According to SIAEC, the agreements are expected to yield a total labour revenue of $1.3 billion over two years and are “material” to its business.
Based on SIAEC’s labour revenue estimate, CGSI analyst Raymond Yap notes that the new contract terms mean SIAEC’s annual chargeable man-hours to SIA will increase by 55% to $650 million per year for FY2026 and FY2027 compared to the previous contract.
In April 2023, SIAEC signed a similar agreement of two years with a one-year option with SIA worth $1.14 billion in total labour revenue for the full three years. SIAEC also signed a separate 2+1 year agreement with Scoot worth $120.8 million in total labour revenue for the three years, putting the absolute annual chargeable man-hours at $420 million per year.
“Assuming a 10% volume increase implies a 41% increase in manpower charge-out rates. Our forecast for the group’s available seat kilometre (ASK) passenger capacity for FY2026–FY2027 is 10% higher than the actual ASK capacity for FY2024–FY2025. We use this as a proxy for the increase in the volume of line and base maintenance work to be performed by SIAEC for SIA and Scoot,” Yap writes in his May 21 report.
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With this, Yap believes SIAEC’s FY2026 core earnings per share (EPS) will grow by 35% to $206 million from his current forecast of $153 million. While Yap has kept his FY2026 to FY2028 estimates, he believes SIAEC’s net growth will be limited to 15%, assuming that its annual set-up costs amount to 5% of what it had incurred for its staff costs in FY2025 or $30 million per year.
“Deducting this assumed $30 million incremental set-up costs from the pro forma FY2026 core net profit of $206 million will result in a net of $176 million, which is a 15% enhancement compared to our current forecast of $153 million,” says Yap, who rates this stock “add”, along with a higher target price of $3.10 from $2.70, based on SIAEC’s 2026 P/E of 19.5 times against the group’s pro forma enhanced earnings.
Noting that shares in SIAEC rose by 4.5% on May 21, a day after the announcement, the analyst believes the 1QFY2026 results released in mid-August, where contributions from the new contract should be apparent, could be another rerating catalyst.
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Meanwhile, Jason Sum of DBS has kept its “buy” call and $2.80 target price, with the new contract described as anchoring SIAEC’s margin recovery ahead. Just on May 15, Sum upgraded his call from “hold”. His target price then was $2.50.
“[The] runrate [of $650 million] handily surpasses historical averages, marking a new high for SIAEC,” says DBS in a May 21 note, adding that this was the first time SIAEC explicitly stated that the new agreement is expected to have a material impact on its business.
Between FY2010 and FY2015, DBS notes that SIAEC’s contracts with the SIA group averaged a runrate of $572 million per year before moderating to $448 million per year between FY2015 and FY2019.
The higher labour revenue in this contract is unlikely to be driven by SIA’s fleet alone since it grew by just 10 aircraft, or 5.1%, between March 2023 and March 2025. “Instead, we believe it reflects a deliberate recalibration of internal labour rates, broader service scope, and potential reclassification of bundled offerings,” says Sum. “Strategically, this reset supports SIAEC’s ongoing shift toward margin recovery and signals greater commercial discipline in intra-group contracting.”
As this is the first “major repricing” after the full recovery of the global airline sector, the new terms reflect an improved bargaining power for maintenance, repair and operations operators.
“We believe this reset enhances earnings visibility and could lift SIAEC’s operating margins into the mid-to-high-single-digit range (vs low-single-digit currently) over the next few years, bringing them closer to peer levels,” says Sum.
While DBS previously factored in a pricing hike for SIAEC’s FY2026 results, Sum sees “positive surprises” to the top line and operating margins following the contract announcement.
