners in Singapore, Hong Kong, Indonesia, Japan, Malaysia, Philippines, United States and Vietnam increase the depth and breadth of the Company's service offerings. SIAEC has approvals from more than 25 national aviation regulatory authorities to provide MRO services for aircraft registered in the United States, Europe, China and other countries.

http://www.siaec.com.sg/

THE INDUSTRY

SATS (S58/SATS.SI)

3.660+0.01 (0.274%)

Industry: Transportation, Airport Services

This company reports in this currency: SGD

Source: SATS - Investor Portal (CDP Internet) - Singapore Exchange (SGX)

Singapore Aerospace Industry Surges Ahead: Economic Survey 2022

The Singapore Aerospace industry has made a strong comeback, with output for 2022 reaching S$13.3 billion and a value-added of S$3.9 billion. This represents a 27.7% and 16.4% growth respectively from the previous year. The industry has surpassed pre-pandemic levels by 2.8%, indicating sustained growth beyond recovery. The industry is expected to continue its growth trajectory, with improvements in aviation- and tourism-related sectors although this may be affected by uncertainties and risks that remain in the global economy.

The release of the Economic Survey of Singapore 2022 by the Ministry of Trade and Industry on 13 February 2023 has shown encouraging statistics for the Singapore Aerospace industry. Preliminary data released by the ministry recorded aerospace industry output for 2022 at S$13.3 billion, and a value-added of S$3.9 billion. This represents a 27.7% and 16.4% growth respectively compared to the previous year (2021).

However, the industry has made a remarkable comeback in 2022, surpassing pre-pandemic (2019) output levels by 2.8%. This is a positive sign for the industry, indicating sustained growth beyond recovery. The achievement also speaks to the resilience of the industry and the effectiveness of the strategies and improvements implemented collectively and independently by Singapore aerospace companies during the pandemic.

The strong showing of the industry in 2022 can be attributed to the ramping up of air travel and aerospace activity with the lifting of travel restrictions in Singapore and around the world. The industry had seen early signs of growth since March 2022, when output exceeded 2019 levels for the first time, according to Monthly Manufacturing Performane reports by the Singapore Economic Development Board (EDB). Output in September 2022 was recorded at a high of 16.6% against the baseline. Aggregated data from MTI also showed steady increase in aerospace activity and output, surpassing pre-pandemic levels from the second quarter through to the last quarter of the year.

Data source: Ministry of Trade and Industry, Economic Survey of Singapore reports *2022 figures are drawn from preliminary data

Data source: Singapore Economic Development Board, Monthly Manufacturing Performance reports

Optimism And Challenges on The Path Ahead

This growth trajectory is expected to continue. Analyses by MTI suggest a further improvement in the aviation and air travel related segments, bolstered by the improved outlook: "The growth outlook for aviation- and tourism-related sectors of the Singapore economy has improved as the ongoing recovery in international air travel and inbound tourism is expected to accelerate following the faster-than-expected relaxation of China's border restrictions. These sectors include air transport, accommodation, and arts, entertainment & recreation." Data and analyses from EDB's Business Expectations of the Manufacturing Sector survey supports this, with a net weighted balance of 36% of aerospace firms projecting a higher level of production in the first quarter of 2023, compared to the previous quarter, in anticipation of an increase in demand for aircraft engine repair work and MRO services from commercial airlines.

The optimism of the aerospace sector is a notable exception, however, as the overall sentiment of Singapore's manufacturing industry has turned negative due to uncertainties and risks that remain in the global economy. Tighter financial conditions in many advanced economies and continued interest rate hikes by major central banks could lead to disorderly market adjustments and reveal previously hidden vulnerabilities among heavily indebted corporations and households, thereby raising the risk of financial instability. Additionally, further escalation in the war in Ukraine and geopolitical tensions among major global powers could worsen supply disruptions, dampen confidence, and impact global trade.

