Special Reports: MRO
MRO business set to double in China
Challenges include labour costs and shortages
October 1st 2013
The global airline maintenance, repair and overhaul (MRO) story will be a tale of two very different plot lines in the next decade, according to consulting service TeamSAI. Read More »
With the worldwide market rising from $56.2 billion this year to $75.9 billion in 2023, northern hemisphere businesses will see their share significantly decline. Europe’s MRO income in the period is expected to rise only moderately from $16.9 billion to $21.8 billion. The Americas – North and Latin – will see a marginal increase from $19.9 billion to $20.6 billion.
In stark contrast, according to TeamSAI, Asian MROs will see their market share in cash terms soar from $13.9 billion this year to $24.3 billion in 2023.
In China alone, where its MRO business is currently worth $3.6 billion, it will more than double to $7.8 billion. This is an 8.1% compounded average annual growth rate compared with the 4.3% for the Asia-Pacific as a whole.
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| HAECO chairman, Chris Pratt: airframe maintenance services at HAECO in Hong Kong are constrained by the shortage of skilled and semi-skilled labour |
It is hardly surprising that China’s 25 MROs offering aircraft, component and engine services to commercial airlines, are in the midst of expansion, not only building new facilities, but adding to their suite of offerings.
The same is true of Greater China, in Hong Kong and Taiwan, where MROs are cashing in on good times.
Many of the big Chinese MROs are joint ventures (JV) with offshore companies keen to expand their presence in what promises to be a lucrative long-term market. In the latest expansion at Singapore’s ST Aerospace it has established a JV with Guangdong Airport Management Corporation (GAMC). ST Aerospace (Guangzhou) Aviation Services Company offers heavy aircraft maintenance.
A new hangar will be completed later this year. It has clearance to buy land to build four more widebody hangars, each able to accommodate two widebody and one narrowbody aircraft at the same time.
AMECO Beijing is a 60/40 JV between Air China and Lufthansa. In Xiamen, Taikoo (Xiamen) Aircraft Engineering Company (TAECO) is part of the Hong Kong Aircraft Engineering Company (HAECO). Its shareholders also include Boeing, Cathay Pacific Airways and Japan Airlines.
Guangzhou Aircraft Maintenance Engineering Company Limited (GAMECO) is a joint venture between China Southern Airlines, South China International Aircraft Engineering and Hong Kong’s Hutchison Aircraft Maintenance Investment.
Engine makers GE, Pratt & Whitney and Rolls-Royce, as well as other providers such as Hamilton Sundstrand, Snecma and Volvo, are also involved with Chinese MRO companies.
While the future looks bright, there also are challenges on the horizon. These include the cost of labour and the shortage of maintenance engineers.
Cheap labour, enabling lower costs, was a major reason the Asian MROs attracted business, such as heavy aircraft maintenance, from the west. According to the Boston Consulting Group, wages in China were around 22% of U.S. levels in 2005. That is expected to rise to 43% by 2015. Eventually, this will lead to Chinese MROs being less competitive.
In the short term, a shortage of engineers does not appear to be a problem. Most of the major MROs have their own training colleges and are confident they will be able to meet demand.
For example, AMECO has significantly expanded its training facilities in Beijing. “We continuously recruit graduates from middle school and qualify them in a three-year vocational training programme to become aviation mechanics with a wide and solid qualification,” said a spokesperson for the company.
AMECO also runs courses for college graduates to train as engineers and type-rated technicians. English language is part of the portfolio.
“All this is done in our Ameco Aviation College (AAC) or at a customer’s site. AAC offers basic maintenance training, basic skill and type-rating training and is one of the key examination stations for personnel seeking basic or managerial licences,” said the spokesperson.
There are five universities dedicated to aviation programmes within China: the Civil Aviation University of China, the Civil Aviation Flight University of China, the Civil Aviation Management Institute of China, the Guangzhou Civil Aviation College and the Shanghai Civil Aviation College.
TeamSAI said in 2011 there were 50,000 students enrolled in aviation programmes at the universities, 14,000 more students than in 2007, a 38% increase. “Clearly, local Chinese universities see a big market in aviation and are aggressively adding programmes to support the growth. Students appear to be following,” said Mike McBride, executive vice-president of TeamSAI Consulting.
Nevertheless, there are staffing issues in some parts of Greater China. For example, Chris Pratt, chairman of Swire Pacific and subsidiaries Cathay Pacific and HAECO, which has a 45% stake in Hong Kong Aero Engine Services Limited (HAESL), said the overall labour market in Hong Kong continues to be tight.
HAECO, in particular, continued to suffer from a shortage of skilled and semi-skilled labour, said Pratt.
“The outlook is challenging. Forward bookings for HAECO’s airframe maintenance services in Hong Kong are weak by historical standards and are, in any event, constrained by the shortage of skilled and semi-skilled labour,” said Pratt.
He said the group was battling headwinds on several fronts. “Results were adversely affected by reduced demand for engine overhaul services which resulted from the early retirement of Boeing 747-400 aircraft belonging to Cathay Pacific. However, the effect of this was mostly offset by stronger than expected demand for overhaul of Trent 700 engines,” said Pratt.
He said another division, Taikoo Engine Services (Xiamen) Company Limited (TEXL), overhauled more engines and, as a result, reduced its losses in the half-year.
“The results of the group’s other joint ventures in Mainland China improved over those of the same period last year as output volumes increased and facilities were better utilized,” added Pratt.
While the mixed results show the ebbs and flows that occur in the MRO business, there seems little doubt that in the long-term the MRO sector promises to be more than profitable.
