SINGAPORE 2010: South-East Asian nations in rush to start aerospace parks

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South-East Asian countries are clamouring to establish aerospace parks as a means of creating jobs and capturing investment.

Singapore's Seletar Aerospace Park appears to be the front runner, thanks to the island nation already having many aerospace businesses, and it has secured additional investment from high-profile players such as Roll-Royce.

But not to be outdone, Malaysia is pushing Kuala Lumpur's Subang airport as an aerospace hub and the Philippines has Clark airport as its aerospace centre

Thailand has notched up some investment wins and is pressing the claims of Bangkok's Don Mueang airport as a maintenance and aerospace training hub. Indonesia is starting to look at establishing an aerospace park and Brunei is working to diversify its economy beyond petroleum by targeting aerospace companies.

seletar aerospace park singapore economic development board
 © Singapore Economic Development Board

With so many countries targeting the same investment dollars, there are bound to be some failures. The consensus among aerospace firms that Flight International spoke to is that government backing is crucial to the success of an aerospace park, because political stability is a key consideration. Good government is also needed to ensure that the aerospace park has the necessary infrastructure - roads, rail and seaports.

Inducements such as tax incentives and access to cheap land, with a minimum leasehold of 30 years, are other crucial factors, as is co-ordination between government departments and agencies.

"Investors need a central body that they can go to," says a senior executive from a maintenance, repair and overhaul firm, who wishes to remain anonymous. "You can't bounce off investors to different ministries," the executive adds. "That is where Singapore's Economic Development Board is successful, because it really is a one-stop shop. A lot of businesses looking to invest in Asia tend to go down the joint-venture or collaborative route."

This is where Singapore's Economic Development Board has been helpful, by getting Singapore government-linked companies such as ST Aerospace and SIA Engineering to be joint-venture partners.

The government-owned Development Bank of Singapore has also provided financing to aviation start-ups in Singapore.

BRUNEI OFFER

Brunei established the Brunei Economic Development Board in 2001 and is offering national carrier Royal Brunei Airlines as a potential partner for foreign MRO firms.

"Royal Brunei Airlines engineering has EASA 145 accreditation with type specific capabilities on A320, Boeing 737 Classic, Boeing 757 and Boeing 767s," says the board.

 Potential potholes hinder Clark's expansion plan

Manilla's Clark International airport has embarked on a 550 million pesos ($12 million) expansion plan to attract more carriers and become the second international gateway into the Philippines.

To be completed in May, the expansion will add a second storey, arrival and departure lounges, and three aerobridges to the terminal building. "We want to attract more airlines, particularly full-service carriers, but they want amenities like lounges," says Clark's president and chief executive Victor Jose Luciano.

Most of the seven passenger airlines serving Clark are low-cost carriers. The expansion will boost Clark's capacity to five million from two million.

A second terminal for Clark is also planned. The airport is evaluating proposals from potential joint venture partners and expects to make an announcement soon. It will take two years to construct a second terminal, says Luciano.

Clark is hoping to become the country's second international gateway. Manila's Ninoy Aquino International airport handled 22 million passengers in 2008, and the industry believes it will soon reach its capacity of 32 million.

However, there are potential potholes on Clark's journey to become the alternative airport.

The airport is a 2h drive along congested streets from Manila's business district. While the government has plans to build a high-speed railway to link the two airports, this will take 10 years.

"The railway needs to be there to make Clark into a premier airport. There should be a serious effort from the government to ensure that another international airport is constructed within three to five years," says Philippine Airlines' president Jaime Bautista.

Others have pointed out that launching a wide-ranging expansion might not be the way to go, and they have questioned how quickly Clark will be able to expand its capabilities.

Cebu Pacific chief executive Lance Gokongwei says: "I will be cautious against expanding Clark to something that will not generate adequate returns."

Ninoy Aquino International airport's assistant general manager Tirso Serrano says: "For it to be a viable gateway, you need two major successes: better connectivity to Clark, and industry acceptance."

