Airline E&M: Asia Pacific 2013
Day One of the conference was opened by chairman Dennis Ling, director – Asia Pacific at ICF SH&E, whose analysis of the MRO sector in the Asia-Pacific region provided a scene-setter for the rest of the conference.
Analysing the four main factors currently reshaping aircraft economics and MRO, Ling noted the ‘1990 Bulge’ in air transport deliveries which is affecting maintenance now, historically high fuel prices, historically low interest rates, and new aircraft and engine technology.
These “new economics” are tilting fleet decisions toward new aircraft for some models, with the average retirement age for certain narrowbody aircraft appearing to “trend down slightly”. Meanwhile, the arrival of aircraft with new, more efficient technology will impact retirements of current models. ICF SH&E projects more than 6,500 retirements until 2022, which will drive 41 per cent of deliveries.
Ling also provided a revealing MRO forecast. The global fleet currently consists of 27,000 aircraft with 57,700 engines, with single aisle aircraft accounting for 51 per cent of the fleet. Fleet growth will be led by the Asia-Pacific region (including China), with the global fleet expected to grow by 950 aircraft a year to about 35,600 aircraft in 2022. The 27,000 current aircraft will generate an MRO market of $59bn with engine MRO accounting for about 40 per cent of this. Asia-Pacific will encompass 28 per cent of the global MRO spend, while the global MRO market is expected to grow to $85bn by 2022, at 4.1 per cent per annum.
In Asia Pacific specifically, the active fleet is about 6,850 aircraft with over 14,600 engines and is expected to add about 3,400 aircraft to reach 10,300 aircraft in 2022. The 6,850 aircraft will generate an MRO market of $16.4bn (28 per cent of global MRO spend) with engine MRO accounting for 40 per cent. The Asia Pacific MRO market is expected to grow to $26.5bn by 2022, at 5.5 per cent per annum. Ling observed that absolute MRO growth in monetary terms is “emphatically” in Asia Pacific/China and the Middle East.
Other trends highlighted included the emergence of Malaysia as a base for MRO operations, and China growing in importance as an MRO destination, in addition to its current popularity in manufacturing investment.
The rest of the conference would focus on how to best take advantage of this growth in Asia Pacific, as well as analyse the challenges and issues which need to be addressed in the region.
This began with a pair of panel discussions. The first covered the impact of new aircraft on MRO in the region, with the debate focusing on effective business models and the impact of intellectual property.
Bert Stegerer, head of maintenance marketing at Airbus, noted that 35 per cent of the company’s backlog of new deliveries would go to Asia, calling it the “dominant” and “most dynamic” market in the world. ATR’s Laurent Negre, president - eastern support, said 50 per cent of his company’s backlog was in Asia Pacific, meaning an 80 per cent increase in ATR aircraft flying in the next ten years, with the region eventually overtaking Europe as its biggest market.
In terms of business models, Negre noted the importance of establishing partnerships with component MROs in the region, while Gijs van Rooijen, product support director components at Air France Industries KLM Engineering and Maintenance, highlighted the need to open up stores in Asia, establishing a business model of putting inventory around customers and building a maintenance network. “The aim is to develop a repair network in the region,” he said.
van Rooijen also discussed the “new playing field” with regard to intellectual property, whereby “smaller MROs will have big issues with new technology as entry barriers will be much higher than before”.
The second panel discussion looked at whether the aviation industry in Asia Pacific was ready for growth, with issues highlighted including establishing competence for new aircraft types and capabilities for composites; infrastructure; a shortage of trained personnel; and language barriers. The final two issues were explored in more detail during later sessions.
As well as a look at inventory models, the first day of the conference also featured case study presentations from Frank Bodenhage, president and CEO of MTU Maintenance Zhuhai, and Tohru Saito, general manager of JAL Engineering’s Engine Maintenance Center, on demystifying the MRO value chain. Bodenhage considered the costs and benefits of insourcing and outsourcing MRO work, and outlined the advantages to a (large enough) airline of creating a joint venture with the MRO provider.
Bodenhage said that the majority of Asian airlines either have their own MRO capabilities or have them through a joint venture – a picture which is “quite different” from the worldwide trend. But, he said, “decreasing in-house capabilities are expected, together with a shift to newer technology”.
Hong Kong Aviation Capital CEO Donal Boylan gave the keynote address on the second day of the conference, in which he analysed the role of leasing companies in the Asia Pacific market.
Noting some of the trends highlighted by Ling on the previous day, he said the “whole world is focused on fuel costs and this is driving the mentality of change”. In Asia Pacific, as with the rest of the world, he said the biggest reason to replace aircraft was about “right-sizing”. And particularly in the region, he is seeing increased upgrades in fuselage size on aircraft types – such as transitioning from A318s and A319s to A320s and A321s – affording “the opportunity to lower CASK”.