Southeast Asian aerospace takes off on back of budget carriers
Southeast Asia is building a reputation as a producer of aircraft components, parlaying jet demand from the region's low-cost carriers.
The region as a whole made the rough equivalent of $14 billion in aircraft parts and related services in 2018, fast approaching Japan's $16.7 billion or so. It is expected to become an even bigger player as global supply chains shift toward the region.
At a UMW Aerospace plant in Selangor, Malaysia, massive machinery can be seen polishing steel cylinders to a mirrorlike finish. Welders attach 44 metal blades with laserlike precision further down the production line.
These parts affect the safety of jet engines, so they must meet strict standards dictated in thousandths of millimeters.
The finished product is shipped to a Rolls-Royce factory in Singapore, along with components from Japan, the U.S. and Europe, for use in Boeing 787 engines. Rolls-Royce previously made all its parts in-house but signed on UMW as a contractor in 2015.
"We are doing better," said Rahul Kashyap, who heads the Selangor plant. "This is because of the new machines. And when we train, we train through the best method. So today, we are doing very well. The quality is as good."
Malaysia has rolled out the red carpet for overseas aerospace companies, allowing full ownership of local units and offering tax breaks. Companies including Honeywell International have set up manufacturing bases there, leading to the rise of local players like UMW. A variety of aircraft parts are now made in Malaysia, including wings and brakes.
But Singapore was the region's pioneer in the field. More than 60 foreign and domestic companies, including Rolls-Royce and Pratt & Whitney, carry out research, manufacturing and maintenance operations at a dedicated industrial park there. The government-affiliated park employs 6,000 and comes with its own 1,800-meter landing strip.
Revenue in Singapore's air and space industry, including maintenance and repair operations, totaled 11.1 billion Singapore dollars ($8.18 billion) in 2018. Malaysia's came to 14.4 billion ringgit ($3.49 billion), which the government wants to roughly quadruple to 55.2 billion ringgit in 2030.
Southeast Asia's aerospace sector earns roughly half its income from maintenance and repairs. But parts manufacturing is also a growing field.
An aircraft original equipment manufacturer would shift labor-intensive parts fabrication to Southeast Asia, "as the people there are known for good work discipline and low work hour costs," said Bjorn Fehrm of U.S.-based consultancy Leeham.
The trend is propelled in part by the rise of budget carriers. The Asia-Pacific commercial airplane market will top 17,000 deliveries through 2038, according to Boeing projections published in June -- far more than the roughly 9,000 each for Europe and North America. About 70% of Asian demand is seen coming from single-aisle models for medium-haul flights.
Naguib Mohd Nor, president of the Malaysia Aerospace Industry Association, said being close to the market is important. "There is an overarching philosophy," he said, "that being near the market where the aircraft is sold creates better chances that the aircraft will get sold."
Many airlines are government-affiliated, making them more likely to buy jets with domestically produced components.
And with aircraft increasingly repaired in Southeast Asia, there is greater incentive to make spare parts closer to those operations. Singapore Technologies Engineering delivered nearly 43,000 jet components and overhauled 167 engines in 2018.
Other countries in the region are making moves. Thailand granted preferential tax treatment to 26 parts makers and brought in Airbus to run a joint maintenance and repair facility with Thai Airways International. The Philippines aims to increase aerospace exports by more than four times from 2015 to $2.5 billion in 2022.
But the industry remains in its infancy in Southeast Asia. An airplane has about 3 million parts -- roughly 100 times as many as an automobile. To become a player in the more valuable components, the region needs to up its technological game.
AoT chief enjoys life on cloud nine
Airports of Thailand president Nitinai Sirismatthakarn plans to use digital innovation to improve AoT's service and make more money.
Two decades ago, airports were perceived purely as transportation infrastructure.
Not anymore, now they're business opportunities as much as anything else, as Airports of Thailand (AoT) president Nitinai Sirismatthakarn knows only too well.
