Printed headine: Catching the Wave
The rapid growth of air transport in Asia is creating new opportunities for MRO providers in the region. While the industry heavyweights in China, Hong Kong and Singapore will be important in meeting this demand, expansion of MRO facilities in Indonesia and other Asian countries could also play a key role.
MRO organizations affiliated with major airlines in Indonesia are looking to increase their third-party maintenance work as well as catering to their own fleet growth. Efforts are also underway to grow the commercial MRO industry in countries such as South Korea, Thailand and Vietnam, while manufacturers and maintenance providers based outside the region are establishing new joint ventures to increase their presence in Asia.
One of the most notable expansion efforts is that of GMF AeroAsia, which is Garuda Indonesia’s MRO subsidiary. In order to fund its ambitious plans, GMF intends to sell off a 30% share of the company to investors.
The subsidiary has already sold 10% through an initial public offering, raising $95 million. GMF also plans to sell a stake of up to 20% to a strategic partner, which it estimates will raise another $200 million. Sixty percent of the proceeds will be used for expansion, with the remainder earmarked for working capital and refinancing. GMF’s goal is to lift its annual revenues to almost $1 billion by 2021, which would place it among the top 10 MRO providers globally, a spokesman tells Aviation Week. It is currently ranked 13th, with annual revenues of $386 million. To meet its goal, it needs to grow revenue by an average of at least 20% per year over the next five years. While this is an aggressive target, the company is optimistic it can be achieved, the spokesman says.
Third-party work will be a key piece of the puzzle, and GMF intends for it to comprise 50% of its overall business by 2021. This would represent a significant increase in share, as third-party work currently accounts for 39% of GMF’s revenue, with the remainder coming from Garuda and its affiliates.
GMF has 170 customers worldwide. About 60% of its operations in 2016 involved line maintenance; the rest included component, airframe and engine work. Since 2012 GMF has conducted heavy maintenance work on 124 aircraft.
The MRO unit’s main base is in Cengkareng, to the west of Jakarta and co-located with Soekarno-Hatta International Airport. It has four hangars there, with capacity for four widebodies in Hangar 1, eight narrowbodies or four widebodies in Hangar 2, three Airbus A330s in Hangar 3 and 15 narrowbodies in Hangar 4, which also has a one-aircraft paint bay. Hangar 4 is the largest narrowbody hangar in the world, according to GMF.
The base also includes an engine center and test cell, bonded storage and workshops for components, ground service equipment, tires, cabin equipment and upholstery. This allows the company to handle a range of work, including cabin reconfiguration and logistics services. GMF is able to conduct heavy maintenance on Boeing 737s, 747s, 777s, Airbus A320s and A330s, ATR 72s, and Bombardier CRJ1000s. It will soon add 737 MAXs, ARJ21s and 787s to this list.
Outside the main base, GMF has 75 line maintenance stations in Indonesia and five overseas. It has a hangar for general aviation and propeller aircraft in Surabaya, in a joint operation with the Merpati Maintenance Facility.
GMF says its facilities at Cengkareng are not yet at full capacity, so the main base can play a role in the company’s expansion. However, it is also looking to expand its presence elsewhere to meet the objectives of its strategic plan.
Its major focus is developing a secondary base on the island of Batam, in Indonesia’s Riau Islands province in the South China Sea. Batam is a free trade zone and is strategically located due to its close proximity to the globally important aviation hub of Singapore. These advantages are drawing MRO businesses to Batam’s Hang Nadim Airport, which has more room for growth than Jakarta’s Soekarno-Hatta. Batam also boasts the country’s longest runway.
GMF intends to construct aircraft maintenance facilities at Batam, and in February it signed a memorandum of understanding with the Batam Industrial Development Authority. At that time, GMF said it planned a hangar and supporting facilities including a logistics warehouse, with construction to start this year.
However, the time line is now less clear, as the GMF spokesman says the company is still in discussions with other parties about the facilities it intends to build. GMF expects to form a partnership with a “global MRO player” for the Batam project. The company has a strong relationship with Air France-KLM E&M, and the pair recently revealed their intent to form a strategic alliance covering airframe, engine, component and possibly other work.
