There has been a flurry of Asia-Pacific MRO tie-ups and new joint ventures announced recently, some of which involve large European maintenance companies and others that include OEMs.
These plans include Lufthansa Technik’s proposal to establish a narrowbody airframe heavy maintenance facility at Kuala Lumpur International Airport in a joint-venture partnership with Malaysia Airlines Berhad.
The airline, meanwhile, has announced it also will be working with U.S. company Aircraft Propeller Service (APS), which has a license from UTC Aerospace Systems for MRO of ATR propellers. Malaysia and APS are working in Kuala Lumpur to maintain propellers for Asia-Pacific ATR operators.
Singapore Airlines subsidiary SIA Engineering announced a joint venture with Airbus in February. It says: “The JV will provide airframe maintenance, cabin upgrade and modification services for Airbus A380, A350 and A330 aircraft to airlines in Asia-Pacific and beyond.”
This announcement came after SIA Engineering incorporated its new JV with Boeing that provides maintenance for 737, 747, 777 and 787 operators in the region.
SIA Engineering already has many years of JV experience, mostly with engine-makers. But JVs with airframers constitute a relatively new phenomenon, showing that airframers are following the lead set by engine OEMs and seeking a greater role in the aftermarket.
Cathay Pacific Airways and its maintenance company, Hong Kong Aircraft Engineering Co. (HAECO), also have many years of involvement with JVs and engine-makers.
But the new flurry of JVs shows that OEMs are more prepared than ever to venture into Asia-Pacific emerging markets.
Norbert Marx, general manager of Guangzhou Aircraft Engineering Maintenance (Gameco), says the tie-up between Lufthansa Technik and Malaysia Airlines is significant because the German MRO has traditionally focused on widebody maintenance in the Asia-Pacific region.
Lufthansa Technik’s narrowbody MRO has traditionally been in locations such as Malta and Shannon, Ireland, which are within the flying range of Lufthansa German Airlines’ narrowbodies, says Marx, who is a former Lufthansa Technik executive.
It could be argued that the new heavy maintenance joint ventures in Asia help fill a void. Airlines still want to perform line maintenance in-house, but some are reluctant to invest in heavy maintenance facilities because that work is easier to outsource.
Some airlines also can see that unless they have a large fleet of aircraft of a particular type, they have insufficient scheduled maintenance to provide a steady stream of work—especially as newer-generation aircraft require less heavy maintenance in terms of man-hours.
Marx agrees some Asia-Pacific airlines want to outsource heavy maintenance, but “from my perspective, I see more of a mixed picture in the region,” he says. “There are many airlines here in China that want to have their own [heavy] maintenance capability, and we also see airlines in [South] Korea wanting to build up heavy maintenance capability.”
Marx also sees that some European MRO companies are trying to get more component work from Asia-Pacific.
Because parts can be easily transported, component MRO companies can draw work from anywhere. However, the component MRO companies in Europe increasingly want to draw on the Asia-Pacific region, because obtaining a license from an OEM to perform component overhaul is becoming very expensive, according to Marx. So to make the component overhaul business more financially viable, it is important to achieve economies of scale, he points out.
But there are also component MRO companies seeking to become established in Asia-Pacific itself, because the number of aircraft there has become so huge and warrants the investment in a dedicated component MRO facility.
Boeing says the number of commercial aircraft there is set to increase to 16,970 in 2035 from 6,350 last year, thanks to the forecast delivery of 15,130 aircraft between 2016 and 2035.
Asia-Pacific will be the largest aircraft market in the world, and for some aircraft types it already is. For example, there are more than 360 ATR aircraft there, which means the region has the largest installed fleet of the company’s aircraft in the world.
Asia-Pacific airline customers also are demanding that there be more component MRO facilities there. Some airframers in turn are calling on their equipment suppliers to establish MRO facilities in the region, because they recognize it is important to airline customers. And if they succeed in having a better breadth and depth of maintenance support in the region, it will help the airframers’ sales.
APS President Dan Colbert says the company decided to branch out of the U.S. and partner with Malaysia Airlines following a request from ATR, which in turn was receiving requests from airlines.
ATR competitor Bombardier also has been leaning on MRO companies to establish businesses in Asia-Pacific to be closer to customers.
Canadian MRO company Vector Aerospace last year established a wholly owned engine MRO facility in Singapore to overhaul Pratt & Whitney PW150As, which power the Bombardier Q400. Bombardier requested an Asia-Pacific PW150 MRO facility to help sell the Q400 to airlines there.
Vector was willing to do so because the engine OEM, Pratt & Whitney Canada, agreed to help kick-start the MRO in Singapore by giving it some overflow work from its PW150A MRO in North America.
