“Avalanche” coming for Asia-Pacific MROs

Boeing and Airbus didn’t use much ink signing up orders at the Singapore Air Show last month, but it was a different story on the maintenance, repair and overhaul (MRO) front. A flurry of deals underscored the growing importance of the sector in the region and the scramble by non-Asian players for a share of the business.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

March 1st 2016

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Sales of $3.15 billion at list prices may sound like a lot of money, but historically speaking, deals for new jets at February’s Singapore Air Show were thin on the ground. Read More »

The big story at the show was MRO growth, with several non-Asian companies upgrading their investments in the region to secure a share in the expanding aviation MRO industry.

The global MRO market is valued at $65 billion, with the Asia-Pacific holding almost 30% of it. In 2015, the MRO spend in the Asia-Pacific, including China and India, was estimated at $18.3 billion, said Christopher Doan, vice president of Oliver Wyman, a global management consulting firm.

Oliver Wyman acquired MRO forecasters, TeamSAI, in February last year and integrated it into CAVOK, its aviation technical consulting business and services practice. Doan forecasts MRO Asia-Pacific business will grow to $34.8 billion by 2025.

Another management consultancy, ICF International, is more cautious. It said that by 2024, the global MRO market will be worth $90.1 billion, with the Asia-Pacific’s share predicted to be $29.2 billion. The region will grow 4.9% a year and in China by 6.8% for MRO providers.

With such financial incentives ahead, it is not surprising that both independent MRO providers and original equipment manufacturers are focusing on the region in their search for growth.

In Singapore, Airbus and the Singapore Airlines Engineering Company (SIAEC) signed an agreement to form a joint venture, based in Singapore, to provide airframe maintenance, cabin upgrade and modification services for A380, A350 and A330 aircraft operating in the region. The joint venture is subject to the relevant regulatory approvals.

It is SIAEC’s first collaboration with a major aircraft manufacturer for airframe maintenance. SIAEC will hold 65% equity in the joint venture and Airbus the remaining 35%. Said Fabrice Brégier, Airbus president and chief executive: “the Asia-Pacific is a key market for Airbus wide body planes. It will continue to drive demand for larger aircraft types such as the A380, the A350 and the A330.Setting up a world class facility in this region with SIAEC reflected Airbus’ strategy to develop a full range of support services for operators of our aircraft near to their home bases.” The joint venture partners will lease two hangar bays from SIAEC for its operations, with plans to add two more in the next six years.

Europe’s AFI KLM E&M also is making a major investment in Singapore through its partnership with Indian software company, Ramco, and the support of the Singapore Economic Development Board. The research and development (R&D) centre, the MRO Lab, is focusing on strategic MRO sectors from Big Data solutions to predictive maintenance and customer experience to artificial intelligence.

“We are proud to extend our R&D capability and anchor it in the heart of Singapore, one of the world’s greatest innovation platforms,” executive vice president AFI KLM E&M, Franck Terner said.

Ramco vice chairman and managing director, P R Venketramana, added: “The MRO Lab will set a new benchmark for innovation and we are happy to have an anchor customer who shares the same passion to develop solutions that can transform operations in the aerospace industry.”

Also in February, Germany’s Lufthansa Technik (LHT) announced it would establish an Airbus A350 XWB spares pool in Hong Kong, the first step in its efforts to be a MRO leading provider for the new Airbus wide bodies in the Asia-Pacific.

It also has completed various Asia-Pacific construction and MRO service-expansion efforts to secure business from new aircraft types–including the A350 XWB and Boeing 777X–that have been ordered in large numbers by the region’s airlines.

