Thai Airways International Pcl said it plans to modernize its fleet by replacing almost 30 older aircraft over the next five years, adding to the climbing demand for planes in Asia.
The state-run airline is seeking new generation aircraft offering greater comfort and fuel efficiency, and is talking with both Airbus SE and Boeing Co., Chairman Areepong Bhoocha-Oom said in an interview with Bloomberg Television’s Haslinda Amin.
"The portfolio of our airline will have new aircraft almost 100 percent," Areepong said. It’s the right step for Thai Airways partly because fuel costs could be volatile in future even though they are low currently, he said.
Thai Airways’ purchases would add to the hundreds of aircraft worth billions of dollars ordered by Asian airlines, such as AirAsia Bhd. and IndiGo in India, amid a surge in the number of people traveling by air in the region. Boeing forecasts a $6.05 trillion jetliner market in the next two decades globally.
The Bangkok-based carrier is trying to turn around performance after posting losses in three of the past four years. The company’s shares fell 6.1 percent Monday, the most in almost two months, and are down 75 percent from a high in 1999. The stock has eight sell recommendations, nine holds and one buy rating, according to data compiled by Bloomberg.
Concerns that the aircraft purchases could weigh on Thai Airways’ financial health appear to have hurt the stock Monday, according to Siam Tiyanont, an analyst at Phillip Securities (Thailand) Co. in Bangkok.
"The airline’s financial status has recently improved after years of challenges," Siam said. "The plan for new aircraft purchases may be too early and could result in a jump in debt.”
Thai Airways presently has a 100-strong fleet and will seek Cabinet approval for the plane replacement plan by the end of July, Areepong said in the interview Thursday on the sidelines of a conference in Bangkok. Airbus’s A380 superjumbos will remain a significant part of the company’s fleet, while older Boeing 747s will be replaced in the years ahead, he added.
An overhaul of marketing and reservation contributed to record passenger cabin factor of about 85 percent in the first quarter and the full-year target is 80 percent, Areepong said.
The airline’s goal is to exceed last year’s net income, Areepong said. Thai Airways swung to a profit of 15.1 million baht ($445,000) in 2016. It lost money in each of the three prior years.
The airline needs new airplanes to modernize its fleet and boost competitiveness, said Raenoo Bhandasukdi, an analyst at KT Zmico Securities Co. in Bangkok. Thai Airways is expected to bolster profits this year, which would be a good outcome given that some other full-service carriers have struggled against competition from low-cost rivals, Raenoo said.The carrier signed an agreement with Airbus in March to explore joint development of a maintenance, repair and overhaul facility at U-Tapao International Airport near the tourist destination of Pattaya. The project could involve about $1 billion investment and the plans may be finalized in 2018, Areepong said at the conference in Bangkok on Thursday.
US aerospace giant Boeing is keen on investing in making aircraft parts and setting up a training centre in the Eastern Economic Corridor (EEC) area.
According to Ralph Boyce, president of Boeing Southeast Asia, who met Deputy Prime Minister Somkid Jatusripitak yesterday, the company is preparing an EEC investment plan, with a final decision to be reached soon.
Mr Boyce served as the US ambassador to Thailand from 2005-07.
The EEC is a project that has been heavily promoted by the government as a new special economic zone to attract foreign investment.
The corridor spanning more than 30,000 rai in the three eastern provinces of Rayong, Chon Buri and Chachoengsao is projected to help generate new investment of up to 1.5 trillion baht within five years from both the government and the private sector.
The area is meant to be Thailand's new growth engine through 10 targeted industries: next-generation cars; smart electronics; affluent, medical and wellness tourism; agriculture and biotechnology; food; robotics for industry; logistics and aviation; biofuels and biochemicals; digital; and medical services.
"It's now an appropriate time for Boeing to invest in the EEC," Mr Boyce said. "If we don't make a decision now, this opportunity will fly."
According to Mr Boyce, the EEC is offering a good opportunity for investment, with the aviation industry looking promising over the next 20 years as new airlines emerge.
"High demand for captains, aircraft, a maintenance centre and parts are thus anticipated over this period," he said. "Currently, Boeing supplies parts for many airlines, including Thai Airways International (THAI), and has its regional headquarters in Singapore, where operations range from commercial aircraft and defence procurement, services support and training, to advanced research collaboration with the public and private sectors."
Mr Somkid said investment by Boeing would be significant for Thailand, as this would signal warmer ties with the US. Prime Minister Prayut Chan-o-cha is scheduled to visit Washington in July.
The US ranks as Thailand's fourth-biggest investing nation after Japan, Singapore and Indonesia, with a total investment of US$921 million (31.3 billion baht) in 2016, according to Board of Investment data.
The US is Thailand's third-largest trading partner after China and Japan. Two-way trade between Thailand and the US amounted to US$36.5 billion in 2016.
Kanit Sangsubhan, secretary-general of the EEC Office, said flag carrier THAI is expected to be able to sign a joint venture deal with Airbus to establish an aircraft maintenance, repair and overhaul (MRO) centre in the EEC in the first quarter of next year.
