Paul Lewis/SINGAPORE
BOON SWAN FOO'S first year at the helm of Singapore Technologies Aerospace (STAe) has proved to be tough. The former Singapore Shipbuilding and Engineering president has had to contend with the worldwide over capacity in aircraft maintenance, a declining US dollar and mounting first-half year losses. He has now plotted a new course, and is confident of better times ahead.
Having trained as a naval architect on the Tyne, in the UK, and spent over 16 years in the shipping industry, Boon would appear an unusual choice to succeed former STAe president Quek Poh Huat. Boon, however, is quick to point out that having endured three damaging downturns in shipping, he is more than prepared for the equally cyclic aerospace business.
"I always liken an aircraft hangar to a floating dock," says Boon. "When you're operating a dock or hangar, you're actually just selling space, which is a very perishable product. If you don't get an aircraft into a hangar or a ship into a floating dock, that space disappears."
For STAe, filling space has been a major challenge in recent years. Having watched its net profit for 1994 slump by nearly 19%, to S$25 million ($17.6 million), the company's finances, then nose-dived into the red in the first six months of 1995, with a net loss of S$49 million.
RESTRUCTURING
Soon after Boon was piped aboard, major changes were announced to the structure of Singapore Aerospace (SAe) and its parent group Singapore Technology Holdings. SAe was relaunched as Singapore Technologies Aerospace, with Singapore Technology (ST) at its head.
Within STAe itself, the former Maintenance Operations and Materials divisions were rationalised into two newly formed marketing units, the Military Business Group (MBG) and Commercial Business Group (CMG)
MBG has taken over responsibility for all defence work performed by STA Engineering, Systems, Engines, and Supplies, along with the Engineering & Development Centre. CMG has under its wing civil-airframe maintenance, refurbishment and modifications, and component repair and overhaul.
Missing from the new structure is the loss-making Manufacturing division. Its two main activities, Singapore Aircraft Manufacturing (SAM) and the US-based California Avi-Tron, were given to ST Precision Engineering to absorb into its non-aerospace portfolio. "It removes some of the red ink," says Boon.
SASCO SHAKE-UP
STAe's other major blot on its financial copybook is ST Aviation Services (SASCO), which alone clocked up losses of S$18 million in the first half of 1995. A strong Singapore dollar, surplus maintenance capacity and uneconomical work rates have largely been to blame (Flight International, 13-19 September, 1995, P23).
Remedial measures have included a managerial and marketing shake-up, financial restructuring and moves to broaden its capabilities. The most important factor is a stable US dollar, says Boon. "With that you can work towards a target costing and decide whether you're in or out of the market."
Fresh management has been put in place with two new senior vice-presidents, Wee Siew Kim (responsible for operations) and Ooi Ling Heong (marketing). Sales efforts are being redirected towards North America and Europe, with added emphasis on quality. Management procedures have been tightened and agreements reached with unions on more flexible working practices and cost reductions.
STAe put an end to speculation that it was seeking to reduce its 80% shareholding in SASCO, by converting half of its S$20 million loan to the company into preference shares. "Converting a loan into equity means we're committed, and demonstrates that we intend to keep the unit," says Boon.
At the same time, Boon is asking Singapore Airlines (SIA) and Japan Airlines, both of which hold a 10% stake in SASCO, to reciprocate and provide more aircraft maintenance work during the 1996 financial year.
There is a recognition that SASCO also needs to develop new capabilities, other than remaining reliant on Boeing 747 Section 41 modifications. "This is a declining market," observes Boon, estimating that there are some 300 747s remaining, many of which can be modified by the airlines themselves.
SASCO is taking over line maintenance from Changi International Airport Services, and is looking to extend its capabilities to include Boeing 767s and McDonnell Douglas MD-11s. The company is also keen to break into the cargo-conversion market, with attention specifically focused on Airbus Industrie A300s and A310s.
"It's something we're pushing quite hard," confirms Boon. STAe has already opened discussions with British Aerospace Filton and Daimler-Benz Aerospace to become a preferred plant for Airbus cargo conversions.
STAe already has a pool of expertise to draw on from its wholly owned US subsidiary, ST Mobile Aerospace Engineering (MAE) in Alabama. MAE has amassed experience of heavy maintenance and modifications of Boeing 727-200s and A300s, under contract to FedEx. SASCO recently assisted MAE with its first 747 pylon modification for Air New Zealand.
"We really provide two lines to choose from," boasts Boon. "Airlines can either go to Mobile for 747 work or come to SASCO, and they can do it all under one master contract. One company two facilities - that's a selling point we're trying to push quite hard."