Singapore and FAA sign MRO standards agreement The U.S. Federal Aviation Administration (FAA) and the Civil Aviation Authority of Singapore (CAAS) concluded a milestone Maintenance Implementation Procedures (MIP) agreement last month that allows for reciprocal acceptance of safety oversight requirements, as well as the mutual recognition of procedures for the approval and monitoring of aircraft maintenance organizations. The MIP was concluded under the wider ambit of the U.S.-Singapore Bilateral Safety Agreement (BASA)1 signed in 2004. The BASA is a government-to-government umbrella agreement that gives provides a framework for the FAA and CAAS to develop implementation procedures for reciprocal acceptance in areas including, but not limited to, approval and monitoring of maintenance facilities and maintenance personnel, flight operations and flight crew members, as well as aviation training establishments. The MIP will significantly reduce regulatory burdens and compliance costs for the aviation industry and will eliminate duplication of inspections and audits on aircraft maintenance organizations in Singapore and the U.S. “This landmark agreement with the Civil Aviation Authority of Singapore will strengthen aviation safety while reducing the cost of inspections for aircraft repair work,” said FAA Administrator, Michael Huerta. “The United States looks forward to our continued collaboration with ASEAN Member States.” Director-General of CAAS, Kevin Shum, said: “This latest agreement between CAAS and the FAA reflects the strength of our bilateral relationship that dates back more than two decades. We share a common goal in finding solutions to tackle complex challenges in the aviation landscape, in areas such as aviation safety and security, air traffic management, environmental issues related to aviation, and human capital development.”

“The priority for our customers is parts availability and reliability,” said Gerald Steinhoff, the global MRO’s senior vice president corporate sales Asia-Pacific. “It is important where our A350 material will be placed and how fast it can be delivered to the airlines with MRO capabilities in the area. We have decided, as an initial step, to open a pool location in Hong Kong.” He hinted other developments, including an A350 XWB MRO partnership, could follow. “There is a certain interest among potential partners in the region for a joint approach,” he said.

Insiders speculated that Cathay Pacific Airways, with 22 A350-900s and 26 A350-1000s on order, could be a potential partner. LHT is preparing for a large Asia-Pacific requirement for A350 XWB and B777X MRO by expanding two of its four existing facilities at Lufthansa Technik Philippines (LTP) and Lufthansa Technik Shenzhen (LTS).

LHT sees engine and component MRO as the “strongest drivers of growth” in the Asia-Pacific and it has established the strongest products, measured on volume,” said Steinhoff. The company manages component MRO for more than 300 aircraft in the region and operates spares pools in Hong Kong and Singapore for several aircraft types.

Steinhoff said his company’s overall business is growing especially fast in Southeast Asia, although “geographically, we have customers in every Asia-Pacific country”. An example is the contract LHT signed with Lion Air to build a facility for machine maintenance at the Indonesian airline’s Batam complex.

Also in Indonesia, Garuda MRO subsidiary GMF AeroAsia has set up a partnership with aircraft services provider, SR Technics, to develop its aircraft component business and improve services.

GMF will be supported by SR Technics in providing B737NG aircraft components to its customers. GMF president director, Richard Budihadianto, said the company signed contracts worth $100 million at February’s Singapore Air Show, including the extension of a contract with Malaysian airline, Eagle Express, for its A330 and B747 aircraft and MRO contracts with KLM and Indonesia’s Sriwijaya Air.

At the Singapore Air Show, SR Technics and Ho Chi Minh City-based Vietjet signed a six-year integrated component support agreement for the budget carrier’s A320 and A321 fleet. The new agreement follows the signing of SR Technics as Vietjet’s long-term partner for CFM56-5B engine services in 2015.

U.S. headquartered engine-maker, Pratt & Whitney, is moving deeper into the region with the announcement it will incorporate V2500 engine overhaul capability into its joint venture facility in Shanghai. The Pratt & Whitney Shanghai Engine Centre opened in conjunction with China Eastern Airlines in 2009 to overhaul CFM56 engines. Maintenance of the V2500 engines at the facility will commence in 2017.

“The Shanghai Engine Centre is a proven, high-quality engine maintenance provider in this very competitive Asia-Pacific market,” said Matthew Bromberg, president of Pratt & Whitney Aftermarket. “Growing capabilities at this facility exemplifies our commitment to providing operators with comprehensive services at a competitive cost.”

