1.08 bugs.

[AngleWyrm]

Or it could be an implementation problem; the window of opportunity for repair of partially damaged armor is very small during combat--maybe even too small. The benefit of several hitpoints of armor for every incoming shot would be more substantial.

How about a Damage Control Team component? It could use supplies from cargo as replacement parts.

[Suicide Junkie]

No, it is most certainly a balance problem if armor has too few hitpoints to be useful.
The point where the ability fails is also a balance issue, since it is completely moddable.

The fact that the armor must regen to 0% damage before the regen ability recovers is an implementation issue, but it really isn't a problem here.

It really sounds like you're arguing that you want combat to be more like GGmod