The current state of imbalance in the Southeast Asian MRO market is clearly illustrated by the example of Malaysian Airlines (MAS).
Even before the disastrous losses of MH370 and MH17, the airline had seen three consecutive yearly losses, capped by a spectacular RM 1.17 billion ($359 million) in 2013. As a result, key investor Malaysian sovereign state fund Khazanah stepped in early in August this year, buying out existing shareholders and imposing a significant restructuring.
As part of this plan, the airline is to see up to 6,000 jobs cut, subsidiary businesses potentially sold off, and new management put in place. The entire company would then be restructured by a special task force that would mold the carrier into a slimmer, more efficient airline that could return to the stock exchange by 2019.
According to MAS’s in-house union Malaysia Airlines System Employees Union (Maseu), up to half of the redundancies or job cuts could come from the MRO subsidiary, Malaysian Aerospace Engineering (MAE).
“If MAE is sold, about 3,000 employees in the division will be affected,” claims Maseu’s president, Alias Aziz.
Whether a substantial number would actually lose their jobs is not clear, but it is likely that some would be let go as the operation gets smaller. The days of working for a fat and overweight government-supported carrier are likely to be gone soon for many MAS employees.
Meanwhile, in regional neighbors Singapore, Indonesia and Vietnam, carriers like AirAsia, Lion Air, Tigerair, Scoot and Cebu Pacific are all expanding their operations at breakneck speed—and having to fly aircraft overseas to find cost-effective MRO facilities to take their bulging fleets.
As spokesman Mochamad Aviv from Indonesian MRO GMF told Aviation week, the local growth of MRO in Indonesia is expanding at 15-20% a year. The company is due to add a new hangar at its Soekarno-Hatta base to house 16 narrowbody aircraft—one of the largest in Asia, along with a new hangar at the recently revamped Bintan MRO facility near Singapore. But Aviv notes that planning for the manpower required for this expansion through 2023 is already taking considerable effort.
The paradox is that MAE has been one of the better-managed and more profitable subsidiaries at MAS. The division has a solid reputation for MRO servicing not just for MAS, but on a wide range of aircraft for major carriers like Qantas, Gulf Air, Air France, KLM, and several local low-cost carriers.
With some 18 bays for widebody and narrowbody aircraft in six hangars at three airports, MAE claims up to 100 international customers worldwide. The division also saw a 16% jump in income in fiscal 2013 compared to 2012, and has slimmed down its workforce over the last year, but the disastrous first half of 2014 for MAS changed things dramatically.
The losses at MAS group already have seen MAE forced to pull out of its Indian joint venture with GMR in Hyderabad, set up only three years ago. And with the pre-MH370/MH17 order of up to 100 new aircraft from Airbus now in question, it is highly possible that potential training and skills upgrades will also be put on hold.
However, what is bad news for the state carriers could be good news for the increasing number of low-cost carriers (LCC) springing up around the region. Maseu’s Aziz said that several regional carriers have expressed interest in taking on ex-MAS employees, partly due to its solid reputation and good training record.
Which poses the question for the MAS restructuring team whether to retain its MRO operation at its existing bases at Subang or KLIA and lease out the infrastructure assets such as hangars, or to sell off the whole division as a going concern and factor out its maintenance to one of the other local operators such as Haeco, ST Aerospace, Lufthansa Philippines or even Ameco in Beijing.
A parallel issue also will face technicians at MAE—to move to another country where the demand for labor is higher but wages are lower, or stay in Malaysia and hope that local LCCs will pick up the slack. Maseu is optimistic, but the reality might be harsher.
“Aside from AirAsia, there are a lot of other airlines that want workers from MAS,” said Aziz. “They know that MAS has quality.” Certainly, initiatives coming out of Thailand and the Philippines indicate that both are keen to set up local MRO centers, with the help of overseas majors like Airbus and Lufthansa that see the built-in demand for skilled MRO operations in coming years. The key question is, are those skilled workers also the mobile ones?
But the fate of MAE and its staff, like that of MAS, depends heavily on political winds. AirAsia and MAS/Khazanah put together a share-swap deal in 2011 to help maximize productivity and cut costs. But pressure from vested interests was enough to push Khazanah into backtracking and scrapping the deal just one year later.
As Malaysian Prime Minister Najib Razak recently said: “We have to look at it from all angles. It’s not a private company, so there are certain repercussions in what you want to do.”
A version of this article appears in the November 3/10 issue of Aviation Week & Space Technology.