The government in March this year approved an aviation reform plan that aims to enhance Thailand's status as the region's aviation hub.
AFI KLM E&M and Sabena technics have announced the signing of a partnership agreement to set up a joint venture to support Airbus A320 and ATR component repairs in Singapore’s new Seletar aviation cluster. South East Asia is seeing the world’s fastest growth in aircraft maintenance and AFI KLM E&M and Sabena technics already support large numbers of Airbus A320 family and ATR operators throughout the region.
A competitive response to growing demand
Setting up the joint venture will help both partners meet growing demand for MRO services throughout the region. This local entity will help curb costs and shorten TAT for client airlines, at the same time as it will allow them to benefit from the operational excellence of two market-leading MRO providers, ultimately delivering a competitive solution to the requirements of Asian airlines.
Anne Brachet, Executive Vice President AIR FRANCE KLM Engineering & Maintenance, said: “The creation of this joint venture with Sabena technics marks a new stage in AFI KLM E&M’s development of a global MRO network that combines a strong industrial home base in Europe and a growing local presence for our clients. It will operate on a complementary basis and in harmony with the existing and future Group’s service centers throughout the region and with our entire component support industrial footprint, comprising Barfield in the United States, Max MRO Services in India, AFI KLM E&M Components China in Shanghai, or AMES in Dubai. South East Asia is a fast-growing market for the MRO sector, and our aim is to satisfy our customers there with solutions that are ever closer, more efficient, and more responsive, at the same time as we meet the growing needs of all airlines operating in the region.”
A 50/50 Joint Venture
The 50/50 joint venture will begin operations in Sabena technics’ Singapore component repair shop, which is already operational at Seletar. The shop will support its mother companies on their PBH contracts and it will also offer Time & Material component repair services on A320 and ATR fleets to third party regional customers.
Rodolphe Marchais, Sabena technics’ Chairman and CEO, said: “Our Singapore shop is experiencing very rapid growth and is gradually broadening the spectrum of its repair capabilities to meet operator needs across the region. The alliance with AFI KLM E&M is a new step in the development of our presence in the heart of South East Asia and its extremely dynamic aviation sector. Adding state-of-the art technologies on the latest generation of aircraft will strengthen our position as a leading MRO in the region, with the highest levels of performance and quality.”
Despite being the largest MRO operator, it lags behind in revenue terms.
ST Engineering's ST Aerospace ranks as top in maintenance, repair and overhaul (MRO) in man-hours terms but it faces heating up competition from European MRO operators.
According to UOB KayHian, whilst being the largest operator, ST Aerospace lags behind European MRO operators, Lufthansa Technic and AFI KLM in revenue terms, due to higher engine and line component revenue.
"While there has been a spate of M&A out of North America ( MRO Holdings and Aeroman and Flightstar Aircraft services) and Europe (ST Aerospace and EFW, Airbus’s MRO and conversion arm), the Asia Pacific region has yet to see meaningful consolidation," UOB KayHian noted.
The brokerage firm said that in fact, hangar capacity has been
rising, particularly out of Indonesia and Philippines, both relatively low-cost
centres. The region could see more
alliances with European MRO operators as evidenced by Lufthansa Technic’s MOU for airframe and engine component JV with Garuda Indonesia’s GMF AeroAsia.
"The latter is also building a 25,000sf hangar facility at Batam. This will pose a direct threat to Singapore’s leading MRO providers," UOB KayHian said.More so, Singapore's MRO providers also faces threat from Thailand's announced plans to boost its MRO capability by inviting companies to set up operations and with Thai Technical, the MRO arm of Thai Airways mulling a JV with a top-tier MRO operator.
Pelesys, a leading aviation training solutions provider is pleased to announce that Thai Airways International (THAI) has selected Pelesys to provide a library of Special Operations courseware for their flight operations training, including Pelesys’ newest releases, Upset Recovery Training and Dangerous Goods.
Each course selected by THAI will be modified to meet THAI operational procedures and regulatory requirements for use in initial and recurrent training programs.
“For an airline business, pilot training is exceptional importance. THAI believes that Pelesys special operations courseware can provide both initial training and recurrent training for our pilots.
New training programs may be offered for THAI’s new aircraft types that will soon be delivered. Furthermore, Pelesys courseware can be regularly updated and adapted for new aircraft types and comply with the standards of ICAO, FAA, EASA and other regulatory agencies.
THAI selects high technology courseware training to maintain high quality operational standards to best serve our passengers.” says Captain Werasak Wiroonpetch, THAI Executive Vice President, Flight Operations.Pelesys’ library of over 30 Special Operations titles is updated and maintained annually to ensure regulatory compliance with EASA, FAA, Transport Canada, ICAO and other regulatory agencies.
Thailand is seeking to take on Singapore’s dominance in aircraft maintenance, repair and overhaul with a $5.7 billion upgrade of a Vietnam War-era airport.
Lockheed Martin Corp.’s Sikorsky Aircraft is the latest company to study a possible increase in MRO spend in Thailand in the wake of the planned revamp of U-Tapao International Airport, said Ajarin Pattanapanchai, deputy secretary general of the nation’s Board of Investment. In March, Airbus SE signed an agreement with Thai Airways International Pcl to evaluate the development of MRO facilities at the civil-military airport near Bangkok.