The Garuda subsidiary is also looking overseas for opportunities to grow its footprint. It plans to introduce line maintenance and training activities in neighboring Australia, and talks are underway with a partner there. Other plans call for establishing operations in the Middle East, North Africa and East Asia over the next five years. The aim is for GMF to “strengthen its position as a global MRO player,” the spokesman says.
Other companies have also noted the advantages offered by Batam for MRO operations. Indonesian low-cost carrier Lion Air has already set up its own maintenance unit there, called Batam Aero Technic (BAT).
Lion’s first facilities at Batam were constructed in 2013, and this is now its main MRO base. BAT has two hangars capable of accommodating 12 narrowbody or four widebody aircraft. A third hangar is being built that can handle six narrowbody aircraft, and this is scheduled to be completed by the end of 2018, says BAT CEO Rai Pering.
In addition to the hangars, workshops for auxiliary power units, landing gear and components are expected to be ready in the first quarter of 2018, says Pering. Construction of an engine workshop will start next year and is slated to be ready in 2021.
The main driver for BAT’s growth is the rapidly expanding fleets of the Lion Group carriers. The group has orders for more than 400 narrowbody aircraft, which will be allocated to the Indonesian parent carrier and its affiliates (see table). However, BAT also intends to service third-party customers.
Pering notes that one of the benefits of Batam as a maintenance hub is that it is also a secondary hub for Lion Air flights. And its location means it can support affiliates Thai Lion Air and Malaysia-based Malindo Air more readily, and it is close to manufacturers that have facilities in Singapore.
BAT currently does maintenance on all of the Lion Group aircraft, except the parent carrier’s two 747s. This means it works on 737s, A320s, A330s and ATR turboprops. The subsidiary will also handle maintenance for the 737 MAX and A320neo, which are aircraft types Lion has on order.
The company was recently granted FAA Part 145 certification for maintenance on 737s, which is expected to help it gain more third-party work. BAT is also preparing to apply for European Aviation Safety Agency (EASA) certification, Pering says.
Rapid fleet growth is also spurring the MRO industry in Vietnam. Vietnam Airlines subsidiary VAECO gained EASA Part 145 certification in April to perform maintenance on European-registered aircraft. The company said this will provide it with more opportunities to grow its international customer base. It already has Part 145 approval from the FAA.
In countries such as Thailand and South Korea, governments are encouraging the development of MRO industries, as they see this as a strategically important sector. Efforts are underway to expand MRO clusters at Seoul Incheon Airport and establish new ones in smaller South Korean cities such as Cheongju (Inside MRO, April, MRO49). In Thailand, an MRO cluster is planned at U-Tapao, near Bangkok.
MRO industry heavyweights and manufacturers are also playing an important role in Asia through joint ventures. A recent example is in Malaysia, where there is an MRO facet to an aircraft sales agreement reached by Boeing and Malaysia Airlines Berhad (MAB). A memorandum of understanding signed on Sept. 12 includes a deal for eight 787-9s and also a Boeing Fleet Care service agreement.
The two companies say their agreement will allow them “to build a world-class MRO for the 737 MAX, 787 and 737NG based on [the carrier’s] existing facilities in Kuala Lumpur.” MAB says it is not yet ready to reveal further details.
MAB also signed a partnership with Lufthansa Technic in May 2016, committing to a joint venture covering narrowbody aircraft work in Kuala Lumpur. Operations under this agreement have not yet begun, however. Lufthansa Technik already has a major MRO joint venture—Ameco—in China and another in the Philippines.
A long-established joint venture between MAB and General Electric covers repair and overhaul of engines and auxiliary power units. Third-party work conducted under this partnership is managed by GE.
MAB’s maintenance unit, MAB Engineering, currently operates two hangars at Kuala Lumpur International Airport. One has capacity for two narrowbodies or one widebody, and the other can handle a 747, an A380 and two other widebody types at once. Another hangar at Kota Kinabalu, Malaysia, can accommodate a Twin Otter, an ATR turboprop and a 737. Current construction includes a supply chain warehouse in Kuala Lumpur.