Printed headline: Asian Expansion
The promise of rapid fleet growth in Southeast Asia is spurring aircraft maintenance organizations to launch ambitious upgrade plans as they look to capture more work and broaden their capabilities.
These expansion projects are partly being driven by the desire of governments in the region to support the development of MRO as an important strategic industry that can aid economic goals. In many cases, the initiatives involve the construction of new facilities through cross-border or local joint ventures.
Some in the industry question whether there is enough demand for the vying countries to all fulfill their ambitions to become MRO hubs for the region. However, there is no debate that the volume of orders in Southeast Asia means the current MRO capacity will not be sufficient.
Setting MRO development as a national objective is common elsewhere in the broader Asia-Pacific region. India’s government, for example, has designated MRO development as a key plank in its new aviation strategy, and South Korea is looking to expand its MRO industry. However, the trend appears to be most prevalent in Southeast Asia.
While established MRO hubs such as Singapore still dominate the region, new projects are also underway in Indonesia, Thailand, Vietnam, Malaysia and the Philippines.
One of the more notable developments is occurring on the island of Batam, Indonesia, where the MRO divisions of Indonesia’s two major carriers have recently signed a joint venture deal to construct new facilities to be used by both carriers.
The agreement was formally signed on Aug. 14 between Garuda’s GMF AeroAsia and Lion’s Batam Aero Technic (BAT). As well as executives from the two airlines, senior government ministers were in attendance at the signing and groundbreaking ceremony to demonstrate their support.
GMF and BAT initially intend to build one hangar at Batam under their agreement, accommodating eight Airbus A320 or Boeing 737 aircraft. More hangars could be built through the joint arrangement if market demand exceeds expectations, GMF Vice President and Corporate Secretary Fidiarta Andika tells Aviation Week. The two companies will also cooperate on the development of a tire retreading plant with partner Michelin.
The joint venture development will be sited near BAT’s existing maintenance base at Batam. GMF has no heavy maintenance facilities of its own at Batam; its major MRO base is located at Jakarta’s Soekarno-Hatta International Airport.
The Batam MRO facilities are at Hang Nadim International Airport, separated from Singapore by the Singapore Strait. Batam’s close proximity to the logistics hub of Singapore is an advantage for MRO businesses, and its location farther north than Jakarta makes it easier to access from other Southeast Asian nations.
The partners’ intention for the joint venture is to help the Indonesian MRO industry grow in an efficient manner, without the two rival carriers duplicating investment as they add capabilities. GMF notes that it has often cooperated with other MRO companies and manufacturers.
Indonesia can improve the competitiveness of its MRO industry in the global arena through the tie-up, says GMF’s acting president-director, Tazar Kurniawan. One of the aims of the initiative is to increase the third-party work drawn from overseas and attract more foreign currency.
At the same time, the expanded capacity will help limit the amount of Indonesian MRO work sent to other countries. The companies aim to reduce maintenance outsourced overseas to 10% of the total within 10 years.
While the joint venture currently applies only to Batam, GMF “believe[s] it can be expanded to other areas,” Fidiarta says. “We understand that by developing business through collaboration [we] will increase our value and maintain sustainable and profitable growth.” He cites a proverb: “If you want to go fast, go alone. If you want to go far, go together.”
However, GMF is still planning to grow the scope of its own operations outside the joint venture. “We will expand our business and facilities both domestically and globally, as we believe that global expansion is needed to stay ahead of competitors,” Fidiarta says. GMF has previously said it intends to establish MRO businesses in Australia, East Asia and the Middle East in the near future.
In Thailand, similar efforts are underway to build up an MRO hub in U-Tapao, southeast of Bangkok. It is based around the civil-military U-Tapao International Airport, where an expanded MRO zone is scheduled to be established as part of the airport’s upgrade plan. This will help support the government’s Eastern Economic Corridor initiative.
Thai Airways has agreed to form a joint venture with Airbus to build a new MRO hangar at U-Tapao, replacing Thai’s current MRO facilities there. This hangar will be able to simultaneously handle three widebody aircraft for heavy maintenance, as well as a mix of widebody light maintenance and narrowbody heavy or light maintenance.
It will be larger than the current hangar, which can accommodate two widebodies and one narrowbody. Thai says it intends to increase third-party work at U-Tapao.