The high cost of operating in Singapore has led local industry to move some of its more labour intensive activities offshore, to lower-cost environments. The aerospace sector has proved no exception, with a sizeable investment already made in Indonesia and new opportunities being looked at in India, China and Vietnam.
STAe has joined with IPTN, Sempati Air Transport and two smaller Indonesian shareholders to take a 25% stake in PT Batam Aircraft Maintenance (PT BAM). The company will specialise in the maintenance and overhaul of narrow-body jet-powered airliners and turboprop aircraft. After some initial delay, its new plant at Batam Island's Hang Nadim Airport is now under construction and due for completion by the end of 1996.
PT BAM will take over Boeing 737 D-check work from STAe, but it is not viewed as a contender for SASCO's larger work. "At the low end of the narrow-body-aircraft range, where the skills are not too difficult to obtain and where things can be done overseas, we believe it's a good arrangement," explains Boon.
Other proposed joint-venture overseas maintenance companies, Pan-Asia Aviation Services in Taiwan, and Shenzhen Aircraft Maintenance and Engineering in southern China, have failed to get off the ground (Flight International, 30 August-5 September, 1994, P13).
"In China, we feel it would have been useful to have had an airline join us, rather than trying to do something by ourselves," reflects Boon. "We are working through Singapore-China Merchants, and still intend to do something in China, but the Shenzhen idea will not be resurrected."
Other new projects under consideration include an aircraft financing and leasing company. The intention is to place 100- to 150-seat size aircraft in developing markets, such as India or Vietnam, complementing rather than competing with the wide-body activities of SIA's Singapore Aircraft Leasing Enterprise.
The venture is also intended to boost SASCO, by allowing it first refusal on maintaining any aircraft leased. "The advantage we have is that we understand aircraft and maintenance schedules. By doing it ourselves, we believe we will be able to enhance the value of our own aircraft," says Boon.
MILITARY MARKETING
SAe was founded in 1981, primarily to support the Republic of Singapore Air Force (RSAF), and despite venturing into the civil sector, STAe still remains heavily dependent on the military. According to the company's 1994 annual report, MBG generated a turnover of S$335 million, representing 68% of total turnover.
According to Boon, reducing the company's reliance on military contracts will depend on how the commercial sector develops. He points out that the MBG generates several commercial spin-offs such as depot-level maintenance for Lockheed Martin L-100s and civil helicopters.
"As long as we have a relevant role to play, and as long as the market is there and continues growing, I'm quite indifferent to whether its commercial or military. What is important is to use it to do more export and non-RSAF work."
MBG actively markets some core military capabilities offered by its ST Engineering, Systems and Engines divisions. Its most successful business to date has been the maintenance of Lockheed Martin C-130 transports.
Much of it C-130 experience has been garnered from 15 years of depot-level maintenance for the US Navy and Marine Corps. STAe is keen to increase its share of the lucrative Middle East market and has already secured C-130 and Allison T56 engine work from Saudi Arabia, Oman and Pakistan.
It is also hopeful of capitalising on its RSAF Northrop F-5 work to secure new overseas upgrade contracts. STAe is teamed with integrator Elbit to retrofit the air force's 40-plus F-5E/Fs with the FIAR Grifo-F radar and a new avionics suite. A similar upgrade is being offered for export.
STAe has been negotiating with Taiwan to convert eight of its RF-5E Tigereye reconnaissance aircraft, based on similar modifications undertaken for the RSAF. The company has completed a structural upgrade of nine Venezuelan CF-5As and is one of nine contenders pitching for the US Air Force's Northrop T-38 Talon avionics upgrade.
STAe is believed to be keen on extending its structural and avionics upgrade capabilities to include the Lockheed Martin F-16A/B, increasing numbers of which are entering service with the RSAF and other regional air forces. STAe has already begun to offer itself as a Pratt & Whitney F100 engine service centre.
With the entry of the Fokker 50 transport and Maritime Enforcer variant into RSAF service, STA Engineering has signed a maintenance and support agreement with Fokker. Its licence allows it to service military and civil aircraft in operation, in the Pacific region.
The RSAF's pending requirement for two new yet-to-selected aerial-refuelling tankers will almost certainly involve STAe in the conversion and support of the aircraft. A selection is expected by April, with work pencilled in for 1997/8. STA Engineering has already performed KC-130 tanker conversions for the local air force (Flight International, 25-31 October, 1995).
STAe expects its 1995 end-of-year results, due shortly, to show a containment of the first-half losses. Having stemmed the flow of red ink, analysts are confident of a pick-up in business. "A lot of people expect 1997/8 to be a much better year, but it is always easy to say so when it is two years away," cautions Boon.
Source: Flight International
