What are some of the industry trends you’ve seen in Asia Pacific market in recent times?
In the Asia Pacific (APAC) region, there are a higher percentage of new single aisle aircraft deliveries. There’s been some real growth across the A320 and 737 families – including the classic, neo or max models. Part of that is fuelled by airlines buying new aircraft in countries such as Indonesia, a very high growth region. We’re seeing similar growth in the Indo-China countries such as Vietnam. Another trend has been the emergence of single aisle aircraft going to low-cost carriers. We’ve seen these airlines take a larger share in APAC and they are now taking the traditional low-cost carrier (LCC) model one step further by outsourcing their aircraft. This has moved across to some of the legacy carriers, with an example being Garuda Airlines and their outsourcing of their 777. This is something I expect will continue over time.
What have been some of the opportunities for HAT in the SE Asia region?
There are a number of opportunities. Airlines working under the LCC model are naturally looking for the best value in all aspects of their operation. This means surplus parts are becoming more widely accepted now and this has resulted in market growth. We estimate that the total world demand for surplus is around $1bn which includes APUs but not engines, with consistent growth around 10 per cent the Asia region could be set to reach around $500M for refurbished parts in the coming years. So there’s a huge opportunity in APAC for surplus parts. Honeywell has realised this potential and taken a lead with HAT by taking strong steps to make sure we capture that business. If an airline goes for initial provisioning, they’d historically buy new parts. But we now see 20 to 30 per cent of that is going to surplus parts. So if Honeywell doesn’t do anything and just stands still, then airlines will be placing orders with our competitors, meaning we lose visibility. I think in APAC, like in all regions, it’s about giving the customer choice and meeting the customers’ needs with a mix of new and refurbished parts.
How has Honeywell developed its relationship with airlines in SE Asia?
The market is dynamic and changing all the time. It’s always quite challenging to put a system in place that keeps up with the market, and you become a leader and not a follower. Honeywell as a whole has invested heavily in IT to try and make the day-to-day business transactions simpler for the customer. So they can do a lot of transactions online which hopefully frees up their time as well as ours to focus more on the customer service in terms of getting in front of customers and understanding their needs better and putting those changes back through the organisation. For HAT, we maybe have a slightly different approach as we are relatively new to this region, meaning just 2-3 years ago, we were very much in a backseat position. This meant we were responding to business inquiries instead of being actively out there fighting for business. One way we’ve adapted to this is by investing in putting people in regions, including Singapore, the Philippines and in Shanghai, China. This helps us understand a customer’s cultural needs as well as their operational needs and improved our speed of response.
Where is demand centred on from airlines for Honeywell products?
What customers want varies from airline to airline; while some airlines may want the whole nose to tail, others will want certain parts. Of course, in terms of dollar value, the APU business is a big part of our portfolio, in both the narrow body aircraft and the wide body aircraft. Honeywell probably has 70 per cent of the APU market, which puts us in a good position to offer quality refurbished parts alongside the new parts. I feel wheel and brakes is another business where we can do more. This offers opportunities for us on programmes like the exchange of parts, where before we were looking more at the direct sale. I think we’re now realising the strength of the exchange model as it offers longer business. HAT is already strong for avionics on the 737, but we face more competition on aircraft such as the A320 from the likes of Rockwell and Thales. The environmental systems, air cycle machines and heat exchangers are also good product groups for us.
Have airlines started opting for more pooling arrangements?
We’re definitely seeing a lot more pooling of resources. In the past, a lot of airlines would each hold individual parts stock and look after this independently. I think pooling is going to grow as an industry trend and it’s something companies need to get their heads around.
How have attitudes towards surplus parts changed in the APAC region?
APAC is just starting to get the idea and value of what surplus parts can offer, and is far less established than the likes of American and Europe. Because of this, I see demand for surplus parts increasing over time. They account for around 20 per cent of the parts market at the moment and this will maybe creep up to between 30-40 per cent as the years go by. This is by no means a bad thing for OEMs as they’re selling more aircraft than before. Revenues may be impacted in the short term with some impact to new spares sales; however benefits to our customers will yield longer term returns for OEMs with more aircraft flying.
What about countries such as China, which has been slow to adopt used aircraft parts?
For a market like China, we’ll have to wait and see. China may appear more conservative, and as seen in their other activities, whether its electronics or other consumer goods, they tend to take time to learn the product. China is a manufacturing leader and is now bringing its expertise into aerospace. Once it has built its confidence and understanding of the value surplus parts can bring, I predict in the next five years, China will become a huge growth opportunity for HAT.