Industry experts had already projected a decline in growth last year with the high oil prices when several airlines across the US and China indicated that they would be retiring old aircraft. As of end-February some 910 aircraft were retired reducing the annual MRO sales by about US$171 million.
Other issues stalking the MRO industry are – a growing shortage of skilled and experienced personnel, rising labour costs, competitive pricing and more companies entering the fray. Should the shortage of labour persist it will be a serious issue in the long-term.
Lower pricing for maintenance of CFM56 engines is also anticipated as more facilities surface to capture a slice of the business for the first major MRO cycle of the -5B and -7 powerplants. Engines account for about 40-50 per cent of the total MRO revenue. Currently there are 40 facilities in Asia, Europe and the US offering overhaul services for CFM56 engines. Three more will be operational by the end of 2010.
Managing director for MAS Aerospace Engineering Mohd Roslan Ismail believes the industry has bottomed out. “It is unlikely to get any worse,†Roslan noted. Director general and CEO of the International Air Transport Association Giovanni Bisignani, on the other hand, says the worst has yet to come.
“Airlines are expected to cut more capacity with the decline in air travel. This will result in more old aircraft being retired,†said Bisignani who was in Kuala Lumpur recently.
Singapore remains largest Asia hub
Despite the gloomy outlook, Singapore is well-positioned to remain as the largest MRO centre in the Asia Pacific. The Economic Development Board of Singapore says the country’s quality manpower at all levels, strong technology orientation, world class infrastructure, excellent logistics, good brand image for quality and delivery, and overall cost competitiveness give it the edge.
MRO is the core activity that forms the foundation of the Singapore aerospace industry. Singapore which has 25 per cent market share of the region’s MRO market is slated to attract more business with the expanding fleets of low cost airlines (LCCs) in the region that would typically outsource their maintenance to cut costs.
The redevelopment of the Seletar airport is another factor in Singapore’s favour. The airport and surrounding area which is undergoing several phases of development has been named Seletar Aerospace Park (SAP).
Observers have projected Singapore’s MRO industry to grow about 3 per cent this year over last year’s US$4.76 billion. Engine overhaul is expected to be the biggest single segment again accounting for about 50 per cent of the revenue while component repair will be 30 per cent.
According to US-based consulting firm AeroStrategy, global MRO revenue will hit US$68 billion by 2017 from about US$58 billion last year. Two major MRO service providers SIA Engineering Co (SIAEC) and ST Aerospace, will continue to benefit from the growth of the industry.
ST Aero and SIAEC key players
Both companies are looking to expand capacity and product offering. The Seletar park is an opportunity for both firms to expand capacity for heavy maintenance for narrow body aircraft. ST Aerospace which opened its third narrow body hangar in SAP in April 2007 and the fourth early this year plans to expand capacity with the opening of one narrow body hangar every year to take advantage of the growth of LCC fleets.
Both companies are also expected to expand their wide-body capacity with new hangars at Changi Airport. SIAEC, which together with its associated companies contributed more than half – 50.7 per cent – of Singapore’s S$6.9 billion aerospace industry output in 2007, will open its sixth hangar in Changi in late 2009. The facility with a capacity of 6,500 sqm of capacity to the existing total 43,200 sqm, will be dedicated for A380 and B747-400 heavy maintenance.
SIAEC has signed a support package contract with Airbus to provide maintenance services for SIA’s fleet of 19 A330-300s leased from the manufacturer. SIAEC will carry out ‘A’ and ‘C airframe maintenance checks, defect rectification and cabin maintenance. The company is a member of the Airbus MRO network and has 23 joint ventures (13 of which are in Singapore) and fully owned subsidiaries in 9 countries including: Australia, Hong Kong, Indonesia, Ireland, Philippines, Singapore, Taiwan, the US and Vietnam.
The company, along with Saigon Ground Services, have recently formed a line maintenance joint venture in Ho Chi Minh City with the aim of setting up a line maintenance operation at Tan Son Nhat International Airport. The joint venture also provides a foothold for expanding the line maintenance presence to other Vietnam airports and later to possibly include maintenance checks and component overhaul services, according to SIAEC. SIAEC’s line maintenance network in Asia-Pacific covers 40 airports.
Two of its OEM joint ventures, Eagles Services Asia (ESA) and Singapore Aero Engine Services (SAESL) are Centres of Excellence for engine overhaul for Pratt & Whitney and Rolls-Royce respectively.
ST Aerospace a subsidiary of Singapore Technologies Engineering Co has been awarded the contract from Airbus for heavy maintenance of SIA’s A330-300 fleet. Heavy maintenance is expected to begin on the first aircraft in 2015. ST Aerospace is also a member of the Airbus MRO Network. Delivery of the A330-300s to SIA started and will continue on a staggered basis through to October 2010.
ST Aerospace which has grown into a global company expanded its Singapore facility recently with the opening of a new engine test facility at its wholly owned subsidiary ST Aerospace Engines (STA Engines). Th e US$20 million facility has the capability for engines up to 90,000 lbs thrust.
ST Aerospace started as a humble maintenance depot for the Royal Singapore Air Force in 1975. Since then it has grown rapidly into the world’s largest third-party MRO company. It has contributed signifi cantly to the growth of Singapore’s MRO industry. More than 85 per cent of the company’s revenue comes from outside Singapore.
Seletar attracts MRO players
Despite the high cost of labour, Singapore continues to attract MRO companies to set up shop. SAP which opened in late 2006 will continue to be expanded in several phases to meet the growing demand for expansion of the aerospace industry. This will include lengthening of the runway at Seletar.
When the expansion exercise is completed in 2015 it will cover 14 hectares. By 2018 SAP is expected to create 10,000 new jobs and contribute S$3.3 billion (US$2.2 billion) to the Singapore economy. SAP is currently home to more than 50 companies including Australia’s Hawker Pacific which opened its MRO facility in Seletar in 1973.
The park will also house a regional aviation training campus and will see Pratt & Whitney establish an MRO campus and Rolls-Royce an engine production facility – the first technical facility in Asia and the first engine assembly and test facility for large commercial aero engines outside of Europe.
Apart from Seletar and Paya Lebar, MRO companies are also located at Changi and Loyang. Companies are keen to expand operations at Seletar as there is little or no room for growth at the other three locations.