"The airline has an impeccable safety standard with one of the best safety records worldwide," it adds. "A joint-venture establishment with the national carrier could, for example, specifically focus on maintenance activities such as engine overhaul, landing gear repairs, cabin interiors and electronic repairs."

Having a strong local partner can be crucial because it provides a Western aerospace company with some surety that the Asian venture will have a base of work from which to grow and build.

Good government co-ordination can also mean helping businesses to cut costs and simplify processes.

Malaysia has a system whereby businesses that have been audited have local manufacturing warehouse capability, which means the goods produced receive faster clearance through customs.

Another factor, cited in Singapore's and Malaysia's favour, is the fact that both are former British colonies. "Setting up a business has certain legal implications, so a benefit of Singapore and Malaysia is that each has a good legal framework," says a British-born aerospace executive. Those legal frameworks are based on British law. The executive also stresses the importance of having a workforce that can speak "a good standard of English".

As well as English proficiency, a country's workforce needs to have skills and experience. "Singapore stands out in that respect because of the number of MRO firms that already exist there," says a MRO business executive.

Singapore's Economic Development Board says there are more than 100 companies in the island state involved in MRO activities.

Many of Singapore's blue-collar workers are foreigners from other South-East Asian countries. Its "open door" policy - when it comes to allowing in foreign talent - is a factor in its favour. The nation has also been careful to establish engineering training colleges to increase the pool of skilled and qualified labour.

Thailand's Civil Aviation Department director general Wuthichai Singhamanee concedes that this is one area Thailand needs to work on. The Civil Aviation Training Centre in central Bangkok has a two-and-a-half year aircraft maintenance engineering course, says Wuthichai, but Thailand needs to have more maintenance engineers and would benefit from a one-year training course to increase the talent pool, he says.

Thailand's efforts to attract aerospace investments is spearheaded by a ministry of transport committee. Wuthichai sits on that committee and says the government wants to turn the old Bangkok international airport, Don Mueang, into an international hub for MRO and aviation training.

Four international investors have already applied to set up businesses at Don Mueang, says Wuthichai. These include French MRO firm Europe Aviation, which wants to maintain Airbus A320s and Boeing 737s.

EADS also plans to establish a landing gear overhaul centre, says Wuthichai, adding that there is an undisclosed aircraft engine manufacturer that wants to have a engine maintenance centre at Don Mueang.

Thailand's push to attract MRO firms has been spurred on by the fact local airlines, with the exception of Thai Airways International, have been sending aircraft overseas for heavy checks, mostly to China and Singapore.

The same has been happening in Indonesia, which is why that country is looking to establish an aerospace park. Indonesian Aircraft Maintenance Shop Association (IAMSA) chairman Richard Budihadianto estimates that half of Indonesia's commercial aircraft are being sent overseas for heavy checks, mostly to Malaysia and Singapore.

Budihadianto is also president of Garuda Indonesia's MRO arm GMF AeroAsia. He says GMF and IAMSA favour having an aerospace park and having foreign MROs come in. "If you look at what the airlines in Indonesia are planning, we are going to see double-digit growth over the next five years," he says. He adds that passenger traffic will rise by 15% a year.

The country has to increase its MRO activity because there is no way the existing players can absorb all the work, he says.

SELETAR STRENGTHEN'S ISLANDS AEROSPACE

Singapore is developing the Seletar Aerospace Park to reinforce its position as a major centre for aerospace.

The country has a quarter of the maintenance, repair and overhaul market in Asia, making the tiny city-state the region's biggest MRO player, says Singapore Economic Development Board director transport engineering Sia Kheng Yok.

"The number of MRO companies in Singapore is well over 100 and you would be hard pressed to find an original equipment manufacturer not represented." Singapore has achieved this despite higher labour costs.