Despite the challenges, Singapore's external demand outlook for 2023 has improved slightly. Growth in China is projected to pick up in tandem with the faster-than-expected easing of its COVID-19 restrictions, leading to improvements in the growth outlook of regional economies. Moreover, the global supply situation continues to stabilise amidst softening global demand conditions, resulting in eased global commodity prices from 2022 levels.

To sustain its growth momentum, it is crucial for the Singaporean aerospace sector to remain vigilant and adaptable in navigating the volatile economic landscape. It will also have to address and surmount challenges including manpower tightness in the domestic talent market and intensifying competition in the region. By focusing on innovation, enhancing productivity, developing talent, working collectively and leveraging the policy supports for the industry, aerospace stakeholders can stay ahead of the curve.

Source: Singapore Aerospace Industry Surges Ahead: Economic Survey 2022 | Aerospace Singapore Digital

The Current Landscape of Singapore's Aviation Market

Post-COVID Recovery of The Local Aviation Market

The local airline industry in Singapore has experienced a robust post-pandemic recovery, driven primarily by a surge in travel demand as Singapore swiftly reopened its borders, but also by the ability of Singapore Airlines to rapidly ramp up its network.

Singapore Airlines and Scoot Surge Ahead with Near and Above Pre-Pandemic Capacities, Achieving Record Load Factors in FY2023-24

Both Singapore Airlines and Scoot have successfully returned to their pre-pandemic capacity levels. By the end of 2023, Singapore Airlines had reached 93% of its pre-pandemic capacity in terms of available seat kilometers (ASKs), while Scoot had reached 104%. In contrast, Jetstar Asia has experienced a slower recovery, only restoring less than half of its pre-pandemic capacity in 2023.

The capacity to ramp up their operations at a much faster rate than their competitors enabled these airlines to capitalize on the pent-up demand for travel, paving the way for high load factors and strong financial performance. Singapore Airlines and Scoot achieved record passenger load factors of 87.1% and 91.2% respectively in the most recent financial year, ended 31 March 2024.

The size of Singapore Airlines' fleet and network have been key drivers of the local airline industry's strong performance, following the immediate post-pandemic era. Nonetheless, there were still certain geopolitical factors within key markets which slowed the industry's recovery, such as the delayed reopening of China. If these issues had not arisen, the recovery back to 2019 levels would have been much faster.

Airlines Grapple with Rising Costs and Intensified Competition as Post-Pandemic Travel Normalizes

It is important to recognize that the post-pandemic travel boom is exhibiting signs of normalizing. As airlines resume operations and expand their capacity back towards, and beyond, pre-pandemic levels, competition in the Singapore market has intensified. Increased industry capacity can lead to constraints on ticket prices as airlines compete for passengers. Globally, IATA expects 2024 yields to decline slightly from 60.6 US cents per ATK to 60.3 US cents.

High operating costs, driven by rising fuel prices, labor costs, and maintenance expenses, are further squeezing profit margins. As a result, despite the initial surge in demand for air travel post-pandemic, without adaptation, the combination of increased competition and escalating costs may cause a decline in profitability from the recent record levels experienced by many airlines.

Local airlines must now determine how to sustain this growth by differentiating themselves from their competitors. This may be achieved through various strategies, including network expansion, product innovation, service enhancement, or cost competitiveness. This current period of profitability provides an opportunity for airlines to invest in preparation for the next stage of post-pandemic growth.

CHALLENGES IN BRIDGING THE MANPOWER SHORTAGE POST-PANDEMIC

The aviation industry is currently facing significant manpower shortages across the board, which are impacting airlines, airports, and maintenance operations. Within Singapore, there are still thousands of vacancies in this sector waiting to be filled, and local aviation companies are hiring extensively across areas such as operations, engineering, and service. This trend has persisted since the easing of border restrictions in 2022, as the surge in travel demand had created an urgent need for the return of essential roles like cargo handlers, cabin crew, and maintenance engineers.

