Singapore is striving to expand its aerospace business, in particular its market-leading position in the maintenance, repair and overhaul (MRO) sector, but also manufacturing, despite intensifying competition from its lower-cost South East Asian neighbours.
MRO accounts for 90% of Singapore’s aerospace industry and generates over S$4 billion ($2.45 billion) in annual revenues. Singapore estimates it has at least a one-quarter share of the region’s MRO market, led by two fast-growing publicly-traded companies, Singapore Airlines (SIA) Engineering and Singapore Technologies Aerospace (ST Aero).
SIA Engineering, which generates about S$900 million in annual revenues, operates eight widebody lines from five hangars at Changi, Singapore, two of which were opened in 2005. The company says it is now considering building a sixth hangar at Changi which can accommodate Airbus A380s to support its plan to be the first maintenance company to offer A380 servicing. “We see the A380 in line with our strategy of introducing new capability,” it says.
A380 launch customer SIA plans to put into service its first of at least 10 A380s at the end of this year, but SIA Engineering says it will not need to open a new hangar until the first D-check comes up early next decade. SIA Engineering will be able to carry out lighter maintenance checks on the A380 using its existing hangars, even though the entire aircraft will not be able to fit inside, because docking equipment is only required for D-checks.
ST Aero president Tay Kok Khiang says any widebody hangar ST Aero builds in the future will also be able to accommodate A380s. He points out SIA is the only A380 operator to have so far selected a maintenance provider and ST Aero is interested in expanding its business with existing customers, such as FedEx and United Parcel Service, to include the A380.
“If we build a new facility we’ll build it to size that [the A380] because our commitment to our customer is to support them,” Tay says. “SIA has said it plans to build its own capability, but the others are not committed.”
ST Aero, which generated S$1.23 billion in revenues last year, now operates three commercial aircraft widebody overhaul lines at Paya Lebar airport and will open its fourth widebody overhaul line at Changi this week. It also operates five narrowbody lines at Seletar, a smaller airport in northeast Singapore that is to be expanded over the next few years to meet surging MRO demand from low-cost carriers (LCCs) in the region.
To keep up with the surging demand from both narrowbody and widebody operators, ST Aero opens a new hangar virtually every year. In 2004 it opened an additional hangar at Paya Lebar and last year it opened a new hangar at Seletar. A new hangar at Changi will be inaugurated this week in conjunction with Asian Aerospace 2006.
“We expect to see more growth in coming years because we are pretty well utilised. Even our hangars we just built are pretty well utilised,” Tay says. “The point is we are full and our customer base requires us to support them with more capacity.”
Tay says its widebody business is growing following the introduction of 777 overhaul capabilities last year for customers All Nippon Airways and Japan Airlines. Growth of its narrowbody business is being driven by fast-growing LCCs from Indonesia, Malaysia and Singapore. ST Aero now overhauls narrowbodies at Paya Lebar and Seletar, but Tay says it would more “convenient” to focus all its narrowbody work at Seletar if given the space to expand there.
ST Aero is poised to be the prime beneficiary of government plans to expand Seletar, which is expected to include construction of more hangars and an extension of the runway. A320s now can only take off from Seletar if they are empty and their fuel tanks are less than half full.
Singapore has long looked at redeveloping Seletar and designating it as a new hub for LCCs, MRO providers or business aviation. The LCC proposal was rejected in 2004 when Singapore decided to instead build an LCC terminal at Changi, which will open next month, and it now seems the MRO centre proposal has been approved. Surveying crews have been at Seletar the last few months and details of the expansion are expected to be announced this week at Asian Aerospace.
Economic Development Board (EDB) director of logistics and transport Manohar Khiatani confirms the EDB plans to announce new projects at Asian Aerospace but declines to provide details. “The aerospace industry is a key industry in Singapore and one that we have identified for active promotion,” he says. “We will therefore ensure there is sufficient land for future expansion.”
Tay says Singapore needs more MRO space because there is little room for growth at Changi, Paya Lebar and Loyang, a centre for component overhaul companies and aviation-related centres near Changi. Most of ST Aero’s businesses, including engine and component overhaul, are located at Paya Lebar, which is generally not accessible to foreign companies because it also is a military base. Several original equipment manufacturers (OEMs) including Eurocopter, General Electric, Goodrich, Pratt & Whitney, Rolls-Royce as well as third-party component service providers such as Nordam have shops in or near Loyang, but space is tight.
