Industry Insight Special Report
Lion Air MRO undercuts rivals
Preparing for growth. That is the task ahead for Southeast Asia’s MROs as the region’s airlines rapidly increase their demands for local maintenance services. To win business, Lion Air MRO intends to undercut the market when its island facility is tripled in size.
October 1st 2017
When it comes to pitching for business, PT Batam Aero Technic (BAT), the MRO subsidiary of Indonesia’s Lion Air Group, believes it is on a winner. Read More » It claims it offers the same internationally recognized quality services to airlines at rates at least 30% cheaper than in Thailand and 50%-60% lower than Singapore.
The reason? According to the company it benefits from lower wages in Indonesia, a lower-cost operating environment and a sufficient supply of qualified personnel, enabling it to appeal to non-Indonesian airlines.
However, there is a catch. At present, capacity at BAT’s facility on Batam, in Indonesia’s Riau Islands, which is about 20 kilometres from Singapore and can accommodate 12 single-aisle and four wide-body jets, has its hands full in meeting the MRO requirements of the Lion group’s combined fleet of more than 260 aircraft. And the queue won’t get any smaller with the planned delivery of 226 more aircraft to Lion Air and its subsidiaries in the next five years.
But there will be space for other airlines, said BAT production manager Riki Supriadi Suparman. A new hangar will increase the MRO from 40,000 square metres to 120,000 square metres, which will be large enough to accommodate 30 single aisle jets under the one roof at the same time.
“We do not have any capacity to spare to third-party airlines now, but we will have some when the second hangar is put in place,” he said. BAT believed that when the second hangar is opened in 2019, 20% of its capacity will be available for non-Lion customers.
The race to expand MRO capacity in Southeast Asia is hardly surprising. Last month Boeing forecast, in its latest Southeast Asia Current Market Outlook (CMO). there would be demand for 4,210 new planes worth $650 billion in Southeast Asia in the next 20 years. It predicted the region would continue its strong annual traffic growth of 6.2%, which outpaced the world average of 1.5%.
Jakarta’s PT Garuda Maintenance Facility AeroAsia (GMF), a unit of Garuda Indonesia, has announced plans for a US$300 million share issue to fund an MRO centre, also on Batam. GMF, has 170 airline customers and is offering investors equity of between 20%-30% of the share sale.
President director, Iwan Joeniarto, said the sale proceeds will set up Batam facility and allow it to identify partners for its its expansion in Dubai, Australia and East Asia. “Our aim is to grow this company at the pace of 20% to 21% over the next five years. At present, 65% of our revenue comes from Garuda and the rest from other airlines. In five years that ratio will be reversed,” said Joeniarto.
BAT offers MRO for B737-300, -400, -500, -600, -700, -800 and -900ERs as well as ATR 72-500, 72-600 turboprops and DHC-8 aircraft.
It plans to add A320neo, A320ceo, A330 and B737 MAX to its MRO capabilities. When the new hangar is completed the BAT workforce will increase from 1,000 to 3,200. The company has also been quick to rebut any suggestions that winning customers might be difficult because of Indonesia’s past poor safety reputation.
It said that in July, the three-year-old Batam facility passed a safety and security audit by the U.S. Federal Aviation Administration (FAA). It has also been certified by the civil aviation authorities of Indonesia, Malaysia and Thailand and is capable of providing heavy maintenance work, including C and D checks.