Talent Exodus and Competition from Growing Industries Fuel Workforce Shortages

The COVID-19 pandemic has disrupted the industry's workforce, with many highly experienced professionals leaving the industry on early retirement packages that were aimed at reducing costs and maintaining operational solvency. As a result, these workers are unlikely to return to the industry after leaving the workforce. Moreover, many individuals who have been retrenched during the pandemic have found opportunities elsewhere in industries that offer greater stability and competitive benefits. It is hence challenging to attract these workers back to the industry, especially given the demanding nature of aviation jobs compared to other sectors.

Furthermore, the aviation industry is facing intense competition for talent from other industries. The pandemic has resulted in significant growth across several sectors, including e-commerce, logistics, and technology, which have been able to attract workers with better working conditions, higher remuneration, and more regular schedules. Some aviation roles have characteristics of variable hours and differing levels of physical and mental stress, which can make a return to the industry less appealing for those who have previously experienced these conditions.

Additionally, the lengthy training periods required for certain roles in the aviation means that, even if individuals were inclined to return to the industry, the time investment required before they can resume their positions may further deter them from doing so. The combined effect of these factors have created a shortage of pilots, technicians, ground handling staff, and other essential personnel in varying degrees of criticality, presenting a significant manpower challenge for the aviation sector.

Singapore's Aviation Sector Races to Fill Vacancies Amidst Rising Demand and Training Gaps

While efforts are being made to increase hiring, it has been challenging to bring the workforce back to pre-pandemic levels and meet the rising demand for air travel and related services. For example, pilot recruitment was suspended during the pandemic and only resumed a couple years ago. Given that pilot training typically takes two to three years to complete, there is a significant disparity between the availability of qualified pilots and the current demand.

The same is true of technicians, whose specialist skills and lengthy training periods have been unable to keep pace with the surge in maintenance, repair, and overhaul (MRO) demand that has occurred post-pandemic. Additionally, staffing levels for ground handling and other support roles remain below pre-2019 levels, creating operational challenges for both airlines and airports as they strive to expand operations and resume their trajectory of growth.

To help fill the thousands of positions available across the industry, the OneAviation Careers Hub was created in 2022, providing services such as recruitment, job facilitation, and career advisory. It is a tripartite initiative by the Civil Aviation Authority of Singapore (CAAS), National Trades Union Congress (NTUC) Aerospace & Aviation cluster, and NTUC's Employment and Employability Institute (e2i), and the service aims to attract, grow, and upskill talent to meet the demands of the recovering aviation industry. OneAviation has also hosted two annual career fairs, offering approximately 2,000 vacancies in 2022, and 1,700 in 2023, highlighting the additional requirements from the industry.

With the outlook for the aviation industry remaining positive, the demand for aviation personnel is also expected to follow this trend. The global fleet of commercial aircraft is projected to grow from ~33,000 aircraft in 2023 to ~45,000 aircraft over the next decade. Boeing forecasts that an additional 650,000 new pilots and 690,000 new MRO technicians will be required to operate and service these aircraft, with 40% of this demand concentrated in the Asia Pacific region alone.

SUPPLY CHAIN ISSUES WITHIN THE AVIATION MARKET

Supply chain issues have presented significant challenges for airlines seeking to expand their operations in response to rising demand for air travel. Airlines around the globe have encountered delays in the delivery of new aircraft, limiting their capacity to expand their network and add new routes.

Consequently, they have sought to tap into the leasing market as an alternative source of aircraft capacity, though this too has faced limitations due to the demand for aircraft outpacing the available supply. This has forced some airlines to scale back their growth plans, limiting the potential for even higher revenue and profitability growth.

Additionally, certain technical issues, such as those related to the Pratt & Whitney GTF (Geared Turbofan) engines, have resulted in extended periods of aircraft grounding. Such operational disruptions hinder airlines' ability to operate planned schedules effectively, causing significant financial impacts due to the resulting flight cancellations and delays.

