Malaysia Airlines heavy maintenance lines Adrian Schofield/AWST
Malaysia Airlines operates Airbus A330 and A380 heavy maintenance lines in one of its two hangars at Kuala Lumpur International Airport.

Malaysia’s Big Players Target New MRO Opportunities

Malaysia’s government has growth plans for the MRO sector, and so do companies such as Malaysia Airlines, AirAsia and Sepang Aerospace Engineering.

Printed headline: Malaysian Moves

 

Some of Malaysia’s major airlines and maintenance providers are looking to expand their MRO capabilities, which could support government aims to fast-track the development of the country’s aerospace industry.

Malaysia Airlines is considering relaunching itself into the third-party heavy maintenance market, while Sepang Aircraft Engineering is also studying whether to expand facilities and its scope of work. Meanwhile, low-cost carrier giant AirAsia is planning to make its first foray into heavy maintenance in either Malaysia or Thailand. The three companies discussed their strategies on the sidelines of Aviation Week’s MRO Southeast Asia conference on March 6-7.

The Malaysian government has established a goal for the country to become the top aerospace nation in Southeast Asia by 2030 and has developed and refined its Malaysia Aerospace Industry Blueprint to help achieve that objective.

One of the plan’s aims is for the local MRO industry to capture 5% of the global market share by 2030 and for local companies to account for a 3.5% share of the engineering and design services market. Other goals pertain to aerospace parts and component manufacturing, and systems integration.

Like other Asian countries, Malaysia sees itself well-positioned to take advantage of projected demand growth. About 40% of commercial aircraft deliveries are expected to go to Asia-Pacific airlines over the next two decades, and the commercial fleet in Malaysia is forecast to double in size by 2030. The country has the third-largest fleet in Southeast Asia and is projected to have the second-largest—behind Indonesia—by 2023, according to Frost & Sullivan research.

The national objectives fit well with the goals of Malaysia Airlines’ engineering and maintenance division, which aspires to become one of the biggest MROs in the region. To achieve this, however, it will need to expand beyond maintaining the airline group’s 112 aircraft and start offering third-party MRO services.

While its time frame and the specific services it plans to offer are unclear, Malaysia Airlines has a long-held goal to return to the third-party MRO market. The airline previously did perform heavy maintenance for other carriers, but this stopped when Malaysia Airlines embarked on a major restructuring process in 2014.

The restructuring saw the parent company relaunch as Malaysia Airlines Berhad (MAB). The engineering division closed its facilities at Kuala Lumpur’s older Sultan Abdul Aziz Shah Airport, instead consolidating its operations in two hangars at Kuala Lumpur International Airport (KLIA). There were also large-scale workforce reductions that affected the engineering unit. Since then, MAB’s focus has been on maintaining its own fleet.

However, the company has several factors in its favor when it decides to reenter the third-party market. MAB has excess hangar capacity and a skilled and well-qualified workforce, says Eke Nazri Rahim, head of the airline’s engineering and maintenance division. “With minimum investment, we could embark on third-party work,” he told attendees during the MRO Southeast Asia conference.

Another advantage is that the carrier is one of a few with the capability for Airbus A380 heavy maintenance. MAB opted to handle its own A380 work with a dedicated line at its KLIA facility. It has completed heavy checks on four of its six A380s, with a fifth underway, says Nazri. The two KLIA hangars also house Boeing 737 and A330 lines.

As part of the company’s broader restructuring efforts, MAB Engineering launched its own transformation plan to make it a high-performing organization. Over the last couple of years it has increased its productivity, streamlined processes and made itself more competitive, says Nazri.

Nazri admits “the journey ahead [will be] tough” because the aftermarket sector is very competitive. However, he notes the engineering division has made substantial investments over the past two years and has achieved significant goals.

MAB went live with the AMOS maintenance software system in December, which gives it better day-to-day control of its operation, drives efficiency and lays the groundwork for it to pursue a “big data” strategy. The company also invested in a wheels and brakes shop and expanded its cabin interiors work.

Nazri says Malaysia Airlines’ engineering group hopes to regain its European Aviation Safety Agency (EASA) Part 145 maintenance certification later this year or early 2020. He considers this a prerequisite for starting third-party MRO services.

However, the outlook for MAB Engineering is clouded by uncertainties surrounding the future of the parent company. So far, MAB’s restructuring and recovery plan has not returned it to profit, and the country’s leaders are showing increasing signs of frustration with its progress. MAB is government-owned, through state-backed fund Khazanah. The carrier is preparing a revised recovery plan that will be presented soon, and there have been suggestions the government may consider other alternatives such as selling or shutting down the airline.

