For MRO providers, Asia is the place to be, with local fleets expanding, low-cost carriers starting up andoverseas airlines looking to cut costs by outsourcing
Maintenance providers throughout Asia are racing to expand their capacity to keep up with rising demand from airlines in the region and overseas.
With Asian carriers expanding their fleets more quickly than their counterparts in other regions, local maintenance companies - many of which are partly or wholly owned by the airlines - are preparing for major growth. The sudden proliferation of low-cost carriers in the region is expected to create a new source of demand and carriers outside the region are increasing their reliance on Asian providers in a bid to lower their maintenance costs.
"Not only do we have fleet expansion in the region, we have an accelerated trend of bringing maintenance to lower-cost countries," says Ameco Beijing general manager Hans Schmitz. Hong Kong Aircraft Engineering (HAECO) commercial general manager Ashok Sathianathan agrees: "There is definitely a trend of heavy maintenance work being outsourced to MROs [maintenance, repair and overhaul] in the region from Japan, USA and Europe. This is being factored into our growth strategy."
In China, growth at the national carriers promises to keep Ameco Beijing and other Chinese maintenance providers busy for years. With most Chinese carriers consolidated into three groups led by Air China, China Eastern and China Southern, their maintenance arms are set for major growth.
Ameco Beijing, a joint venture between Air China and Lufthansa formerly known as Ameco Aircraft Maintenance & Engineering, expects double-digit growth in the next several years, fuelled by expansion at the Air China group, plus third-party business. The company cannot add maintenance space until 2007, when it plans to open a three-bay facility in conjunction with the unveiling of a new terminal at Beijing Capital airport, but says it can maintain growth in the interim by improving efficiency.
Ameco is poised to expand revenues from last year's 1.3 billion yuan ($157 million) in revenues to 1.5 billion yuan this year, made possible by implementing a new production concept that allows it to work on up to eight heavy-maintenance checks at once. Ameco has only six bays, half of which are used for line maintenance. "We have much more flexible use of our space and shorter turnaround times," says Schmitz. "And we're not at the end of the programme - there's still some reserves."
Ameco, backed by a $100 million infusion of new capital by its two owners as part of the recent 25-year extension to their joint venture, will be able to increase its capacity by purchasing a new docking system and constructing a plating shop. The docking system will allow it to add a second Boeing 747 fixed line, which it needs to meet a 12-aircraft contract with Air Atlanta Icelandic.
Schmitz says Ameco's board has tasked it to keep up with Air China's plans for a 300-aircraft fleet by 2015 and expand its third-party business, which now accounts for about 40% of its revenues. In preparation, Ameco is increasing the throughput at its aviation college from 100 to 200 mechanics a year. The college guarantees Ameco a steady supply of workers just as the region faces a shortage of qualified mechanics.
China Southern and Hutchison Whampoa joint venture Guangzhou Aircraft Maintenance Engineering (GAMECO) is already positioned to take on a huge influx of business, having moved to a new four-bay facility in August, when the New Baiyun airport opened in Guangzhou. "Basically the new area is triple the size of the old facility," says business development director Joey Lo. The old facility was often full of China Southern aircraft, preventing GAMECO from taking on outside work except during certain quieter times of the year. But Lo says the new facility will allow significant third-party business, including widebody work.
GAMECO maintains Boeing 777s and 747s for China Southern but has never worked on these types for other carriers. Lo says GAMECO hopes to begin pursuing third-party 777 work - it will stay out of the highly competitive 747 market - next year.
The company is moving into its new facility in phases and is now using only about three-quarters of the available space. GAMECO has kept its component overhaul business at the old airport, although this will move in a few years.
China Eastern, meanwhile, is preparing to keep up with its growing maintenance requirements by opening a joint venture facility with Singapore Technologies (ST Aero). ST Aero says it is awaiting approval from the Chinese authorities to open the Shanghai facility later this quarter. Regulatory delays and SARS have already pushed back the opening by almost a year.
In Singapore, ST Aero has opened a fifth hangar this year and, as an independent maintenance provider, is banking on winning additional work from overseas carriers. "We believe legacy airlines will increase outsourcing MRO work to keep their cost structure low," says ST Aero. "This will be prevalent in view of the changing business adopted by low-cost and entrant carriers."
Rapid expansion
ST Aero is negotiating a maintenance contract with Jetstar Asia, one of three low-cost carriers launching in Singapore this year. ST Aero already provides some maintenance services for Malaysian low-cost carrier AirAsia, which is evaluating bids from several other providers to help it keep up with rapid fleet expansion. Malaysian firm Airod, which maintains mostly military aircraft, is trying to win business from AirAsia to expand its small civilian unit.
Several providers are trying to woo Philippine low-fare carrier Cebu Pacific Airways, which will put 14 new A320 family aircraft into service next April. Taiwanese company Air Asia maintains Cebu's McDonnell Douglas DC-9s - to be phased out as the A320s arrive - and could add an A320 capability if it can win new business from Cebu or other A320 operators.
The growth of low-cost carriers across South-East Asia, including Indonesia and Thailand, and planned start-ups in China, Japan and South Korea are expected to further fuel growth at maintenance providers because these types of airline generally have no in-house capabilities. "It will become a big business, but the effect on the MROs will come with some delay because they're just starting," says Schmitz.
Lo says GAMECO expects a mid- to long-term significant expansion of its Airbus A320 business - it already maintains the type for China Southern - because this has proved to be the aircraft of choice for most Asian low-cost carriers.
EVA Air sister company Evergreen Aviation Technologies is also poised to gain from the influx of A320s. The Taiwanese firm maintains A320s for Air Macau and expects to increase its third-party work after opening a second hangar this year.
HAECO is "actively marketing fleet technical management/inventory total care package services [FTM/ITCP] to satisfy a growing need in the marketplace brought about by low-cost carriers in the region", says Sathianathan. Because HAECO is already operating at full capacity and the high cost of land in Hong Kong limits expansion opportunities, "HAECO's growth strategy is based on moving up the value chain providing knowledge-based value-added services such as FTM and ITCP".
One of the region's A320 start-ups, Singapore Airlines (SIA) low-cost affiliate Tiger Airways, enlisted SIA Engineering last month to oversee its maintenance requirements. To keep up with the growth at SIA and third-party customers, SIA Engineering is preparing to open a fourth hangar by year-end and a fifth in 2005. The new hangars will have room for Airbus A380s, which will enter the SIA fleet in 2006, as well as SIA Engineering's new 747-400 cargo conversion business. SIA Engineering plans to deliver its first Boeing 747-400 Special Freighter to Dragonair in 2006.
Boeing's 747-400SF programme is also fuelling growth at Taikoo Xiamen Aircraft Engineering (TAECO). The Chineseprovider, owned primarily by HAECO, is to open a fourth hangar in March 2006"to meet future workloads, particularly work associated with the 747-400conversion". Boeing has ordered 33 cargo conversions from TAECO. The US manufacturer has also appointed it as a conversion centre for its proposed MD-80/90SF; ST Aero for the newly restructured 757-200SF; and Korean Air Aerospace as a third centre for the 747-400SF. Air Asia, GAMECO, Garuda Maintenance Facility AeroAsia, Malaysia Airlines and Taiwan's China Airlines are all seeking to become the first Asian conversion centre for the Boeing 737-300/400SF.
BRENDAN SOBIE / SINGAPORE
Source: Flight International