Construction is expected to begin in the first quarter of 2020, with completion planned for 2022. A new paint hangar and supporting buildings will also be completed by then. Additional space will be set aside for future hangars and workshops. Thai already has maintenance bases at the Suvarnabhumi and Don Mueang airports in Bangkok.
Another carrier considering U-Tapao is AirAsia. The airline group intends to set up its first heavy maintenance base, and executives have said that U-Tapao is one of the potential sites. AirAsia has an affiliate airline based in Thailand.
AirAsia is waiting for the Thai government to offer the opportunity to bid to participate in the U-Tapao development. Establishing a heavy maintenance base in Malaysia is another alternative, says Nantha Kumar, AirAsia’s head of group aircraft engineering. In either place, the airline would consider forming a joint venture with another company.
AirAsia currently outsources all its heavy maintenance to a range of providers such as Malaysia’s Sepang Aircraft Engineering (SAE). Kumar stresses that AirAsia will continue to work with these providers, as the carrier will have an increasing MRO requirement.
SAE, a subsidiary of Airbus, is planning MRO growth of its own. Airbus signed an agreement on Aug. 30 to build a third hangar at the SAE complex at Kuala Lumpur International Airport. This hangar will be able to accommodate four narrowbody or two widebody aircraft for heavy maintenance. New paint and component repair shops will be added.
MRO expansion is also occurring in Vietnam. Singapore’s ST Engineering has formed a component maintenance and repair joint venture with Vietnam Airlines Engineering Co. (VAECO), a subsidiary of Vietnam Airlines.
The collaboration will not require new buildings, as it will make use of VAECO’s existing facilities in Hanoi and Ho Chi Minh City. However, the partners will be “investing in new infrastructure” at these facilities. The joint venture will focus on pneumatics, hydraulics, electrical components, wheels and brakes, and safety equipment.
While the company has previously said the new venture will begin operations in mid-2019, ST Engineering says the partners are still working on obtaining the necessary regulatory approvals, and this will dictate the timing.
ST Engineering notes that “Asia is a key region driving the growth of the global commercial aerospace sector,” and establishing a presence in Vietnam will “enable us to better capture that growth with an expanded MRO network.”
Airline MRO is not the only area of expansion in the region. There are also developments occurring in business aviation maintenance, which is a growing sector of activity in Southeast Asia. One of the leading players is the Malaysian branch of ExecuJet, which is planning to build a new, much larger facility at Kuala Lumpur’s Sultan Abdul Aziz Shah Airport, commonly known as Subang Airport.
ExecuJet Malaysia now occupies buildings under short-term lease at Subang, says Ivan Lim, ExecuJet’s vice president for MRO services in Asia. As part of a broader airport redevelopment plan, the company intends to move into its own facility. While it has had to use “whatever is there and try and make it work,” the new buildings will be built “to suit our own operations,” Lim says.
The current hangar used by ExecuJet covers an area of 64,000 ft.2 and can accommodate about 10 business jets, depending on their size. The new facility will cover 120,000-150,000 ft.2 and will be able to accommodate 15-20 aircraft at once, says Lim.
ExecuJet is still in talks with local authorities about the expansion and hopes to close the deal for the site by the end of this year. The company aims to start construction in the first or second quarter of 2020, with a tentative target of the third or fourth quarter of 2021 for completion. At that point, ExecuJet will switch its operations to the new hangar.
Lim says the company will perform mostly airframe work in the larger facility, although it will also conduct other work such as painting and interiors. The expansion will require more employees—the company aims to have 50 workers by the end of this year, and 60-70 by the time the new hangar opens.
Dassault Aviation announced the purchase of ExecuJet’s global MRO operation in January. One of the results of the deal is that it will expand the range of aircraft on which ExecuJet works, says Lim. Previously, it mainly focused on Bombardier and Gulfstream jets, but now it will add Dassault aircraft to its portfolio.
There has been significant growth in business aviation MRO demand in Southeast Asia over the past 10-15 years, Lim says. This has coincided with increasing business jet fleets in the region—particularly in Malaysia, followed by Singapore and Indonesia. Other markets in places like Cambodia, Vietnam and Laos are also emerging.
The Malaysian unit is Execujet’s largest MRO hub in Asia, although the company also has a branch in China that handles most of the work from that country. ExecuJet Malaysia recently gained certification from Chinese authorities for Bombardier and Gulfstream maintenance, so it can also work on Chinese-registered aircraft as needed.