New partnerships with overseas manufacturers could save an ailing industry
Indonesia has launched a new attempt to redevelop its ailing aerospace manufacturing business by pursuing new partnerships with foreign companies and promoting sales of indigenous aircraft domestically and overseas.
Indonesian Aerospace (IAe) has struggled since initiating a drastic restructuring effort in 2003, but is confident it is ready to finally turn the corner. The Bandung-based company, also known as PT Dirgantara Indonesia (PTDI), seems to have secured new support from the government, which established the company in the 1970s, but has largely neglected it over the last 10 years. Jakarta is now promising funding for new projects and has unveiled a new procurement policy that requires local armed forces to again buy indigenous products.
“There is good political will from the Indonesian government and there is instruction from the government that for all requirements PTDI can meet, the products should be supplied by PTDI,” says new IAe president director Nuril Fuad.
IAe is also poised to boost its international sales through new and in some cases revitalised partnerships with foreign manufacturers including EADS. IAe forged an umbrella agreement with EADS earlier this month, which is expected to immediately result in new contracts with Casa and Eurocopter and later contracts from other EADS subsidiaries including Airbus and Sogerma.
Casa and IAe have been partners for more than 20 years on co-development and co-production of the CN-235 plus IAe holds a licence to produce the C-212-200. But the two have become bitter competitors in recent years, going head to head for sales in Asia. As part of a new contract between Casa and IAe, Nuril says production of the C-212-400 will shift from Spain to Indonesia with IAe responsible for sales in Asia and Casa the rest of the world. Nuril is also proposing a similar sales breakdown for the CN-235, but he says Casa has not yet responded. “I hope we will not kill each other again,” he says.
Final assembly
An EADS source says for now the new agreement with Casa only includes the C-212, which will still partly be produced in Spain with final assembly in Indonesia, although the two have agreed to discuss the CN-235 as part of second step in their new partnership. Casa and IAe now each build 50% of the CN-235 and assemble the aircraft they sell. Nuril says he also plans to later propose that IAe manufactures the large Casa C295.
IAe has a similar long-standing partnership with Eurocopter, covering local production of the BO105 and NAS332 Super Puma. But their relationship languished over the last several years and until recently neither Eurocopter nor Bell, which earlier gave IAe a licence to produce the 412, were interested in reforging ties with IAe because of its instability and a lack of confidence in IAe products voiced by local helicopter operators.
Eurocopter, however, agreed earlier this month to appoint IAe a completion centre for all helicopters sold in Indonesia. A Eurocopter source says the revitalised partnership could also lead to local production of new helicopter types, but only if large quantities can be sold in-country. For now IAe will only complete seven Super Pumas left over from an earlier 16-aircraft order from the air force, but Nuril says he is seeking from Eurocopter “licence production of a new helicopter product”.
IAe is also hoping the new deal with EADS leads to more business on Airbus aircraft. It already manufactures components for several Airbus aircraft through contracts with BAE Systems and Malaysian suppliers that are worth about $180 million over the next 10 years. Airbus is keen to give more business to IAe, perhaps through a supplier contract for the new A350, especially if it leads to aircraft sales at flag carrier Garuda.
At the same time IAe is pursuing work from Boeing and its first-tier suppliers, including on the 787. IAe is now only contracted to manufacture less than $2 million worth of components for Boeing aircraft, but Nuril believes Indonesia can secure more significant workshare on the 787, especially if Garuda firms up its intent to order 10 787s.
“If Boeing builds the 787 in Japan why can’t they build the 787 in Indonesia,” Nuril says, adding IAe also believes it can secure work on the 737 because Indonesian low-cost carrier Lion Air has ordered 60 737-900ERs.
Domestically IAe’s business has suffered in recent years due to constraints in Indonesia’s defence budget and the selection of foreign suppliers by the air force, army, navy and police for several aircraft procurements. But IAe is now expecting a spate of orders as a result of a new government policy which requires the armed forces to acquire indigenous solutions over foreign products. Nuril says IAe is now “fully backed up by the Indonesian government” and will benefit from the new policy.
