MRO focus: Asia
The rising economic tides that have surged across the Asia-Pacific region in recent years continue to lift the aerospace business and with it, a fast-growing Asian MRO sector. Even choppy waters in China’s stock market this past summer don’t appear to be slowing the tide appreciably in the region’s $16.5bn MRO business. David Armstrong reports.
The prime driver of growth in the Asia-Pacific region is the robust demand by Asian carriers for aircraft. Collectively, the region’s airlines flew 6,800 aircraft in 2013, constituting 26 per cent of the world’s fleets. They have ordered 3,500 new aircraft for delivery by 2023.
The Association of Asia-Pacific Airlines (AAPA), a 16-member trade group based in Kuala Lumpur, declares: “In spite of the economy, we have seen continued passenger growth year-on-year.’’ AAPA members include Japan Airlines, Thai Airways International, Philippine Airlines and Korean Air.
Evergreen Aviation Technologies Corp. (EGAT), a Taiwan-based corporate relation of EVA Air, shares the optimistic outlook. “The low incidence of aircraft deferrals vis-à-vis aircraft delivery backlogs to airlines in Asia is an index for a robust air travel market,’’says EGAT spokeswoman Marina Chu.
This is good news for MRO providers of all sizes, including mid-sized enterprise EGAT, a joint venture of GE Aviation and Taiwan’s Evergreen. EGAT describes its core business as “Boeing widebody airframe maintenance, ageing airframe structural repairs, turnkey modifications, as well as a centre of excellence on GE engine maintenance.’’ EGAT counts Delta Air Lines, All Nippon Airways and Lufthansa among its customers.
EGAT grew revenues to $650m in 2014 from $453m in 2010, increasing return on capital to 17.1 per cent in 2014 from 14.1 percent in 2010. Very few Asia-Pacific airlines perform inhouse MRO, according to Martin Eran-Tasker, AAPA technical director. “However, many have created an MRO operation as part of the airline group or are partnering with MROs such as AAPA members Cathay Pacific, Singapore Airlines, Garuda International and Malaysian Airlines. However, with the increasing number of new aircraft entering the fleet and the high reliability of components and systems, many airlines have already or are considering entering into original equipment manufacturer (OEM) total care maintenance programmes.’’
All told, Asia held 27 per cent of the $61bn global MRO market in 2013, passing Europe to become the world’s second-largest regional MRO market. North America, with 31 per cent, is No. 1, as reported previously by ATE&M, citing research by ICF SG&B (now ICF International).
Asia is expected to leap to number one by early next decade. Moreover, Asia’s MRO spend is expected to average 5.3 per cent annual growth through 2023, compared to 3.9 per cent annual global growth, and reach $27bn by 2023.
Asia-Pacific’s major MRO providers operate regionally and globally, usually in joint ventures with partners from North America and Europesuch as Lufthansa Tecknik (LHT). Established players in Asian MRO include Singapore ST (Singapore Aerospace), Aircraft Maintenance and Engineering Corp. Beijing (Ameco Beijing), Hong Kong Aircraft Engineering Company (HAECO) and Singapore Airlines’ SIA Engineering Company (SIAC). China, Hong Kong and Taiwan host humming hives of MRO activity, as does small-but-mighty Singapore, where about 25 per cent of the region’s MRO is done.
While Asian legacy airlines are being challenged on long-haul routes by blue-chip Middle Eastern rivals and on short-hauls by low-cost carriers (LCCs), generally strong national economies in the region and expanding middle classes continue to lift Asia-Pacific aviation and with it, MRO.
Kenneth Herbert, MD at investment bank Canaccord Genuity, says that “(Asian) airline stocks have outperformed other stocks.’’ Herbert, a research stock analyst in San Francisco, attributes this to strong passenger growth andthe fact that “China’s airlines are making more money.’’ Low operating costs don’t hurt, either. According to Herbert, some of Asian aviation’s current prosperity is down to low labour costs — especially outside China, where wages are steadily rising.
MRO dealbooks are bulging, stuffed with trans-Pacific tie-ups. Some big deals in the last year or so, Herbert says, have come about “for geographic reasons. They give access to certain countries’ markets, they push costs down and they allow companies to work with fewer suppliers.’’
Earlier this year, Ameco Beijing absorbed Air China Technics, part of a joint venture with Lufthansa. Launched in 1989 with Air China holding 60 per cent of the operation and Lufthansa 40 per cent, Ameco Beijing — which operates the largest MRO facility in Asia at Beijing Capital International Airport — was restructured this past spring. Now, Air China, Beijing’s flag carrier, holds 75 per cent of the JV, to Lufthansa’s reduced 25 per cent.
In an earlier deal, closed in June 2014, Hong Kong-based HAECO spent $388.8m to acquire TIMCO Aviation Services, based in Greensboro, North Carolina, and renamed it HAECO Americas. HAECO — a unit of Swire Pacific Group that works frequently on MRO and cabin interiors for Swire stablemate Cathay Pacific Airways — picked up five US MRO facilities. HAECO operates additional Asian facilities in China, Hong Kong and Singapore.
In another trans-Pacific move, AAR Aviation Services, based in the US state of Illinois, signed a memorandum of understanding this past September with Korean Air to establish a major MRO facility. The forthcoming plant is being built in South Korea, primarily to serve third-party customers, according to AAR and the airline.