Government's decision to open up maintenance contracts threatens service provider
The future of Malaysian maintenance company Airod is under threat after it lost a key contract to Singapore Technologies Aerospace (ST Aero) and saw its market opened up to other competitors.
Airod, which was being prepared for an initial public offering (IPO), and other National Aerospace Defence Industries' (NADI) subsidiaries have long benefited from being exclusive maintenance providers for the Malaysian military. They no longer enjoy this status under Malaysia's new government, which has decided to open up future maintenance contracts to other companies.
As a result, the DRB-Hicom group has decided to expand into the aerospace business and may bid for additional maintenance work beyond the AgustaWestland A109 contract its new Deftech subsidiary has already won. Some sources say DRB-Hicom may even attempt to take over NADI.
BAE Systems is also looking to buy a stake in Airod, but due diligence, which was to have been conducted late last year, has been delayed several times and still has not begun.
The UK company says it is now waiting to see what happens with NADI's planned IPO to determine if it will invest, which seems increasingly unlikely.
Other companies are also looking to expand into Airod's territory, including Transmile Group's commercial aircraft maintenance subsidiary Grouptech, which has partnered with new-start Peatric to bid on modifying and servicing a fleet of 17 Aermacchi MB339CD trainers that may be acquired from New Zealand.
A forthcoming contract to maintain Malaysia's new fleet of 18 Sukhoi Su-30MKM fighters is another key competition, with NADI subsidiary Aerospace Technology System (ATSC) seeking the work in competition with Grouptech, and possibly Deftech and other new companies.
The introduction of local competition comes at a bad time for Airod, which last quarter lost its bid to renew a Lockheed Martin C-130 maintenance contract with the US Air Force.
The USA has instead decided to switch this work, worth about $10-15 million a year, to ST Aero. Industry sources say Airod did not win the 10-year contract, which takes effect later this year, because of souring Malaysian-US relations.
NADI - which also owns SME Aviation, SME Aerospace and SME Ordnance - is still bullish and is forecasting high growth as part of an IPO prospectus to be filed within the next few weeks.
An IPO could occur as early as September. PGS Industries, controlled by Tan Sri Ahmad Johan, now owns 90% of NADI with the government holding a 10% golden share.
BRENDAN SOBIE / SINGAPORE
Source: Flight International