AoT, the listed state agency which oversees major national airports, is experiencing a boom in earnings driven by huge government investment in transport infrastructure.
Last year, its profits were 25 billion baht, double those of 2014. In fact, AoT has been praised as one of the best-performing stocks in Asia.
A bullish aviation industry, the proliferation of low-cost airlines and thriving tourism industry are the driving factors, but Mr Nitinai has also been credited with being a key factor behind AoT's impressive growth.
Mr Nitinai told the Bangkok Post in an exclusive interview that the recent boom is only the beginning.
"The aviation and travel industries show no sign of abating. They will only keep increasing [in profitability] over the next five years," he said.
Last year, 140 million travellers passed through AoT's five airports, compared to 87 million in 2014.
"But profits are not the only marker of success for AoT. We need to pay heed to the quality of our services too," he said.
Mr Nitinai does not have a background in aviation or the service sector. He trained as an economist and has previously worked for both the ministry of finance and the United Nations Development Programme.
In his view, services are not just fixed rigid steps of actions to serve and impress people. "Service is a transformable act. It can be developed and adjusted to suit changing environments in order to cope with demand and make customers happier," he said.
For him, service at AoT airports does not stop at just good hospitality. "Airport services," he said, "must make use of digital innovation, to serve travellers and customers better."
For instance, AoT will launch its own smartphone application this August.
The mobile app, he said, will help travellers avoid confusion at airports, better manage their flight schedules and give them more time enjoy shopping and dining while waiting to board their flights.
"Passengers can check information like their flights and check-in counters in real time and let a 'smart map' lead them precisely to various zones in a terminal," he said.
Travellers can even consult the application on local traffic conditions to help them avoid delays on their way to the airport, Mr Nitinai added.
The app is just one of the elements of the "Anachak Digital AoT" (Digital Kingdom of AoT) project.
In the future, he said, the AoT will also have its own digital currency for use within its airports, and the application will record what they buy and give them AoT points to spend -- similar credit cards' loyalty programmes.
While travellers will enjoy convenience and privileges, AoT will be able to harvest data and consumption behaviours to create big data to sell to tourism-related businesses, like Agoda and Wongnai.
"In the future, our revenues will not only come from the real world. We'll be making money virtually too," Mr Nitinai envisaged.
But this does not mean the AoT will stop developing its physical facilities.
It is pushing ahead with its "Airport City" at the Suvarnabhumi airport, a 10-billion-baht mega-project of commercial areas covering more than 1,600 rai.
"The project is so attractive that up to 40 investors have already contacted AoT asking to invest," Mr Nitinai said.
Mr Nitinai was promoted as AoT president five years ago by the military government and is full of praise for the political stability since then.
"In terms of work style, I see myself as a sedan passenger car that can work well only on a level road. But when you travel on rough terrain, you need a tough SUV car which I think other executives are better at," said Mr Nitinai who admits he lacks the skills of a strong lobbyist.
But no matter what the future holds, Mr Nitinai, whose contract will expire in 2022, said he will focus on making AoT stronger and sustainable.
"If AoT fails in future, I will have to take a share of the responsibility. So, I'm I'm determined to make sure that doesn't happen," he said.
Thai Airways backs Nok Air’s purchase of new aircraft
Thai Airways (THAI) recently announced that it is lending strong support to Nok Air’s purchase of new aircraft, president of the national airline Sumeth Damrongchaitham said.
