The rapid growth of Asian low-cost carriers is rippling through to maintenance, with new competitors being drawn to the region and established players expanding
Aircraft maintenance companies throughout Asia are facing a new wave of competitors in trying to secure work from the region’s fast-growing low-cost carrier (LCC) sector.
Small maintenance providers in India, Malaysia, the Philippines and Thailand are planning to expand into the commercial aircraft overhaul business to meet the demands of LCCs in their countries. More-established maintenance, repair and overhaul (MRO) shops in China and Singapore, which historically have focused on widebody flag carriers, are also trying to woo new LCCs and are responding by expanding their narrowbody capabilities.
An intense competition at Asia’s largest LCC, Malaysia-based AirAsia, illustrates the changing field of players. AirAsia is looking to select a maintenance provider for its new Airbus A320 fleet and is now evaluating bids from new local company Subang Aviation Services (SAS), its existing 737 overhaul provider Singapore Technologies Aerospace (ST Aero) and several other providers. The carrier’s Thai affiliate, Thai AirAsia, may select a separate provider and is being wooed by Thai Aviation Industries (TAI), a military aircraft maintenance company that plans to expand into commercial aircraft.
Indian potential
India, however, offers probably the most growth opportunities overall for Asian maintenance providers. In addition to rapid expansion at India’s four established passenger carriers, three LCCs have begun operations, a fourth plans to launch later this month and several others are preparing to start over the next year.
Most of India’s LCCs will at least initially have to outsource their heavy maintenance checks overseas. But several local and foreign companies are also looking to establish MRO shops in India to meet the anticipated boom in demand. Business aviation maintenance provider Air Works plans to begin C checks on Airbus A320s and Boeing 737s next year using its hangar in Mumbai, which will be widened and raised to accommodate narrowbodies.
“Utilisation of the hangar is not as much as we’d like so we’re working on expanding the facility to take on narrowbodies,” says Air Works director Ravi Menon. “The advantage is we’re very well located in Mumbai and there is no more space here.” Over the long term, Air Works is also looking to open a larger facility in a secondary Indian city, where there is more space for new hangars, with a “strategic partner” from overseas.
Partners wooed
Several foreign companies are now considering setting up MRO shops in India and are courting a variety of local partners, including carriers, aerospace companies and banks or individual entrepreneurs interested in investing in India’s fast-growing aviation industry.
“There are a lot of companies interested in opening a maintenance facility here,” says Kingfisher vice-president of maintenance and engineering Hitesh Patel. “Air Canada is interested. Boeing is interested. Lufthansa is interested.”
Hong Kong Aircraft Engineering (HAECO), Abu Dubai-based Gulf Aircraft Maintenance, SIA Engineering (SIAEC) and ST Aero are also believed to be looking at setting up overhaul shops in India. But it will likely be several years before any major third-party facilities are opened in the subcontinent given the current lack of infrastructure and tedious process of securing government approval. There is also a shortage of mechanics and efficiency is poor compared with other countries, says Menon, pointing out that a maintenance check in India can take twice as long as elsewhere.
“There’s a lot of opportunity, no doubt,” he says. “But there is no infrastructure.” Patel concurs. “Infrastructure is a huge problem in this country and all the carriers are battling this,” he says.
Indian LCCs have been forced to establish their own line maintenance capabilities because regulations prohibit the outsourcing of this work to independent providers and they do not want to give the business to existing carriers. They are now being courted by providers throughout Asia for heavy checks, which will be due next year.
SpiceJet executive vice-president for engineering Roger Page says the carrier is requesting quotations for Boeing 737-800 C checks. He says these will be performed overseas as there is “limited capability and no independent MROs” in India. SpiceJet, which is certified for line maintenance and A checks, is also considering building up its in-house capabilities to include C checks, but not until at least 2008.
Kingfisher has similarly established in-house capability for A checks and lesser inspections and says it will decide within the next 18 months whether to outsource heavier checks overseas or expand its own capability. Patel acknowledges it is unusual for LCCs to perform their own heavy maintenance, but says “as labour is so cheap in this country it may make sense for me to do it in-house”.