"Singapore is quite tight right now," Ajarin said in an interview at Bloomberg’s Toronto office on May 25, during a visit to Canada to woo investment. "To catch up with the demand of airlines in the region -- especially new demand from Myanmar, Vietnam, Cambodia -- and given that we have existing strengths with automotives and engineering, Thailand will be the second choice to be the MRO hub."
The airport project is part of junta leader Prime Minister Prayuth Chan-Ocha’s goal of boosting the economy, whose expansion has lagged behind neighbors since the military seized power three years ago. It’s also a key component of a plan to invest 1.5 trillion baht ($44 billion) between 2017-2021 to develop the country’s eastern seaboard.
Apart from the airport in the Eastern Economic Corridor, the plan calls for $4.5 billion investment in high-speed rail, $11.5 billion for new cities and $14 billion for industry. The government will control and maintain the airport and a port. Other projects will be public-private-partnerships or privately held.
"I am confident we can make it," Ajarin said, referring to raising the funds. The government has already allocated its budget for 2017, she said, declining to provide a figure for the administration’s outlay on the corridor or an estimate of the MRO business Thailand is targeting.
Foreign-direct investment has revived after sliding following the coup, especially in digital and high-technology sectors, Ajarin said.
She gave as an example Toronto-based Canadian Solar Inc., which applied for a license in 2015 and opened its Thai factory two years later. Among electric vehicles, a "big player -- but not Tesla -- is waiting to come in," Ajarin said.
FDI increased to $8.6 billion in 2016 from $2.7 billion in 2015, according to data provided by the Board of Investment.
While the board offers incentives to foreign companies such as tax sops, it remains unclear how quickly the Thai government can implement its ambitious vision for the eastern seaboard given the scale of the project.
Challenges include a shortage of skilled workers, as well as concern that Thailand is prone to harmful episodes of political volatility.Ajarin acknowledged that the risk of political turmoil is a worry for new investors, but argued that companies have weathered past such bouts.
Proposed changes to Thailand’s aviation legal framework will prove more extensive than first thought, senior government officials have told AIN.
Initial proposals called for giving the Civil Aviation Authority of Thailand (CAAT) the power to draw up ICAO-compliant secondary legislation. Now plans call for the repeal all existing legislation and replacing it with one act to bring in all-encompassing ICAO rules for all the different subsectors of the aviation industry in Thailand.
“We rewrote the whole legislation,” Chula Sukmanop, director general of the Civil Aviation Authority of Thailand, told AIN on Thursday.
The legislation will cover safety, security regulations, economic and environmental aspects, said Sukmanop. Economic elements would cover issues such as licensing and the pricing of services, he added.
The new legislation will totally comply with contemporary international norms. “This law is going to give us the tool to fully implement the 19 ICAO Annexes,” Sukmanop told AIN.
Officials consider sweeping away Thailand’s former laws, which suffered the burdens of strict national security criteria, as a way to set the foundation for Thailand as an aviation business hub.
The founding act was written 60 years ago, when “everything was deemed national security,” explained vice minister Kobsak Pootrakool.
One mild concern, though, centers on the amount of time it will take to get the proposed measures on to the statute book.The legislation currently rests with the State Council, which will send it back to the Cabinet. If the Cabinet agrees to the Council’s changes the proposal will go to the National Assembly. “It will take some time…at least until the end of the year,” said Pootrakool. “This is my conjecture.”
Aergo Capital has taken delivery of one new 737-900ER (MSN 43188) aircraft from Boeing and leased the aircraft on a long-term lease to Thai Lion Air, part of the Lion Air Group. PK AirFinance, together with the Korean Development Bank, provided funding for the transaction on delivery.
“We are delighted to close our sixth aircraft transaction with the Lion Air Group and we are excited about working with Thai Lion as it expands its international operations,” said Fred Browne, CEO of Aergo Capital.
“We appreciate the great support of Aergo who is currently a lessor to 3 airlines within the Lion Air Group, across various aircraft types in a short timeframe. We look forward to deepening and strengthening this relationship further,” commented Edward Sirait, CEO of Lion Air Group.
Captain Darsito, Managing Director of Thai Lion Air, noted, “The B737-900ER is perfect for the Thai market and great for our business development. Currently we are flying to 12 cities in Thailand and 13 international routes. We hope to keep expanding our network with the support of great partners like Aergo Capital.”
Smith, Gambrell & Russell (English counsel), A & L Goodbody (Irish counsel), Mochtar Karuwin & Komar (Indonesian counsel), Clifford Chance (Thai counsel) and KPMG (tax consultant) acted for Aergo Capital while Thai Lion Air availed of the in-house legal team at Transportation Partners. Clifford Chance acted as lead counsel for Lenders.The acquisition was facilitated by Transportation Partners and the aircraft will be operated by Thai Lion Air on domestic and international routes. This acquisition brings Aergo’s fleet to 29 aircraft.
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