He added that a meeting among top executives of THAI and its allies, comprising Thai Smile and Nok Air, was held to seek greater collaboration and assistance in many areas, such as marketing and route arrangements. “We will collaborate with Nok Air, which is facing management problems, and will help it rebuild confidence, including negotiations with trading partners. Our collaboration will also offer THAI’s credibility when it comes to Nok Air purchasing new aircraft,” Sumeth said, adding that the assistance was not financial in nature. As for progress in THAI’s plans to acquire 30 aircraft worth a total of Bt150 billion, Sumeth said the airline has already submitted the proposal to the Transport Ministry. “We need to wait for the new Cabinet to approve the plan. Though the delay in the purchase of new aircraft will have a negative impact on THAI’s revenue, we are adjusting some business plans to ease the impact, such as renting new aircraft,” Sumeth said. “At the group meeting, we also discussed the obstacles faced by THAI, especially unfair practices related to the ‘open skies’ policy. Thailand has opened its skies to foreign airlines, but we have found that many countries do not open their skies to Thai airlines. This is an unfair practice and will have a negative impact on our tourism industry,” he said. Sumeth added that THAI, along with other local airlines, will soon hold a forum to seek solutions to such “open skies” problems and will come up with proposals for the Transport Ministry and other related agencies so the problem can be solved as soon as possible.
Several airlines eyeing Betong airport
Betong airport, now expected open to commercial air traffic in June 2020.
Nok Air, Bangkok Airways and Malaysia's Firefly airline are interested in flying to Yala's Betong airport after its planned opening next year, according to the Department of Airports.
Director-general Ampawan Wannako said on Thursday that Nok Air wanted to operate direct flights between Betong and Don Mueang airports. Bangkok Airways also planned to extend its domestic service to Betong, and Firefly planned international flights to Betong.
The department would also invite other airlines from Malaysia and Singapore to use Betong airport, she said.
The 2-billion-baht airport was now 85% completed. It was designed to handle aircraft such as the ATR twin turbo-prop with 60-80 seats, Mrs Ampawan said. The airport would operate from 6am to 6pm, without air navigation aids. It was expected to open in June next year.
Tourist attractions in Betong district would benefit from the new airport, and Malaysian travellers were likely to use it because they could save travel time journeying to Penang airport, Mrs Ampawan said.
Huge potential seen in MAINTENANCE work
WHILE THAILAND’S aeronautical industry will see a rapid expansion in the next 20 years as the country is set to become the Asean region’s hub for aircraft maintenance repair and overhaul (MRO), strong political will and a “mechanism” are needed to make the fuller ambition come true.
Airbus and national flag carrier Thai Airways (THAI) signed a joint venture for MRO facilities at U-tapao Airport in Rayong province, in June 2018. Creating an MRO hub at U-tapao Airport, located in one of the three provinces in the Eastern Economic Corridor (EEC) special economic zone, has been one of the EEC’s flagship projects since its launch under the Thailand 4.0 policy in 2016. Foreign investors see the potential for growth in Thailand’s aeronautical industry in the next two decades. This year, some 7,000 aircraft will fly across the Asia Pacific region, and the number is expected to reach 20,000 over the next 20 years, according to Airbus. “Hence, there is a need to increase maintenance capacity in the Asian-Pacific region,” said Pierre Jaffre, president of Airbus Asia Pacific. The government’s Thailand 4.0 policy and the development of the EEC, he said, present a promising opportunity for Airbus to meet this demand, and has led it to establish an MRO centre in cooperation with THAI in Rayong. “Of all the EEC projects, the MRO hub at U-tapao Airport has the highest possibility for success,” said Phacharaphot Nuntramas, senior vice president for global business development and strategy group at Krungthai Macro Research. This, he explained in an interview with The Nation, is because the aeronautical industry in Thailand has strong fundamentals with more opportunities to grow in the economic environment of the Asean region. Particularly, he said, there has been a growth of smaller airlines such as AirAsia and Vietjet in the region, and the aircraft from these smaller carriers will require maintenance. “The other key MRO centre in the region is located in Singapore, which faces the challenge of limited land space,” he continued. The growth of smaller airlines means that smaller-sized aircraft will be used more often, leading to a growth in the demand for maintenance space” “This market trend presents an opportunity for the MRO centre