Profits at Shannon Aerospace have dropped by 64 per cent to €1.4 million as the aircraft maintenance market continues to suffer from overcapacity.

The accounts for 2004, lodged at the Companies Office, show pretax profits falling from €3.9 million to €1.4 million, with turnover down from €66 million to almost €58 million.

The company decided not to pay a dividend.

One of the factors impacting on profitability was accrued holiday pay for the company's 680-strong workforce, which knocked €540,000 off the annual profit.

The company, which is a subsidiary of German carrier Lufthansa, said it hoped for a better return in 2005. However the accounts do include the warning that "[ f]urther improvements in productivity and efficiency will be vital for the company to absorb the ongoing cost increases arising from operating in the Irish environment".

The results come in a week when accounts for SR Technics reported 2004 losses of over €20 million. While much of this was related to asset writedowns and restructuring costs, the aircraft maintenance industry is suffering.

The Shannon Aerospace accounts recognise these trends. "There is a pick-up in airline traffic, but mainly in the low-yield segment, causing ongoing pressure on price. This, combined with maintenance overcapacity, will be a concern for our company.

The option for airlines to make decisions on short notice will require a high amount of flexibility from our workforce," they state.

The company has certain financial agreements in place with Shannon Development. If the company ceases business or fails to maintain certain levels of employment, it may have to repay some of these loans.

According to the accounts, the number of people employed in 2004 was up slightly on the previous year.

The total pay bill, including pension and social welfare costs, was €28 million, marginally up on the previous year.