ANDREW DOYLE / SINGAPORE
Chinese airline consolidation is having a knock-on effect throughout the Pacific region as maintenance firms cast their nets further afield
The Asia Pacific aircraft maintenance sector will be heavily affected by the continuing consolidation of China's airline industry, while players elsewhere in the region are stepping up co-operation with foreign partners or making their own acquisitions in Europe and the USA.
It appears China's overhaul providers will eventually have to engineer a radical restructuring of their own sector to adapt to life serving the three main airline groupings that will result from the consolidation enforced by government. However, few industry officials are willing to predict precisely how this will occur.
Beijing-based Ameco, a joint venture between Air China and Lufthansa, concentrates on the Boeing types which make up the bulk of the Chinese flag carrier's fleet. Air China's three A340-300s - its only Airbuses - were recently returned after being operated on lease by Cathay Pacific Airways.
Ameco is adding Boeing 777 and Next-Generation 737 approvals, as the earliest examples of these models approach their first heavy maintenance checks.
Although the impending merger of Air China with China Southwest Airlines and Zhejang Airlines will effectively create a larger "anchor" fleet for Ameco, the operators will in fact bring a diverse mix of Airbus and Boeing types to the enlarged grouping. This could leave Boeing-specialist Ameco facing some tough questions as to whether it will be worth adding the capability to work on Airbus aircraft as well. "The maintenance, repair and overhaul (MRO) providers have to think about their own consolidation," says Ameco general manager Walter Heerdt.
Under the airline consolidation plan, principal carriers Air China, China Eastern and China Southern Airlines will take over seven other Civil Aviation Administration of China-administered airlines, creating three groups, each with around 50 billion yuan ($6 billion) in assets and around 150 aircraft. Air China will take over China National Aviation Airlines and China Southwest; China Eastern will take over China Northwest Airlines and Yunnan Airlines; and China Southern will take over China Northern Airlines and Xinjiang Airlines. China Eastern has already taken over Great Wall Airlines as part of the process.
Taikoo (Xiamen) Aircraft Engineering (TAECO) is not linked to any of the big three Chinese airline groupings and should remain relatively unaffected. China Southern-linked GAMECO, however, will be forced to adapt.
Meanwhile, GAMECO may soon lose Lockheed Martin as a major shareholder, as the US company looks to unload its stake. Singapore Airlines subsidiary SIA Engineering (SIAEC), which owns a 5% stake in TAECO, has emerged as a possible buyer. TAECO director Joseph Wong thinks the Chinese airline mergers should lead to opportunities for the Xiamen-based company to sign up more customers in the country, outside Hong Kong. "If there is any effect it will be minimal - in terms of revenue 97-98% is generated from non-[mainland] Chinese airlines," says Wong. "I think there will be a big opportunity to explore MRO opportunities in China."
A target for TAECO will be the A320 and A340 market, as most of the Chinese maintenance companies are focused on Boeing types. "Currently, [China is] lacking capabilities and capacity in Airbus overhaul, particularly for A340s," says Wong.
TAECO recently postponed the opening of its third hangar by up to six months as a result of the industry downturn following 11 September. It is now due to open in the second quarter of next year.
Shandong TAECO Aircraft Engineering (STAECO), part-owned by Hong Kong Aircraft Engineering (HAECO) and TAECO, is also expanding with the construction of a second hangar, which is due to open early next year. STAECO, the main shareholder of which is Shandong Airlines, is focusing on narrowbody work.
HAECO chief operating officer John Paterson says the consolidation of China's airlines is likely to have "very little" impact on the Hong Kong-based company because "it does not do any base maintenance for mainland Chinese carriers". About 50% of HAECO's business comes from Asia-based airlines - mainly Cathay Pacific - while US carriers account for the bulk of the rest.
The lack of mainland Chinese customers is seen as temporary, since HAECO has had many contracts in the past, including, most recently, one to convert three Air China 747 passenger aircraft into freighters in Hong Kong. Commenting on the general market outlook, Paterson says: "Post-11 September, there was concern about the number of aircraft that might get parked. What we've seen here in Hong Kong is that the workload dropped off towards the end of last year. But we've actually been pleasantly surprised. The year, looking towards the end of 2002, is not as bad as we thought it would be. It looks reasonably okay under the circumstances." HAECO has no plans to increase capacity from its current three bays, he adds.
Elsewhere in Asia, Singapore Technologies Aerospace (ST Aero) - which, unlike its Chinese counterparts, is unable to rely on a rapidly expanding home market - is continuing to cast its net further afield in a bid to increase market share. It is aggressively pursuing additional heavy maintenance contracts from new and existing customers in Europe and North America, and believes that to secure this business it has to have a physical presence in these markets.
While airlines are generally prepared to ferry large widebodies such as 747s half way around the world to undergo maintenance if the price is good enough, they are much more reluctant to do so with short-haul narrowbodies or regional jets.
ST Aero recently unveiled plans to establish a third base in the USA and last year reached agreement with FR Aviation to set up Bournemouth Aerospace Engineering in the UK. With money to spend, it is also on the look-out for further acquisitions. The company is meanwhile holding talks with Embraer about setting up a regional jet maintenance centre in Singapore.
ST Aero is also eyeing an expanded presence in China, and is one of several holding talks with China Eastern about spinning off the latter's maintenance division to form a standalone entity.
Among the European maintenance providers, Lufthansa Technik (LHT) is taking a pioneering approach towards reducing costs in a cut-throat business, where efforts to achieve profitability have historically been hampered by rampant overcapacity. It has decided to transfer A330/A340 heavy maintenance from Hamburg to Manila, to take advantage of what Lufthansa Technik Philippines (LTP) vice-president marketing and sales Rainer Janke claims are 80% lower man-hour costs. LTP was formed after LHT took over bankrupt Philippine Airlines' (PAL) maintenance division in partnership with local investor MarcoAsia.
Janke claims it makes sense for Western firms to move "routine" labour-intensive work to Asia and leave specialist work such as structural modification tasks and VIP completions at its European facilities. However, many of the aircraft's components, such as hydraulic and pneumatic parts and avionics equipment, will still be sent to Germany for overhaul.
LTP is eyeing a slice of the potentially lucrative market for Airbus widebodies maintenance in the Asia-Pacific. As well as A330/A340-operator PAL, the A330-300 is in service with operators including Garuda, Malaysia Airlines and Thai Airways International.
Cathay Pacific, which operates A330s and A340s, has its Airbuses overhauled at HAECO, and most of its Boeing fleet at HAECO and TAECO, as it owns stakes in both maintenance providers.
It seems unlikely LHT's opportunistic foray into the Philippines will spark similar investments by its European and US rivals since few Asian airlines appear prepared to sell their maintenance divisions.
Source: Flight International