Maintenance providers in the Asia-Pacific region are expanding four years after recession grounded airline ambitions.
Nicholas Ionides/SINGAPORE
As the Asia-Pacific economic downturn ravaged the region's airline industry between 1997 and 1999, heavy maintenance providers felt pain just as much as the carriers did.
Although most airlines have recovered to varying degrees, maintenance overcapacity in many parts of Asia is still a problem. Key providers are finding it hard to keep prices down as a slowdown in the US economy looms and airline fleets are getting younger. Meanwhile, a shortage of skilled labour is causing concern.
Nevertheless, the sector's major players are continuing to expand aggressively, and there seems to be no shortage of international companies queueing up to display their presence in the region, either independently or through tie-ups with local partners.
Maintenance company Hong Kong Aircraft Engineering (HAECO) recently announced a near seven-fold increase in net profit for the year to 31 December 2000. But its underlying results showed this was largely on the back of productivity gains, property disposals and the sale of shares in jointly controlled companies. Market-related problems persist.
Overcapacity
The Cathay Pacific Airways- and Swire Pacific-controlled line and heavy maintenance provider said in its results announcement that margins remained under pressure last year as a result of worldwide overcapacity, and this trend looks certain to continue. "The company's operating profitability improved during 2000, reflecting the productivity gains realised following the restructuring exercises in 1998 and 1999," HAECO said. But it added that while its airframe maintenance facilities were busy, "the worldwide oversupply of capacity continues to affect margins adversely".
Rival listed company SIA Engineering, a subsidiary of Singapore Airlines, has also seen earnings grow this year but analysts say overcapacity problems are also affecting its charges, as well as those of other key providers in the region.
"Overcapacity really is an issue," says one Hong Kong-based analyst. "Because of the cross-border nature of this industry and the fact that you can send your aircraft anywhere, the competitive pressures are not going away."
Airline growth prospects are huge in Asia, however, and as a result maintenance expansion plans continue to be tabled, while new joint ventures are regularly unveiled, many on the engine overhaul and component repair sides.
Early this year SIA Engineering broke ground for a third maintenance hangar at Singapore's Changi airport and unveiled plans for two more to be constructed by 2003.
The S$25 million ($14 million) price tag for the third hangar includes land costs. It is to be operational by July, boosting the company's airframe and overhaul capacity by around 15%.
President and chief operating officer Mervyn Sirisena, who returns to parent company SIA this month, said in announcing the plan that "the limit to our growth is our capacity".
SIA Engineering also plans to invest S$80-90 million in another two hangars, which are expected to be ready in 2002 and 2003. They will allow for a further 30% increase in capacity and each will be able to handle the Airbus A380s, which local carriers SIA and Qantas Airways have ordered.
Fellow Singapore-based provider ST Aviation Services (SASCO), a subsidiary of Singapore Technologies Aerospace, is also expanding. It has grown from one hangar bay in 1990 to four hangars, two at Changi airport and two at Paya Lebar. Singapore-based companies are limited by slowing growth at their small home base, however, and have expanded by buying into companies abroad and through joint ventures.
Growth in China
China remains the main focus for expansion by major global players despite tough competition for heavy maintenance in the country. Low labour costs keep rates below those of providers in many other parts of Asia and airline growth forecasts are astronomical for the country.
HAECO associate Taikoo (Xiamen) Aircraft Engineering (TAECO) broke ground in March for a third hangar, due to open late next year. Like the present two hangars at Xiamen-based TAECO, the third will be a two-bay facility.
TAECO shareholders include HAECO, Beijing Kai Lan Technology Development Services, Cathay Pacific, Japan Airlines, SIA Engineering and Boeing.
Aircraft Maintenance Engineering (AMECO) in Beijing remains the biggest maintenance provider in the region and is looking for more third-party work to break its reliance on main shareholder Air China. The company is a joint venture with Lufthansa Technik and the two partners are discussing what to do when their 15-year agreement ends in 2004.
The third main player in China, Guangzhou Aircraft Maintenance Engineering (GAMECO), is also looking to aggressively grow its operation. It is busier than ever, claiming not to have been affected by problems of uneconomically low charges like some other providers.
General manager Dan Lange says GAMECO is close to deciding on a second location for a heavy maintenance base in China. The company is constrained at its location at the city's Baiyun airport, and new capacity will not be available in Guangzhou until 2003 when a new airport is due to open. Lange says shareholders recently assessed options for a second heavy maintenance base to handle C-check work and the plan is moving forward. "We've been researching other possibilities for the past year and a half," he says. "Hopefully we can have another location early next year." The company was to have established its second base at Wuhan, but the plans fell through for unspecified reasons. Lange says. "We're operating at probably 50% over our physical capacity at the moment. I'm turning down work."
Lange says GAMECO is planning to build four-bay facilities at Guangzhou's new airport, giving it around 1.5 times more space than the Baiyun facility's existing two hangars. Around 75% of work is for main shareholder China Southern Airlines. Other shareholders include Lockheed Martin Aeronautics International and Hutchison Whampoa (China).
In Australia and New Zealand, meanwhile, things are still active despite financial difficulties being faced by major carriers Air New Zealand, Ansett Australia and Qantas. In January Qantas announced that it would establish a new Brisbane facility for Boeing 767 heavy maintenance. Opening in mid-2002, the A$65.8 million ($36 million) hangar and workshop will provide two heavy maintenance lines at Brisbane Airport. There is now only one in Sydney to cater for the carrier's 36-strong 767 fleet.
Qantas had been looking to move its 767 maintenance to either Auckland, Brisbane or Melbourne as it has outgrown its Mascot Jet Base facility in Sydney. The carrier's Boeing 747s are also maintained at Sydney, although some work is carried out at Avalon. Boeing 737 maintenance is carried out at Melbourne.
Air New Zealand and its subsidiary Ansett combined their maintenance, repair and overhaul operations in 1999 with the establishment of Ansett Australia & Air New Zealand Engineering Services (ANNZES). The partners are actively seeking third-party work and aim to increase this from 1.7 million hours to 2.6 million over the next five years.
PAL handover
In the Philippines, meanwhile, cash-strapped Philippine Airlines (PAL) formally handed over ownership of its maintenance and engineering division last September to Lufthansa Technik Philippines (LTP), which is now managed by Hamburg-based Lufthansa Technik.
LTP was established by Lufthansa Technik and MacroAsia. The German company owns 51% while the Philippine company, which is closely tied to PAL's chairman and majority owner Lucio Tan, owns 49%.
Under LTP's agreement with PAL, more than $200 million is to be invested over five years to buy and improve facilities and develop the operation into a maintenance, repair and overhaul centre for Southeast Asia. The deal includes a 10-year technical services agreement under which LTP will act as PAL's exclusive provider of services for aircraft, engines and components. Assets covered by the deal include a four-bay hangar in Manila, an engine overhaul building and a maintenance hangar in Cebu, as well as ground support equipment, vehicles and tools, intellectual property rights, assumed contracts, books and records.
Analysts say the increasing number of such joint ventures in the region shows just how fragmented the sector has become, despite many major airlines in Asia - such as those in Japan, South Korea, Indonesia, Thailand and Malaysia - preferring to keep engineering operations in-house as wholly owned subsidiaries.
Source: Flight International