at U-tapao to rise and become Southeast Asia’s new regional MRO hub,” Phacharaphot stated. Looking at the big picture, the MRO centre is a key plank in the development plans of the aeronautical industry, said Thailand’s former ambassador to France, Sihasak, Phuangketkeow, who helped THAI and Airbus conclude the MRO deal last year, adding that Thailand needs to ensure the sector’s future growth. Thailand has great potential in the sector, as the Kingdom is already a regional aviation hub and boasts a strong automobile and electronics manufacturing base on which to build an aircraft and spacecraft sector, he said. The country has already developed legal instruments to encourage foreign investment, not only for the MRO sector but also for original equipment manufacturers (OEMs), said Sihasak who is now an advisor to the EEC project. “We are improving our ecosystem to accommodate S-curve technology industries,” he said. The TIROS II with Airbus could also be spun off to encourage a future space industry in the country, as the technology transfer could help Thais to develop the sector, he said. The biggest challenge to the long-term development of the MRO centre, like other projects in the EEC, is the imminent lack of skilled labour, Phacharaphot said. Sihasak agreed and added that the country also needed to compete with neighbouring Asean countries, notably Singapore, Malaysia and Vietnam which have had a stronger focus on the aviation and aeronautical industry. “Our strength is that our workforces have a strong commitment to their work and our airbases with huge space, like U-tapao, are available,” he said. “We are also aiming higher to build an ‘aerotropolis’ in the region.” Research has shown that in the next 10 years, the targeted ‘S-Curve’ technological industries in the EEC will require an additional one million workers, with almost 500,000 jobs in demand in the next five years, according to the EEC office. The research also revealed that the aeronautical industry will demand an additional 30,000 skilled workers in the next half-decade. To meet this demand, Phacharaphot suggested, the supply-side will need to quickly develop the appropriate curricula to build a capable labour force to support the growth of the aeronautical industry in the next two decades. An alternative solution is to recruit foreign talent to, for example, operate the MRO centre in U-tapao. The government has been issuing “Smart Visas” since February 2018 to allow highly trained foreign talents working in the targeted ‘S-Curve’ technological industries to work in the Kingdom for up to four years without having to renew their visas yearly. However, adoption of the Smart Visa has been disappointing, with only approximately 100 foreign talents so far having been issued the special visa in the past year, according to the Digital Economy Promotion Agency (DEPA). More importantly, Sihasak said, both the government and private sector should have a clear joint vision and a strong will to get aboard the S-Curve technology industry. The country should have a national mechanism to move this sector forward, he said. “We cannot just wait for foreign investment and technology transfer to develop the aeronautical industry,” he said.
AoT seeks govt's nod for B202bn plan to build new airports
The planned construction of Terminal 2 at Suvarnabhumi airport still needs the nod from the new government. (Bangkok Post photo)
Airports of Thailand Plc (AoT) will ask the new government to approve its 202-billion-baht development plan, including investing in new airports in Phuket and Chiang Mai.
The plan is meant to boost the passenger handling capacity of airports in the country, said AoT president Nitinai Sirismatthakarn.
Under the plan, a new Phuket airport would be built at a cost of 75 billion baht, and would handle 10 million passengers a year.
Another airport would be built in Chiang Mai for a reported cost of 15 billion baht. The new airport would handle at least 10 million passengers a year.
Once approved by the new government, it could take about one year to expropriate land for the two airports, Mr Nitinai said, adding that construction could take four years.
"The two airports could be launched in 2025 and both are likely to become international airports," the AoT president indicated.
Other projects under the plan include the third-phase development of Don Mueang airport costing 32 billion baht. The development is meant to spur the airport's passenger-handling capacity to 18 million passengers a year.
Work is under way to conduct an environment impact assessment (EIA), said Mr Nitinai.
Suvarnabhumi airport's 42-billion-baht second terminal is also included in the plan. For the second terminal, AoT plans to ask for official approval from the Transport Ministry and the National Economic and Social Development Board (NESDB). Most pre-construction tasks such as the EIA and design have been completed and the company is only waiting for the official nod from the ministry and the NESDB.