For example, he says an air force requirement to replace its Fokker F27 transport squadron should automatically result in a sole source contract to IAe for 16 additional CN-235s. IAe is also trying to convince Jakarta to acquire CN-235s for VIP missions. Indonesia does not have a requirement for presidential aircraft and currently charters Boeing 737s and Fokker 100s from local carriers, but IAe is trying to convince the president he instead should use the CN-235 to fly around Indonesia. IAe earlier delivered VIP configured CN-235s for Malaysia and Pakistan, including one earlier this month.
Sales campaigns in other Asian countries and in the Middle East are also expected to generate badly needed orders for the CN-235, ending several years of declining production. IAe has only delivered six CN-235s since the beginning of 2003 and its backlog shrunk to just three aircraft following the 14 February delivery of the last of eight aircraft ordered by Malaysia. Last year IAe did not chalk up a single CN-235 order, but this year Nuril anticipates $100 million in CN-235 sales, starting with Thailand.
Bangkok in December indicated it will acquire 10 CN-235s and Nuril expects a contract will soon be signed with Thailand’s agriculture ministry for the first of six rainmaking variants. Thailand’s other four CN-235s are earmarked for military transport and Nuril expects an initial two-aircraft contract with the defence ministry will be completed by later this year. Deliveries will begin about 12 months following contract signing.
Pakistan, which took delivery of four CN235s in 2004 and early 2005, also has a requirement for two additional transport aircraft. Nuril says Pakistan does not have the budget for the follow-on buy this year but a contract is expected in 2007.
IAe also has active campaigns in South Korea, which is looking to bolster its fleet of eight Indonesian-assembled and 12 Spanish-assembled CN-235s as well as Bangladesh and Brunei, both of which have a requirement for two maritime patrol aircraft (MPA). IAe is also in talks with several countries in the Middle East and northern Africa, including Libya, the United Arab Emirates and Jordan.
Nuril also expects to complete negotiations with Malaysia next month to convert two of its CN-235s from transport to MPA configuration. The anticipated contract is worth $15 million and would include installing the same Thales mission suite which IAe is now working to integrate for the Indonesian air force.
As part of an earlier contract, IAe plans to deliver to the Indonesian air force three CN-235 with Thales MPA suites from 2007. IAe’s MPA programme has been delayed for years by budget constraints in Indonesia and IAe’s failure to complete negotiations with the UAE for a four-aircraft MPA deal. But the programme now finally seems poised to move forward with planned completion of the first green aircraft in September and IAe is confident of a follow-on sale to the Indonesian air force.
IAe earlier developed a maritime surveillance variant of its smaller NC-212-200. It so far has only delivered one of these to the Indonesian navy, but is under contract to deliver two more this year plus convert three transport NC-212-200s to maritime surveillance configuration. IAe is now proposing to sell the navy another seven maritime surveillance NC-212-200s to replace a recently cancelled order for 10 PZL-Meilec M28 Sky Trucks. These seven aircraft would come from IAe’s inventory of aircraft that were left partially complete when IAe shut its NC-212-200 production line in July 2003 as part of a drastic restructuring which included a 10-day shutdown and over 6,000 layoffs. IAe is still fighting with unions over the layoffs – a bitter battle which resulted in Nuril taking over last year from Edwin Soedermo, who had served as director since mid 2003 – but for now it retains a workforce of 3,700 employees.
IAe also decided in July 2003 to shut down its Bell 412 and BO105 production lines. It still has three BO105s and one 412 left in its inventory but the army is budgeted to acquire one BO105 this year and the navy is budgeted to acquire one BO105 and one 412. Nuril is proposing the army acquire the last BO105.