Three of China’s HNA Group subsidiaries have signed a V-Services Fleet Hour Agreement (FHA) with Pratt & Whitney for maintenance of their combined fleet of 46 V2500 engines. The agreement covers West Air, Beijing Capital and Tianjin Airlines. “When it comes to our fleet, we do not compromise on our aircraft’s performance and overall reliability,” said Xin Di, chief executive of HNA Aviation Group. “I am confident that under this V-Services agreement we have the right resources in place to maintain our engines to the highest regard.”

OEMs continue to extend their MRO market share with the region’s airlines, particularly with aftermarket power-by-the-hour services. Many airlines regard these agreements as more efficient in handling their engines, maintenance and deals for components.

Singapore Airlines (SIA) has signed a 10-year Flight Hour Services Tailored Support Package (FHS-TSP) contract with Airbus to integrate and provide full component support, line and base airframe maintenance and fleet technical management services for the carrier’s 19 A380s.

It also extended its OnPoint solution agreement with GE for the MRO of the GE90-115B engines that power 19 of its B777-300ER aircraft. “GE Aviation is honored to have the opportunity to continue maintaining Singapore Airlines’ GE90 engine fleet,” said Kevin McAllister, president and chief executive officer of GE Engine Services.

One of GE’s largest customers in Asia, China Airlines, has confirmed a 15-year OnPoint materials solution agreement with the U.S. provider for new parts, component repairs and used, serviced materials for the overhaul of its fleet of CF6-80E engines that power the Taiwanese carrier’s A330 fleet. GE’s aviation engine arm has announced it will invest US$78.6 million in Singapore aerospace ventures in the next decade.

GE also negotiated an OnPoint Solutions agreement with Colorful Guizhou Airlines for the carrier’s CF34 engines. The 10-year deal, worth $56 million, covers all MRO work for its CF34-10E engine fleet that powers its seven Embraer 190 aircraft.

Unveiled in January, Rolls-Royce’s SelectCare is an additional services option to the company’s comprehensive TotalCare package and the more basic MRO services offer. Senior vice president of customer strategy civil engines at the manufacturer, Richard Goodhead, said Rolls-Royce has effectively provided a package that allowed customers to have a set number of overhauls at a fixed price while offering them access to some service options available with TotalCare.

Following the success of its first off site customer service centre (CSC) in Singapore, the Derby, UK-based engine maker, which has forecast a 300 per cent increase in MRO business in the next 15 years, will open in three more CSC: in Derby (Europe, the Middle East and Africa), Washington D.C. for The Americas and Beijing for Greater China.

AFI KLM E&M builds business with its Asian clients Global MRO provider, AFI KLM E&M, announced major deals with two Asia-Pacific airlines and Indonesia’s giant aircraft maintenance operator, GMF AeroAsia, in February. The Southeast Asian MRO and the European headquartered company signed a comprehensive Memorandum of Understanding (MoU) that extends their relationship for engine overhaul and repairs and C checks on B744 aircraft. The MRO includes component support synergies for Boeing and Airbus fleets and the maintenance of GE90, CFM56-7 and other CRM56 engines. AFI KLM E&M said it also is considering subcontracting maintenance services for B747 series airplanes to GMF. “The extension of this agreement with a major MRO in the Asia-Pacific demonstrates the competitiveness of our component and engine offering,” said executive vice president AFI KLM E&M, Franck Terner. “A wide range of topics are currently under discussion. This is a natural continuation of the successful partnership agreement signed in 2014,” AFI KLM E&M said. In South Korea, fast expanding budget carrier, Jeju Air, has agreed with AFI KLM E&M to extend its maintenance contract for the CFM56-7B engines that power its B737-800 fleet for more visits. The long term contract will eventually cover a planned Jeju Air fleet of 40 aircraft. In the same month, new client, Wuhan based Chinese cargo airline, Uni-Top Airlines, confirmed a support agreement with the European MRO for the CF6-80C2 engines aboard its seven A300 aircraft. The deal includes spare engines and 14 shop visits. AFI KLM E&M has “a personalized approach to the client and their expertise and their wide range of resources are an assurance of fast and efficient services for us,” Uni-Top executive vice president, Yu Huang said.