"We all know places where wage rates are extremely low, yet customers still come to Singapore," says Sia.

seletar aerospace park singapore economic development board
 © Singapore Economic Development Board

There is a combination of factors why aerospace firms choose Singapore. Productivity, having "people with the right skills, infrastructure, efficiency of logistics of movement, geographical location, proximity to customers and potential business partners," Sia adds.

He points out that "we have built an industry cluster", which means there are so many third-party MROs and OEMs in Singapore that all the work can be done on the island. This is key in the MRO segment, "which is very sensitive to timeliness", says Sia.

Aerospace manufacturing and MRO accounts for only 1-2% of GDP, but it is a priority of the government because of "the value and technology it brings and the complementary role that MRO plays with our role as an air hub", Sia says.

Its importance has led Singapore to develop Seletar Aerospace Park. New roads and buildings are being built there and the airport is getting an instrument landing system so it can operate round the clock. The runway is also being extended 200m (656ft), to 1,800m, so narrowbodies will be able to land with no payload restrictions.

Rolls-Royce plans to make wide-chord fan blades at Seletar and have a plant for assembling and testing Trent 1000 engines for Boeing 787s. This is the company's first engine assembly plant outside Europe.

Eurocopter is to establish a helicopter MRO centre at Seletar and Pratt & Whitney has a major investment in the pipeline.

Companies can purchase 30-year leasehold land at Seletar, but "we also know many companies want to stay asset light and conserve cash, so there are developers that are willing to take on the leasehold", says Sia. Those developers plan "purpose-built buildings", he adds.

Singapore has goods and service tax exemptions for export businesses, while the corporate tax rate is 17%.

The Economic Development Board offers tax holidays, but "our starting point is that businesses looking to set up in Singapore must have a business case", says Sia, adding that "we don't want to prop up things artificially" .

Kuala lumpur tempts with low costs and land

Malaysia is dangling the easy availability of land, low labour costs and tax breaks in front of multinational companies in a bid to become a major regional aerospace hub.

The Malaysia International Aerospace Centre (MIAC), a subsidiary of Malaysia Airports, is spearheading the development of the hub, which is at the old international airport at Subang. It won a 60-year concession to redevelop the area, with an option for another 30 years. Its strategic direction comes from the Malaysia Aerospace Council, which is chaired by prime minister Najib Razak.

subang skypark
 © Subang Skypark
Subang's old international airport is being revamped

"Our advantages include a [Boeing] 747-capable runway, existing infrastructure like hangars and terminals, and tax breaks and government incentives to aerospace companies. The original 400 acres [160Ha] allocated for aerospace infrastructure has been almost fully taken up, and we want to expand further," says chief executive Mahat Samah.

Spirit AeroSystems was one of the earliest to sign up, and began operations in 2009 on a 30Ha facility that produces composite subassemblies for Airbus A320 family aircraft. "There is access to a well-educated and skilled workforce and a very positive attitude toward developing the aerospace industry," says the company.

Subang SkyPark, a Malaysian company, won the concession to revamp and operate the only remaining passenger terminal at the airport. More significantly, it has set up a business aviation centre, constructed a fixed-base operation and persuaded VistaJet to base jets and locate its regional headquarters there.

"We are also looking to set up a business jet MRO centre at Subang, and there are several other plans in the pipeline. We want to be South-East Asia's premier business aviation hub," says executive director Ravindran Menon.

Eurocopter plans to add a training academy to its helicopter hangar and maintenance facilities. Malaysia Airlines performs in-house and third-party MRO work at its hangars, while local MRO firm Airod - which focuses on the military market - is also in the hub. The Malaysian Institute of Aviation Training, part of the University of Kuala Lumpur, will have its campus there and offer professional qualifications.

MIAC has asked the government for another two parcels of land totalling 130Ha for the next phase of its growth. This could house additional MRO, manufacturing and even passenger-to-freight conversion facilities, says Mahat.

"We want to move up the value chain. The space is there, the incentives are there, the support is there. We are confident that more companies will sign up soon," he adds.