He says IAe no longer has any ambitions for indigenous helicopter production but remains interested in developing new regional aircraft, including a 19-seat turboprop dubbed the N219. IAe began pursuing development of the N219 as part of a new business plan unveiled following its initial restructuring in 2003 but it shelved the project in late 2004 after failing to raise the required capital and secure commitments from proposed partners in Brunei, Malaysia and Thailand. Nuril says the project has been restarted and IAe aims to launch it later this year with funding from the government and private Indonesian investors. “Based on government direction, we will try to build a new 19-seat turboprop, the N219,” Nuril says, adding the situation has improved since 2003 because the company is “now stable and has support from the government” including the ministries of technology, transport and defence. IAe requires $75 million to launch the N219 and the first of two prototypes is now scheduled to fly in 2009.
Nuril says IAe is also now working with partners in Malaysia and Singapore to develop a new six to nine-seat “almost supersonic” very light jet known as the NMX, which is scheduled to fly from 2008. IAe completed at the end of last year a conceptual design and wind tunnel tests on a NMX model but Nuril says further development is contingent on a new batch of funds from the project’s investors, which is led by Singapore-based Aero Nimbus.
Abandoned projects
IAe has a long history of abandoned aircraft projects, including the N250 60- to 70-seat turboprop and the N2130 80- to 120-seat regional jet. IAe still has materials and tooling left from developing the N250, which flew in the mid-1990s and was to be followed by the N2130 before both were shelved in 1998, but Nuril says the company is no longer interested in aircraft in the 50- to 120-seat category. Instead he claims IAe is looking at the narrowbody market. “We are now discussing with all Indonesian airlines to build a 120-seat-plus aircraft,” he says. “Below 100 seats is too high of a cost – 120 seats plus is better.”
Clearly this is an unrealistic dream for a company that still faces serous challenges, including political uncertainty and financial problems. IAe also is struggling to recover from losing almost its entire engineering staff, which the government sent abroad for training, but gradually left for more stable manufacturers overseas. Most outsiders believe it will be impossible for IAe to again attract or develop the engineering base needed to launch a major new indigenous product, but it has a future should it focus on growing its aerostructures business, which accounted for only 10% of its $70 million revenue stream last year, and assembling aircraft or producing subassemblies for major foreign manufacturers.
IAe’s maintenance business, which generated $15 million in revenues last year, also has expansion opportunities. Nuril says the Indonesian air force has directed IAe to partner with the foreign maintenance, repair and overhaul (MRO) company which wins a competition to lead its Lockheed Martin C-130 refurbishment project. The work will be done in Bandung and EADS is hoping its new partnership with IAe will lead to a contract between the Indonesian air force and Sogerma, which is one of several MRO firms bidding for the project.
IAe is also looking at expanding into commercial MRO business, which now includes overhauling CN-235s, NC-212s and Boeing 737s for domestic operators. The company aims to secure US FAA certification, which will allow it to approach overseas 737 operators, and hopes to benefit from Indonesia’s fast growing domestic passenger market. This market is now served by only a handful of providers which only have local certification including IAe, Aero Nusantara, Indo Pelita and JAS Aero. Garuda Maintenance Facility (GMF) Aero Asia is now the only local provider with international certification, which allows it to overhaul foreign aircraft as well as Indonesian registered aircraft owned by foreign lessors that insist the aircraft are maintained by shops with US FAA or European JAA certification.
GMF has expanded its third-party business, which now accounts for about 30% of its $150 million annual revenue stream, since spinning off from Garuda in 2003 and securing JAA certification. But GMF general manager of business development and strategy Jemsly Hutabarat says it lacks the capacity to expand further because its three hangars, which accommodate six narrowbody and three widebody overhaul lines, are already fully booked for 2006. Jemsly says GMF is now focusing on growing its third-party engine and components overhaul business because hangar expansion cannot be pursued until cash-strapped Garuda follows through on its long-term plan to sell GMF, which is expected to take about three more years.
Source: Flight International