“There needs to be a new area,” Tay says. “Seletar is a good candidate as there are existing operations there, including ourselves.”
Seletar is also the home to a few business and regional aircraft maintenance providers that have been trying unsuccessfully to expand for years. But it is unclear if they will benefit from the Seletar expansion, which they fear will only include larger players such as ST Aero.
Jet Aviation Singapore, which is located next to ST Aero, has asked several times for permission to build a new hangar. But the government has rejected the request every time, most recently late last year.
“The question for quite a long time was to leave Seletar or not,” says general manager Thomas Ruedisuehli, adding the government has not yet provided any information on a possible redevelopment of the airport. He says Jet Aviation needs more space because its current leased hangar, which can handle up to eight business jets at one time, has been at capacity the last two years, plus Jet Aviation requires more space for its office and VIP lounge. It is an authorised service centre for Boeing Business Jet, Bombardier, Cessna and Gulfstream.
Hawker Pacific, which maintains Dassault Falcon and Raytheon business jets on the other side of the Seletar runway from Jet Aviation, also has had repeated expansion requests rejected. Senior vice-president Rene Frandsen says Hawker Pacific needs more space to keep up with demand and a higher quality facility than the World War II era hangar it now rents. He says Hawker Pacific will consider moving its regional headquarters to Malaysia if that is the only way it can realise its growth plan, which includes expanding into regional and potentially narrowbody aircraft as well as adding more types of business jets to its maintenance portfolio. “We have a space constraint and would like to do more,” Frandsen says. “But we would like to stay in Singapore.”
He adds Hawker Pacific is now renovating its hangar “as an interim solution” until it “gets a clear indication what will happen to Seletar”. But the renovation is limited because Hawker Pacific only has a two-year lease on the hangar and like other Seletar tenants it has no assurances it can stay at the airport over the long-term. “We’re investing a lot considering we don’t have several years to depreciate the cost,” Frandsen says.
Located next to Hawker Pacific, Fokker Services Asia also has been interested in opening a new MRO facility at Seletar for several years but all the hangars it has been offered are too small to accommodate the aircraft it services. The company has had to make do with leasing a hangar from the government that is so outdated it lacks a toilet. Fokker Services now maintains ATR and Fokker aircraft in Singapore and is unable to add a Boeing 737 capability, which it has in Europe, because its hangar is too small.
“We’ve been complaining since day one about this hangar,” says a Fokker Services Asia source, adding the company not been given any details yet on the anticipated redevelopment of Seletar. “I think it’s more for ST Aero than us,” he says.
The EDB, however, is confident there will continue to be plenty of room for established MRO providers to grow and for new companies to set up in Singapore. The republic’s aerospace industry has averaged an annual growth 12.5% since 1990 and in 2004 grew 12.5% to S$4.4 billion with 14,000 employees. EDB expects to again chalk up double digit growth for 2005 when figures are released at the end of this month.
The growth has been driven in part by new entrants as well as double-digit growth at SIA Engineering and ST Aero. SIA Engineering says it is focusing now on growing its third-party business, which now only accounts for about one quarter of its revenues, and its new cargo conversion product. It plans to open a cargo conversion line for the Boeing 747-400 in the second half of this year. ST Aero, which converts Boeing MD-11s at Paya Lebar, is also looking at converting 747-400s, 757s and 767s in Singapore.
“We see strong growth prospects for the MRO industry in Singapore,” Khiatani says. “We are seeing continued strong interest by companies both for expansion and new projects ... We are also seeing growing interest from companies to move up the value chain in terms of repair process development, engineering and R&D [research and development].”
Boeing, EADS and R-R have unveiled plans to open R&D facilities in Singapore.
As part of its drive to make Singapore a hub for aviation technology, the EDB is also encouraging the testing of aviation technology at Changi through an initiative with the Civil Aviation Authority of Singapore.