Supply Chain Issues and Aircraft Shortages Lead to Cancellations and Operational Challenges for Airlines

In May of 2024, 33 flights operated by Scoot were cancelled within five days, along with several other re-timed flights. A significant number of these cancellations were due to supply chain issues, ranging from the shortage of aircraft spare parts, to engine issues on several of Scoot's A320neos.

The current aircraft shortage can be attributed to three key factors: fewer fit to fly aircraft due to technical and supply chain issues, the retirement of older aircraft because of the pandemic, and the delays in the delivery of new aircraft. During the pandemic, many older aircraft were retired or were parked to reduce costs and to manage the reduced travel demand. As the industry recovers and demand for travel increases, there is a pressing need to reactivate the parked aircraft and to acquire new ones to replace the retired fleet so that airlines can accommodate the growing number of passengers.

However, the delay of new aircraft deliveries, coupled with the necessity for further checks and maintenance of existing aircraft, have restricted the capacity of airlines to expand their operations to pre-pandemic levels and to achieve their projected growth.

These issues are anticipated to continue into the medium term. Despite the efforts of manufacturers and suppliers to ramp up production to address the backlog, the complexity of the aviation supply chain, involving numerous specialized components from global suppliers, will likely prolong the resolution of these issues.

The reactivation of parked aircraft and the fulfillment of new aircraft orders are gradual processes, and any delays in one part of the supply chain can have cascading effects. It is likely that supply chains will not fully stabilize until at least 2025. Unfortunately, this timeline has been affected by the recent safety issues at Boeing, which have resulted in a cap on the production of the popular 737 MAX aircraft.

Boeing's safety record has attracted significant attention, particularly in the wake of the 737 MAX incidents. This heightened scrutiny has prompted a renewed, more stringent focus on safety and regulatory compliance, leading to stricter oversight and longer certification processes for current and new aircraft production. The resulting overhang on the airline industry, apart from affecting safety perceptions of it, is from the delays in new aircraft deliveries. These delays are set to further constrain the airline industry's growth.

Further exacerbating the challenges faced by the aviation industry, financial issues such as high interest rates, inflation, and fuel costs have placed strain on airline operations. Increased borrowing costs and operational expenses can lead to a lack of funds for investments in new aircraft, technology, and infrastructure.

FUTURE OUTLOOK

Economic Growth and Market Adaptation Drive Positive Outlook for the Aviation Industry, with Asia Pacific region as a Key Engine of Growth

We have observed that over the past 18 months that global airlines, including the Singapore Airlines Group, have enjoyed record profits. This is an encouraging indicator for the industry, although it is crucial to recognize that these results are largely influenced by the current constrained supply environment, resulting in higher passenger yields. With increased competition and an expansion in industry capacity, it is anticipated that there will be a reversion to the long-term mean in terms of financial performance.

The aviation industry is poised for growth in the near future. Economic expansion, as reflected in GDP growth, is typically accompanied by increased demand for air travel. Airlines are demonstrating confidence by investing in new aircraft and technology, as evidenced by substantial orders placed with manufacturers like Airbus and Boeing in 2023. The Asia Pacific region is expected to be the fastest growing region for the aviation industry, driven by a growing middle class and rising incomes. The expansion of the e-commerce market will also have a positive impact on the air cargo industry in the long term. While the current challenges are significant, they are not permanent. Having weathered the pandemic, airlines are adapting and transforming to become much more agile and operationally efficient.

Airlines that have successfully managed themselves and adapted to changing market conditions have great potential to achieve significant growth in the coming years.

Source: The Current Landscape of Singapore's Aviation Market | Aerospace Singapore Digital

ACQ_REF: CS/16971/20250203/188014/SGP/23/80

ACQ_AUTHOR: Associate/Anne Ching