Selling off an attractive asset like the engineering operation may also be considered. Other major aerospace companies have previously expressed a desire to establish MRO joint ventures with MAB, so there could be potential buyer interest.

Malaysian MRO provider Sepang Aircraft Engineering (SAE) is also based at KLIA. It has become one of Southeast Asia’s key support facilities for the region’s many low-cost carriers (LCC) operating Airbus aircraft, and it is considering expanding its capabilities to cover new aircraft and types of work.

Currently, the only airframe heavy maintenance work performed by SAE is on narrowbody aircraft. Its largest customer is AirAsia, but other major customers include LCCs Scoot, IndiGo and Jetstar Asia. SAE is now 100% owned by Airbus, and it is in the process of establishing itself as an Airbus center of excellence for A320 work in Asia.

SAE has two hangars at KLIA. One hangar has four narrowbody lines or potentially could have capacity for two widebodies, says SAE Vice President for Commercial To Chow Leah. The second hangar has two narrowbody lines, and SAE also has a dedicated paint hangar. The MRO is studying whether a third hangar could be needed in the long term, although To stresses there is no plan for this yet.

The company could potentially expand into widebody heavy maintenance, says To. SAE is already certified to work on A330s, which is the fleet type operated by AirAsia X. While it does not do C checks or scheduled maintenance on widebodies, SAE does support its customers with some widebody repair work such as composite repair and is conducting modification work on Airbus A380 doors.

SAE’s narrowbody work scope includes airframe heavy maintenance up to 12-year C checks, pilot seat repair, passenger seat refurbishment, aircraft lease-return work, nondestructive testing, composite repair and structural repair. It is an Airbus-approved radome repair facility for all Airbus types in the region. The company is considering going into component repair using its existing hangar facilities, To says.

KLIA is a beneficial location for an MRO base, says To. In addition to its favorable geographical position, it has a broad range of international flights and good cargo handling infrastructure. The airport has three runways and no curfew.

SAE’s work intake has been healthy in 2019, and it is anticipated to remain strong for the next few years, To says. However, it still has capacity for new customers.

Meanwhile, AirAsia is assessing whether to set up a heavy maintenance operation to accommodate its fleet growth plans, and if so, where such a facility would be located. It is seriously considering basing it in Malaysia or Thailand.

While the LCC is yet to make a decision, it does wants to handle some of its own base maintenance needs in the future, says Nantha Kumar, AirAsia’s head of group aircraft engineering.

AirAsia currently outsources all of its heavy maintenance to a range of providers such as SAE. Kumar stresses that AirAsia will continue to work with these providers, as the carrier will have an increasing MRO requirement that can be addressed with both insourced and outsourced work. It is still too early to say how the additional work would be divided between existing suppliers and AirAsia, says Kumar. SAE’s To notes that this development has been announced only recently, and the company will review its implications.

There is no specific time line for AirAsia deciding about the heavy maintenance facility, although the group’s senior leadership envisages beginning operations within two years of making a decision, Kumar says. AirAsia will review whether “it makes business sense for us to invest” in an MRO facility.

Any such operation would handle work for AirAsia and its various overseas affiliates as well as widebody operator AirAsia X. The scope would potentially include airframe work up to C checks, wheels and brakes and composite repair, but not engine work or components. While AirAsia would primarily focus on its own fleet, there may be opportunities for third-party work in the long term, says Kumar.

The new facility would likely start with one hangar and at least two or three lines, Kumar says. The carrier would consider establishing a partnership or joint venture with an existing MRO provider.

AirAsia is interested in becoming one of the MRO providers in a new aerospace development in U-Tapao, Thailand, and group CEO Tony Fernandes last year said AirAsia wanted to open a facility there. However, there is still much uncertainty about how the Thai government selection process will work and what incentives may be offered.

This will be one of the factors in determining the timing of AirAsia’s decision about whether to proceed with heavy maintenance and where it will be located, Kumar says. Once more details about U-Tapao are known, AirAsia can conduct a review and determine if the business case makes sense.

If the carrier decides to establish an MRO base in Malaysia instead, it would be located either in Kuala Lumpur or in another part of the country. AirAsia’s main hub is at KLIA, and its major MRO provider SAE is also based there. However, various Malaysian state governments have been engaging with AirAsia to try to secure the MRO facility for their airports. 

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