Philip Ang, general manager of Vector Aerospace Asia, says, “Airlines believe that having in-region capabilities will result in lower maintenance costs [realized from, for example,] lower transportation expenses, reduced import tariffs and easier communication.
“Another reason for the OEM to have JVs with the airlines is they hope it will tie them down to buying their equipment,” explains Ang. “The benefit to the airline would be the infusion of needed capital, technology, know-how and greater volume overall for the JV.”
Ang is the former head of heavy maintenance at SIA Engineering, which has MRO JVs with Pratt & Whitney and Rolls-Royce.
Ian Wolfe, head of maintenance for Cebu Pacific Air, agrees that the plethora of MRO JVs starting up in Asia-Pacific is a response to the large installed aircraft fleet in this region. But he also says there is more behind these new JVs than meets the eye.
“The view from my perspective is you have these bigger MRO players [from outside Asia] trying to get as much exposure to the Asia-Pacific region as possible, as this is the big growth market,” Wolfe stresses. “These players can see that there are more ATRs, Airbus and Boeing aircraft here, so they view this as the big growth area for MRO.”
But Ang believes “there is still too much overcapacity swirling around this region,” particularly in airframe heavy maintenance. There is also some overcapacity in engine MRO, says Wolfe, who cites the CFM56 as an example. There are CFM56 overhaul facilities at GMF AeroAsia in Indonesia, ST Aerospace in Singapore, GE Engine Services in Malaysia, MTU in China and Evergreen Aviation Technologies in Taiwan. Indonesia’s Lion Group also plans to enter the fray with subsidiary Batam Aero Technic announcing plans to be a CFM56 MRO organization. As part of Lion Air’s CFM International Leap 1A engine order announced in February, CFM is providing guidance on designing, constructing and commissioning Lion Group’s engine test facility in Batam, Indonesia.
Wolfe also notes that some of the new MRO JVs may not actually represent additional MRO capacity. He cites the new narrowbody MRO JV between Lufthansa Technik and Malaysia as an example. “Malaysia Airlines [last year] closed down a lot of their maintenance,” says Wolfe, referring to how the airline shuttered its maintenance facility at Kuala Lumpur’s Subang Airport.
Malaysia Airlines consolidated its maintenance capability at Kuala Lumpur International Airport, but Wolfe argues the closure of the Subang MRO facility, which had traditionally been the airline’s main maintenance base, represented an overall reduction in its MRO capacity.
He says the JV with Lufthansa Technik represents an attempt by Malaysia Airlines Engineering and Maintenance to return to its size and scale before last year’s restructuring. Malaysia Airlines underwent a massive restructuring last year, which included laying off 6,000 workers as part of a turnaround plan that has the goal of returning the company to profitability in 2018.
In terms of what the MRO tie-up with Malaysia Airlines means for -Lufthansa Technik, Wolfe says Lufthansa already has a heavy maintenance facility in the Philippines that handles primarily widebodies, but wants a similar narrowbody facility in Malaysia because it can see a large installed fleet of midsize aircraft in the region.
“The issue is, however, that there is already a lot of narrowbody base maintenance capacity in the region,” Wolfe notes.
He also says all this surplus MRO capacity is making it even harder for higher-cost MRO centers such as Singapore and Hong Kong to manage.
Quid Pro Quo
Another factor that may be driving the push to form MRO JVs in Asia-Pacific, is that of quid pro quo. The relatively high cost of performing airframe MRO in Europe means some maintainence companies there are looking to outsource Asia-Pacific work but want something in return.
Wolfe says Air France-KLM’s tie-up with Indonesia’s GMF AeroAsia provides an example of this.
GMF President-Director Juliandra Nurtjaho says his company will be using Air France-KLM for component support, and in return, the European company is outsourcing some airframe heavy maintenance work to GMF.
Juliandra also visited Rolls-Royce in Derby, England, in July, along with Garuda Indonesia President Arif Wibowo. The engine MRO market is increasingly being controlled by OEMs, but because Asian carriers are becoming so big, “they have the negotiating power to push the OEMs to allow engine MRO to be done in Asia,” says Juliandra.
Garuda operates Trent 700-powered Airbus A330s, so the purpose of the visit was to ask Rolls-Royce to transfer some Trent 700 engine-component MRO to GMF. Juliandra says GMF wants to perform more Trent 700 MRO for Garuda and other A330 operators in Asia.
Juliandra adds: “Some airlines are happy to outsource [engine] component MRO because it is hard to keep a steady stream of work, and some airlines want to focus on their core business and avoid the difficulty of having to source maintenance technicians, train them and invest in the IT systems to facilitate component overhaul.”