The EDB at the same time is trying to encourage further development of aerospace manufacturing, which now only accounts for 10% of Singapore’s aerospace industry. “We certainly expect this smaller sector to grow,” says Khiatani. “For example, companies such as Hamilton Sundstrand and Barnes have expanded their manufacturing operations here recently. Recognising the growing trend towards outsourcing, we are also building up our suppliers in terms of capabilities so that they can better support OEMs.”
“The EDB is trying very hard,” says Singapore Aerospace Manufacturing (SAM) chief executive Jeffrey Goh. “They are still pushing for manufacturing growth here in Singapore” although the MRO sector has been expanding more rapidly.
SAM, a former subsidiary of ST Aero, which is now part of privately owned ST Venture, has been manufacturing aerospace components for 25 years. Its two Singapore factories build engine cases for engine OEMs, including GE, P&W and R-R. It also owns a factory in Suzhou, China that focuses on structural parts and a facility in Germany which designs, develops and builds rotary mechanical actuators for OEMs including Airbus and Boeing. Goh says it is looking to grow this type of direct OEM business by expanding through acquisitions, while its Asian-based businesses will grow organically. Last year SAM generated US$108 million in revenues and Goh projects this will reach $125 million in 2006.
“I think the aerospace business is picking up very fast. We were aiming for $100 million before 9-11 [11 September 2001] but we took a hit after 9-11 and it took a few years to get back to $100 million. I think the aerospace business will be very good the next two to three years,” Goh says.
SAM also subcontracts several aerospace components to smaller suppliers throughout Asia, including Malaysia and Thailand. It is responsible for supplying engine OEMs with subassemblies of the entire engine mounts, including outlet guide vanes, and uses its Chinese facility and suppliers in other low-cost countries to do the labour-intensive work.
Goh claims SAM has the only 100%-foreign owned aerospace business in China, which has grown to 300 employees since opening 10 years ago, and says it is steadily increasing its use of companies in other Asian countries. Last year SAM hired six Vietnamese engineers as part of a joint training programme with Boeing and will use at least one of these engineers to qualify new suppliers in the region, possibly including Vietnam. While SAM believes it must outsource some work to be competitive, EDB believes Singapore can expand its aerospace manufacturing business despite competition from lower-cost countries that have much larger aerospace manufacturing industries.
“Labour costs are just one part of the equation and often not the most important part,” Khiatani says. “There are other equally important factors such as productivity, efficiency, logistics, infrastructure, intellectual property protection that companies strongly value. This is particularly so for the aerospace industry. Hence, our aim really to be competitive and offer the best solution on a total cost basis.”
Defence also continues to be a big part of Singapore’s aerospace industry although almost all the growth in recent years has come from the civilian sector. Military MRO and upgrade work still accounts for between 30% and 40% of ST Aero’s revenues, or about S$400 million annually. ST Aero maintains and upgrades nearly every aircraft in the Singapore air force inventory and is now preparing for a support role for Singapore’s new fleet of F-15SG fighters. It also maintains aircraft and components for the US Air Force, US Navy and several other foreign militaries.
While most air forces in the region are trying to keep airframe overhaul work in-country for political reasons, Tay says engine and component work is often outsourced to ST Aero because most other Asian companies are not capable of carrying out these types of high-value repairs. ST Aero also has developed partnerships with smaller military MRO shops in the region to help them build up their capability, while taking back to Singapore the more complex work.
Other military MRO shops in the region also lack the capability for upgrades. ST Aero, however, has extensive experience upgrading aircraft for Singapore and other countries although Tay says this market has slowed down in recent years because of tight budgets in the region.
ST Aero is also expanding its military business by developing unmanned aerial vehicle and training solutions. Last year it won a contract to lease Singapore five Eurocopter EC120s, including maintenance, from November 2006 and is now bidding for a larger fixed-wing training programme with a proposal to lease Singapore about 20 Raytheon T-6Bs. It also has developed UAV prototypes and last month delivered its first production UAV, the hand-launched Skyblade II that will be used by the Singaporean army for over-the-hill reconnaissance missions. So far ST Aero has sold only four UAVs, but Tay expects a spate of domestic and international orders from both civilian and military operators although for the next few years they will be relatively small volume.
“Obviously we won’t see a big profit until there is a big volume [of sales],” he says. “Usage will come and intensity will come. Whether that takes three to five years no one knows. But interest in unmanned systems has really grown.”
Source: Flight International