Suvarnabhumi's second terminal is expected to be completed between 2022 and 2023, he said.
The transfer of four airports in Udon Thani, Sakon Nakhon, Tak and Chumphon from the Department of Airports to AoT is also part of the plan. Improvements will be made at the four airports costing 3.5 billion baht, he said, adding that Udon Thani airport will be upgraded to be an international airport.
Negotiations about the transfers have been completed and the Transport Ministry is considering the matter before forwarding it to the cabinet for approval, Mr Nitinai noted.
Duty-free giant King Power recently secured three AoT contracts, covering the operations of duty-free shops and commercial areas of Suvarnabhumi airport as well as duty-free shops at three airports -- Phuket, Hat Yai and Chiang Mai.
Mitsubishi to buy Bombardier regional-jet unit for US$550m
Mitsubishi Heavy Industries agreed to buy Bombardier's regional-jet program for US$550 million, extending a push into commercial aircraft and setting up a rivalry with Embraer.
The Japanese manufacturer will acquire the maintenance, support, marketing and sales operations for the aging CRJ program through the cash deal, according to a statement by the companies Tuesday. Mitsubishi is also assuming liabilities of about US$200 million and taking over Bombardier's interest in a regional-jet securitisation program, which is valued at about US$180 million.
While Bombardier will wind down production of the CRJ line of short-haul jets over the next year and a half, the acquisition gives Mitsubishi an expanded global presence spanning engineering, development and support functions. That will bolster the company's ability to market its new SpaceJet regional aircraft, the first airliner built in Japan since the 1960s.
For Bombardier, the transaction essentially ends a three-decade presence in the commercial aircraft market as it narrows focus on making business jets and passenger trains. The Canadian company last year handed control of its C Series jetliner program to Airbus, which renamed the plane the A220.
The deal, expected to close in the first half of next year, "represents the completion of Bombardier's aerospace transformation," chief executive officer Alain Bellemare said in the statement.
Mitsubishi, which sees global demand for more than 5,000 regional jets over the next two decades, will face off with Embraer in the market for small aircraft. The Brazilian planemaker is in the process of combining its commercial-jet business into a joint venture with Boeing.
Mitsubishi has spent at least US$2 billion developing the SpaceJet, which has been plagued by delays and production snags. The company is moving closer to the debut of the aircraft line, formerly known as the MRJ.
Bombardier will keep control of a CRJ production facility in Mirabel, Quebec, and supply spare parts for the plane, which is expected to end production in the second half of 2020, the companies said. Bombardier will also retain liabilities representing part of credit and residual-value guarantees totaling approximately US$400 million.
Suvarnabhumi lines up B11bn 'airport city' project
Airports of Thailand Plc (AoT) aims to
develop an "airport city" project at Suvarnabhumi airport at a cost
of 11 billion baht.
It will be developed under a public-private
partnership scheme, said Pattanapong Suwannachat, chief financial officer (CFO)
of the AoT, adding the project will cover 900 rai of the airport's Zone A and
723 rai of Zone B.
According to him, Chinese giant Alibaba Group
has expressed interest in building a warehouse since the company realises the
growing trend of e-commerce business in Thailand and Asean.
Regarding import duty on products sold
online, it would be waived if the items are priced lower than 1,500 baht, and
this is a business opportunity for small-scale transport, he said.
"The airport city project could be
launched within four or five years," said Mr Pattanapong.
According to the company's CFO, the AoT will
also soon sign a memorandum of understanding with an airport in Belgium to set
up a facility to check and certify farm products in line with European
"We'll be among the first in Asean to provide this service," said Mr Pattanapong.
He said initially the hub would help certify
roses, which are grown in Thailand and mostly exported to China.
AoT reported 33 billion baht in revenue
between October and March, up 5% from the same period a year earlier. It also
registered a profit of 14 billion baht in the period, up 3.98% from a year
The rise is earnings stemmed from growth in
tourist arrivals, Mr Pattanapong said.
