Indonesia's largest and only US Federal Aviation Administration-certificated maintenance, repair and overhaul company, GMF AeroAsia, is expanding its business in an effort to capture more third-party work, particularly from North America and Europe.
Airlines in those markets continue to outsource MRO work to countries where costs are lower and Asia is one of the main beneficiaries, says GMF AeroAsia president Richard Budihadianto.
European carriers initially turned to North Africa, while North American carriers looked to South America.
© GMF AeroAsia
But the MRO industry in those places has less spare capacity, so Asian MRO firms - with ample capacity - are now sought after because they can compete on price, he says.
The man-hour cost in western Europe averages $80-90, in the USA the cost is $60-70 and in Asia Pacific $40-$50, but the Indonesia man-hour rate is even lower at $35-$40, says Budihadianto.
It takes 50,000 man hours to overhaul a widebody, so even with the ferry flight, airlines will still save money, he says.
Budihadianto says "we are trying to anticipate that trend" to outsource, while positioning GMF business up the value chain.
The MRO has FAA certification for aircraft types including Boeing 737s and Boeing 747s. It has succeeded in gaining third-party work from 43 international carriers and 20 domestic ones and is now working to expand so it can handle more third-party work.
The company has 2,500 employees and plans to recruit 700 additional engineers and technicians a year over the next four years. Budihadianto says it is speaking to its parent Garuda Indonesia about financing the building of a new narrowbody and a widebody hangar.
Currently it has one hangar that can accommodate four widebodies simultaneously; a second that is used for line maintenance and can accommodate nine narrowbodies; and a third for heavy maintenance work that has room for nine narrowbodies.
"We plan to have another two hangars and the priority is to have a narrowbody hangar like hangar three," says Budihadianto.
GMF is now seeking a construction company to help build the new narrowbody hangar and wants the first phase completed by the end of next year or early 2011.
Phase one will have nine slots for narrowbodies and the second phase - to be built at a later date yet to be determined- will have another nine slots.
© GMF AeroAsia
"We plan to have another two hangars and the priority is to have a narrowbody hangar"
President GMF AeroAsia
GMF also plans to build a widebody hangar and have it completed in 2014.
"We are discussing with Garuda to put more capital into this company," says Budihadianto, who adds that the alternative is to find a financial institution or a partnership.
Garuda is planning to have an initial public offering in 2010 in an effort to recapitalise the airline business.
The carrier's president Emirsyah Satar says that once the airline IPO is completed, GMF AeroAsia will be having an IPO of its own. GMF AeroAsia presently is a wholly owned subsidiary of Garuda Indonesia.
The carrier is also open to GMF AeroAsia forming joint ventures in parts of its MRO business. GMF already has a partnership with MTU Aero Engines for CFM International CFM56-3 engines used to power Boeing 737-300/400s.
"Now we are trying to see whether to work together on CFM56-7 engines" used to power Boeing 737-800/900ERs, says Budihadianto.
The reason for this move is because GMF's two largest customers - Garuda and privately owned Indonesian carrier Lion Air - are replacing their older aircraft with these newer models of 737s.
There are also airlines in Indonesia, such as Indonesia AirAsia, that are making the switch from 737s to new Airbus A320s.
GMF is responding to this trend too by applying for European Aviation Safety Agency certification for A320s and hopes to receive it in February.
Budihadianto says there is no reason why Indonesian A320 operators should continue to send their aircraft to Singapore for heavy checks once Indonesian MRO firms such as GMF get the necessary EASA certifications.
Budihadianto also has a plan to work more closely with the country's other state-owned MRO firms.
Besides GMF, Indonesian state-owned aircraft manufacturer Indonesia Aerospace has an MRO in Bandung called Aircraft Services, while state-owned carrier Pelita Air Service has its own MRO business, at Pondok in south Jakarta, that maintains helicopters, Fokker aircraft and BAe 146s. In addition, state-owned carrier Merpati Nusantara has its own MRO company that maintains 737s.
"We want to co-ordinate with each other and try and do something," says Budihadianto, adding that "we don't want to double up".
The plan under discussion is to "manage these companies together and specialise in certain products" and co-ordinate with each other on developing future capabilities.
GMF, for example, is looking at establishing a heavy maintenance base at Makassar in eastern Indonesia and one option being examined is to let Merpati's MRO be based there.
Merpati's MRO is now at Surabaya's Juanda airport, where Lion Air is planning to establish a MRO base. Makassar might be a good home for Merpati's MRO business because Merpati's flight operations are centred there.Merpati is also open to having investors come into its MRO business.
Last year Indonesia's minister of state-owned enterprises granted approval for the Merpati MRO business to be spun off and sold. The airline, which is in need of capital, responded by issuing a tender asking investors to take a large minority stake, but so far it has failed to secure any.
Merpati says the plan to bring in outside investors is still there, although "first we have to make the MRO business more productive and profitable enough that we can attract investors". Outside investment is important because "we need the cash to make the business bigger," it says.
It may also make sense for GMF to establish a second heavy maintenance base at Makassar with Merpati as a tenant.
For airlines in eastern Indonesia, Makassar is closer so it is more economical to send the aircraft to that city for heavy maintenance checks, says Budihadianto, adding that Jakarta is several more hours flying time away.
Budihadianto confirms that one possibility is to let Merpati's MRO focus on turboprops, while GMF works on jet aircraft.