The first of 17 Kingfisher A319/A320s will require heavy maintenance in 2007. The first of 37 Air Deccan A320s and first of 13 SpiceJet 737-800s will require heavy maintenance starting next year because, unlike Kingfisher, they have used aircraft in their fleets.
Air Deccan became India’s first LCC in 2003 with ATR 42s and took its first A320 last year. ATR is responsible for heavy maintenance at the carrier’s turboprop fleet, which will include over 40 ATR 42/72s by 2010, and says it is preparing to open an MRO shop in India to better support Air Deccan and other local operators. Hindustan Aeronautics (HAL), which is looking at expanding its small civil aircraft maintenance business, is one potential partner ATR has approached.
Jet Airways now leases one of HAL’s hangars in Bangalore for 737 C checks, but these are performed by the private carrier’s own mechanics. Later this year Jet Airways plans to open a new facility in Mumbai that will be capable of performing D checks, which are now outsourced.
Air Sahara also uses a mix of third-party maintenance providers because it lacks capacity to maintain its entire fleet in-house. The private India carrier only has access to a common-use hangar in Delhi.
Flag carriers Air India and Indian Airlines have maintenance facilities throughout India, but also send their aircraft overseas on an ad hoc basis. They will need to upgrade their facilities if their new fleets are to be maintained in-house and have been approached by foreign providers interested in helping them expand. SIAEC and Indian Airlines signed a memorandum of understanding two years ago to pursue establishing a joint-venture MRO shop in New Delhi. SIAEC says that while talks continue, no agreement has yet to result. SIAEC, which is also believed to be discussing a tie-up with Indian LCC start-up Go Air ahead of its launch at the end of this month, says India is “on our radar screen” for expansion, but declines to provide further details.
SIAEC already has joint-venture companies in China, Indonesia and the Philippines and is interested in using a similar model in India. All its joint venture companies are now limited to line maintenance, but may expand later into heavy maintenance.
“We see our line maintenance business as getting our foothold in the MRO market,” SIAEC says. “If the business case is there we can go into heavy checks as well.”
In the Philippines, new SIAEC joint-venture company Aviation Partnership opened earlier this year and is providing line maintenance for partner Cebu Airlines’ new fleet of A319/A320s, the first of which was placed into service in June. SIAEC says the two partners will decide within the next few years whether to overhaul Cebu’s 14 A320s in Singapore or the Philippines.
Philippine military and helicopter maintenance provider Asian Aerospace is also considering expanding into the commercial MRO market. Chief executive Peter Rodriguez says the Clark-based company is looking at conducting A and B checks for A320 and 737 operators, potentially with a foreign partner. “That may be a possibility in the future,” he says, pointing out that Clark has attracted several LCCs, including AirAsia and Singapore’s Tiger Airways.
Military diversification
TAI and SAC are pursuing a similar strategy as they look to diversify from their military roots. TAI says it has asked the government for land at Bangkok’s Don Muang airport to construct a commercial aircraft maintenance facility after the new Suvarnabhumi International airport opens next year. TAI, which operates from six hangars on the military side of Don Muang, aims to expand into commercial narrowbody work and is targeting local LCCs like Thai AirAsia and One-Two-Go.
“We have a plan, [but] it’s up to the government,” says TAI, which although government-owned is considering an initial public offering to help pay for expansion.
At Kuala Lumpur’s old international airport, Subang, SAC has unveiled plans to open in 2007 a seven-hangar facility. SAC is a new company created by parent National Aerospace Defence Industries (NADI) to pursue cargo conversions and LCC overhauls, starting with AirAsia. NADI also owns Airod, a Subang-based aircraft maintenance and upgrade company that primarily handles military aircraft. “Low cost is something we are banking on,” says SAC.
The new MROs claim to have lower costs, but may have trouble winning business from established providers. “We have always emphasised that LCCs, like many airlines, need quality and assurance of performance at reasonable prices and they do not just go for low cost per se,” says ST Aero. “Moreover, a lower direct labour cost is but one element of the total cost structure of any MRO. Other key criteria include turnaround and quality of performance.”
