ANALYSIS: Asia Pacific MROs poised for growth

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With close to 4,000 aircraft on order from carriers in Asia Pacific, coupled with the continued boom in the low-cost segment, the region’s maintenance repair and overhaul players have a busy future.

One only needs to learn that there are at least 10 new low-cost carriers planning to launch in Asia Pacific this year, to get a glimpse of the magnitude of growth in this part of the world.

A country with an especially bright MRO outlook is Singapore. The city-state today accounts for a quarter of the region’s MRO output. Its two homegrown MRO players – SIA Engineering Co (SIAEC) and ST Aerospace – are both working towards being one-stop solution providers for airlines, and have their eyes set on the LCC boom.

“The positive outlook for air traffic demand especially in the Asia Pacific region, where the LCC market will continue to grow and fuel the traffic growth, and its buoyant fleet renewal market, has the attention of most MROs in the region, including us,” says an SIAEC spokeswoman.

Though full-service carriers continue to be the main contributors to the Singapore Airlines maintenance arm’s revenue stream, engagement with the LCC market has also proved necessary.

To capture the “substantial growth in the LCC market” and stay ahead of the pack, SIAEC says it will be “LCC centric” and provide targeted solutions to these players. One example is to provide these price sensitive carriers with MRO services where costs are lower.

This explains its joint venture with Philippine low-cost giant Cebu Pacific to set up a heavy maintenance facility at Clark International Airport. Expansion is now underway to add two new widebody hangars. Besides maintenance work for Cebu Pacific, the facility, which SIAEC has a 65% stake in, also does third party work.

Besides Cebu Pacific, SIAEC’s LCC customers also include Tigerair, Scoot and AirAsia X.

Securing work from low-cost carriers has also become increasingly important for ST Aerospace.

“A lot of Asian airlines have their own MRO facilities. So the interesting thing about Asia is you’ve got to fit the solution for the operator. Airlines here are likely to take a lot of their own line maintenance and checks and only outsource the heavy work - except for the LCCs, that’s why our engagement with them is growing, ” says ST Aero’s president Chang Cheow Teck.

Last year it won a contract from Jetstar Asia to do line maintenance on its existing and future fleet of Airbus A320s. Though it has supported Jetstar Asia with line and base maintenance since it launched in 2004, the airline temporarily took the work in-house in 2010 when it decided to set up a maintenance operation at Changi Airport. ST Aero however continued to conduct heavy checks for the airline, which now extends to include line maintenance.

ST Aero also works with LCCs such as Korea’s T’Way, China’s Spring Airlines and Japan’s Vanilla Air, tailoring services to meet their needs.

“We have to focus on where the needs are and where we can add value. Now that we have a diversified portfolio of services, we can focus on services that are complementary to airlines, rather than a threat to them,” says Chang. “ST Aero always thrives on being flexible and catering to customers’ needs. We don’t have an airline to give us business, so we have to go and beg, borrow and steal, be flexible," says Chang candidly.

Consultancy ICF SH&E forecasts that overall MRO demand in Asia Pacific will grow at 5.5% annually over the next five to 10 years. The primary drivers of growth will be China, followed by India and Indonesia.

ICF vice president David Stewart says there will be an exceptional growth of almost 10% per annum in the number of engine shop visits and engine MRO demand for single-aisle aircraft. These types will also see an 8.3% per annum growth in airframe heavy maintenance manhours.

Competition from the region

The sheer amount of work available also means that the two veteran Singapore MRO players are facing stiff competition from peers in the region expanding rapidly in a bid to capture a larger slice of the MRO pie.

Indonesian low-cost carrier Lion Air for one is investing $250 million to build a maintenance hub at Batam’s Hang Nadim International Airport, a 50min ferry ride from Singapore. Lion has acquired a 25ha plot of land at the airport and is building four hangars, targeted to be opened for operations this year. The facility will also house component repair and overhaul shops as well as an engine MRO centre complete with a test cell.

The facility’s proximity to Singapore will give Batam Aero Technic good access to spare parts and services from OEMs based in the city-state. Besides managing Lion’s massive fleet of incoming aircraft (it has 237 A320 and A321s, and 301 Boeing 737s on order), the vision is also for the facility to be certified by the European Aviation Safety Agency, so that it can do third party work on foreign aircraft.

Garuda Indonesia’s maintenance arm GMF AeroAsia is meanwhile planning to set up new maintenance facilities in the eastern and western parts of Indonesia. A hangar in the west will allow GMF to do heavy maintenance on widebodies for foreign clients, while another in the east will cater to the line maintenance of domestic players.

GMF’s president and chief executive Richard Budihadianto has said that Indonesian MRO firms need to grow faster to meet the maintenance needs of the country’s airlines. He forecasts that Indonesian airlines will spend some $2 billion on MRO work in 2015. Local MRO firms now absorb less than 30% of the country’s maintenance work, with 70% flowing out to firms in the region, including Singapore.

Challenges ahead

Stewart says that though ST Aero and SIAEC are well poised to absorb the Asian growth, they need to address key challenges such as ensuring cost competitiveness and having sufficient skilled labour.

“The MRO business environment is certainly getting more competitive as a larger market share will have to be captured to counter-balance the pressure on yields,” says SIAEC.

To stay ahead, SIAEC says it will look at developing more niche products and value-add solutions to extend its offerings to airlines. The firm also expects cabin retrofits and modifications for legacy carriers to be a major growth area, as airlines work to meet passengers’ rising expectations.

To ensure cost competitiveness, ST Aero is looking at set up shop where costs are lower: “While our facilities in Singapore will focus on turnkey engineering, we also need to compete with facilities in Indonesia, Malaysia and Vietnam. We want to have a facility where we can compete effectively at their cost rate, with our brand.”

At home, it is in negotiations with Changi Airport Group to build an A380 capable hangar so as to grow its line maintenance business locally, in line with the airport’s expansion plans to cope with traffic growth in the years to come.

The two firms are also keenly aware of the need to continuously invest in new technologies to remain relevant and keep up with the deliveries of new aircraft types. ST Aero for one is United Technologies’ aerospace systems division’s maintenance partner for its equipment on the Boeing 787.

“The biggest change over the next decade will be the shift of the operating fleet to newer technology aircraft as deliveries of 787, A350 and the neo and the max ramp up. The implications of this… is that MRO supply will become more OEM centric and MRO suppliers will need to ensure access to the associated new technologies and capabilities,” says Stewart.