Over the past seven months, the number of
passengers handled by AoT airports has risen by 2.2%, he added.
Thailand passes ICAO inspections
The International Civil Aviation Organisation
(ICAO) said Thailand achieved an effective implementation of standards score of
65.07%, which exceeds the minimum pass threshold of 60% set by United Nations'
The score was awarded after a full team of
ICAO officials carried out a Coordinated Validation Mission on Thailand's civil
aviation standards between May 13-22, Civil Aviation Authority of Thailand
(CAAT) chief Chula Sukmanop said on Monday.
Thailand was red-flagged by the ICAO in June
2015 for failing to adequately deal with "significant safety concerns
[SSCs]" within the specified time frame.
After all 33 SSCs were addressed, the UN
watchdog lifted the red flag in October 2017, although a lot still needed to be
done to meet international standards across all seven categories -- which
comprise rules and regulations, regulatory mechanism, officer authorisation,
airside operations, fleet airworthiness, flight services, and airport
"The country only scored 34.2% when it
received the red flag four years ago. Now it has risen to meet the
international standards across the board," he said.
Mr Chula said that he believes the US Federal
Aviation Administration will also upgrade Thailand's aviation status.
"However, the CAAT still needs more
inspectors to test pilots -- especially for ATR aircraft -- before inviting the FAA to reassess our
score," he said.
Meanwhile, the contracts relating to the
construction of Suvarnabhumi airport's third runway are likely to be signed
early next year at the latest, according to Airports of Thailand (AoT).
"The new 21.7-billion-baht runway --
which is included in the airport's second-phase development plan -- has been
approved by the cabinet, AoT president Nitinai Sirismatthakarn said.
The AoT is in the process of drafting the
terms of reference (ToR) for the runway construction's bidding process, he
said, adding the ToR are likely to be forwarded to the company's board for
consideration by June or July.
"It could take up to six months to get
the bidding process started and select the winner," Mr Nitinai said.
"The winner is expected to sign the contracts either by late this year, or
early next year."
The AoT is currently working on the project's
environmental and health impact assessment, the results of which will be sent
to the National Environmental Board for approval, he said.
The process can be done in parallel with the
bidding, he said, adding he is confident the report will be approved.
Airbus to send venture proposals
European aircraft manufacturer Airbus has been urged to submit
related proposals for the formation of a joint venture with Thai Airways
International Plc (THAI) by June 7 to develop the maintenance, repair and
overhaul (MRO) facility at Rayong's U-Tapao airport.
Airbus and THAI signed an agreement to jointly invest in the
project in June last year. The two organisations are currently discussing
details under the joint venture deal. The 11.2-billion-baht scheme is one of
the five megaprojects under the government's Eastern Economic Corridor (EEC)
THAI president Sumeth Damrongchaitham said the EEC policy
committee has made it clear that Airbus must submit proposals to THAI for the
establishment of the joint venture within a month or by June 7.
He said THAI and Airbus still have various concerns to thrash out.
Airbus is about to float certain details for discussion later after the
agreement is signed, Mr Sumeth said, adding the concerns range from legal
elements to management issues.
Referring to THAI's plan to acquire new planes, which are worth
156 billion baht, Mr Sumeth said the airline is in the process of submitting it
to the Transport Ministry for consideration.
He said a study is also being carried out for the lease of two to
four aircraft. Expedited efforts will be made to wrap up the study, which will
be sent to the airline's board for consideration, he noted.
"The leased planes must be used for at least six years so as
to break even," said Mr Sumeth. He said the management would ask the
airline's board to approve a new Bangkok-Sendai, Japan flight and the proposal
is likely to be given the green light.
The management wants the board to approve the new flight plan as
quickly as possible in order to seek a budget and map out a timetable for the
flight, which would be launched on Oct 27.