ST Aero maintains narrowbodies in two hangars at Singapore’s Seletar airport, including a two-bay facility that opened this year. The company hopes to close on an A320 contract with AirAsia despite the new competition, pointing out it has met all its commitments to them and “played an important supporting role” during the carrier’s start-up phase. AirAsia operates about 30 737-300s and plans to take the first of at least 60 A320s at year-end.
ST Aero also has contracts with Indonesian LCC Adam Air and new Chinese LCCs Okay Airways and Spring Airlines. In Singapore it has been contracted by A320 operators Jetstar Asia and Valuair, which are preparing to merge.
Singapore’s third LCC, Tiger Airways, last year awarded SIAEC a five-year MRO contract covering its A320s. SIAEC says Tiger is one of three customers for its fleet- management programme, along with Cebu and SilkAir, and is confident it will find other narrowbody customers for this product.
Low-cost targets
“It’s a product we’re targeting especially to LCCs,” says SIAEC, explaining that LCCs typically look to outsource their entire maintenance operation. SIAEC this year opened two additional hangars at Singapore’s Changi Airport, giving it five.
SIAEC and ST Aero are both targeting Indonesian LCCs, who now use a mix of local and foreign maintenance providers because of limited capabilities in-country. The Indonesian government, however, is encouraging carriers to stop sending aircraft overseas for maintenance and several foreign companies including Fokker Services, Lufthansa and SIAEC are considering setting up overhaul shops with local partners to meet LCC demand.
“The issue is certification,” says a Fokker Services source. “There is a lot of capability, but not certificated capability. We are all asking: is it worth the investment?”
Garuda Maintenance Facility AeroAsia is the only Indonesian maintenance provider with US Federal Aviation Administration and European Joint Aviation Authorities certification, but the LCCs prefer not to send their aircraft to a competitor. Local third-party providers with Indonesian certification include Pelita Air subsidiary IndoPelita and Aero Nusantara. These providers maintain narrowbodies for several small Indonesian LCCs.
China’s, Guangzhou Aircraft Maintenance Engineering (GAMECO) is also targeting Asian LCCs and Chinese start-ups as part of its focus on narrowbodies. The China Southern Airlines subsidiary is looking to expand its A320, 737 and 757 overhaul business as it looks to fill a four-bay facility that opened last year at Guangzhou’s New Baiyun airport.
“Before we moved to this new airport wewere really constrained,” says business development director Joey Lo, adding that GAMECO already overhauls 737s for Indonesian LCC Batavia Air and 757s for One-Two-Go parent Orient Thai Airlines.
Air China and Lufthansa joint venture Ameco Beijing is also targeting new airlines “which start lean without maintenance facilities”, says general manager Hans Schmitz. “New airlines focus on one thing, carrying passengers and cargo.”
LCC narrowbodies
Ameco will open a four-bay hangar in 2008, giving it nine bays and space to pursue more third-party business. Schmitz says Ameco is also considering opening an overhaul shop outside Beijing, which could be more attractive to Asian LCCs and Chinese start-ups that now only operate to western and southern China. Lo says GAMECO is also looking at overhauling LCC narrowbodies in the western Chinese city of Xinjiang, where China Southern Xinjiang’s unit now operates a maintenance facility that could be used by GAMECO.
Taiwan’s Air Asia is also targeting LCCs as it searches for new customers to replace Cebu, which it will lose after the carrier phases out its last McDonnell Douglas DC-9 next year. Although Air Asia lost its bid to maintain Cebu’s A320s, the company plans to add an A320 capability. Vice-president of the aircraft maintenance unit ST Chuang says Air Asia’s mechanics will train next year on a TransAsia Airways A320 and Air Asia plans to bid on TransAsia A320 C checks due in 2007. He says Air Asia is also in talks with AirAsia and other LCCs. The company is looking to expand its commercial business, which accounts for only 10% of revenues. “Our real target is the mainland China market,” Chuang says.
Taiwan’s Evergreen Aviation Technologies (EGAT) does not have as much spare capacity, but the EVA Air affiliate also seeks to expand its third-party narrowbody work, which includes A320s and Boeing MD-90s. Air Macau is one of EGAT’s largest customers and its plans for an LCC subsidiary could give the company additional A320 business. -
BRENDAN SOBIE/SINGAPORE
Source: Flight International
