In view of its success in nurturing a thriving automobile industry–the ninth largest in the world–and as Asia edges toward becoming the world’s largest growth market for aviation, Thailand’s Board of Investment (BOI) is considering building an aerospace industry starting with Tier 2 and Tier 3 suppliers servicing global OEM supply chains.
The ASEAN Economic Community (AEC) regional economic integration plan envisions establishment of a single market and production base by 2015. Thailand already has an $800 million aircraft parts market thanks in part to the lower cost base in that country. The U.S. Commercial Service has forecast a 5-percent annual growth rate for the sector. The country is also looking to expand its maintenance, repair and overhaul business both domestically and to take advantage of opportunities from emerging neighboring countries Myanmar and Laos. This follows a spurt of growth in the region in both air travel and aircraft fleet. BOI, for instance, approved the importation of 119 new aircraft for Thai Airways, Bangkok Airways, Thai AirAsia, Nok Air and Thai Lion Air in 2013 alone, and nine helicopters for the oil-and-gas sector.
As the country looks to elections this year backed by a stable government, with a prime minister at the helm, there is confidence that large pending projects will be cleared.
“We realize infrastructure is a must,” said Aarjin Pattanapanchai, deputy secretary general, BOI, before commenting on nearby Singapore’s position. “Singapore does not have a support industry and that is where we see our strength. For instance, we are the largest polymer producers [for composites in the region],” she said.
Plans are being formulated for development of an aerospace industrial park, she added. Existing parts industries and availability of stainless steel and aluminium, fabrication, polymer and supply of titanium will prove strong support to aerospace, she said. “We want to promote transfer of technology and we plan to soon launch our new policy which focuses on aerospace, which will get maximum incentives because it is technology-based,” said Pattanapanchai. She acknowledged that the political turmoil in Thailand over the past year had caused a backlog of progress on roughly 200 foreign investment projects worth over $12 billion. She expressed hope that the projects would start being cleared soon.
Thailand has made a start as it serves not only major aerospace companies in aircraft parts production and components manufacturing, but also provides maintenance, ground-based infrastructure and supply-chain activities. Recently, the Thailand Board of Investment approved a $3.7 billion in investment projects which include an aviation training school of New York-based FlightSafety International.
“Countries investing in Thailand and the Asean Economic Community [AEC] will realize the significance of Thailand’s strategic location in the region,” said Praserd Bunchaisuk, Minister of Industry, last year. Land acquisition, a major problem in many countries, is a nonissue in Thailand as the state retains the freehold. However, it does require a license from BOI.
Rolls-Royce, which announced its decision to expand its production base for engine parts in Thailand, signed a 10-year manufacturing agreement with Leistritz, a global supplier of components for forging of compressor blades for V2500, Trent 700, Trent 900 and Trent 1000 engines. Rolls also cooperates with Kasetsart University for training and development of skilled workers. Already, the school’s Aerospace Engineering Department has produced more than 450 students.
Incentives Boost Business
Thailand’s incentives have been found to be attractive by many investors, leading to a boost in business overall. They include exemption of import duties on machinery, an eight-year corporate income tax exemption, 100-percent land ownership as long as the company continues to exist and repatriation of earnings. The incentives have encouraged companies, like Michelin, to set up in Thailand, as they look to access the ASEAN market. Frank Moreau, president of Michelin Aircraft Tires, told AIN that Thailand, which represents one of three industrial facilities in the world for the company, will see more investment in the future.
Other aviation companies with significant investments in aerospace include General Electric, Senior Aerospace, Triumph Group, Chromalloy, Ducommun, Aeroworks, Eurocopter, Driessen and Minebea.
As part of its “openness,” there is no offsets policy in the country. “We do not force any company to tie up with a local partner,” said Pattanapanchai.
Looking to improve infrastructure to encourage export among others, a three-phased plan is planned to extend highways, runways and the Laem Chabang seaport, which is close to industrial parks for manufacturing companies. For instance, 60 kilometers east of Bangkok, Thailand’s largest industrial land developer–Amata Corp.–houses Amata Industrial Park, Chonburi, close to Bangkok’s Suvarnabhumi International Airport, and the seaport. It also is home to production bases for tire makers Bridgestone and Triumph Aviation Services Asia.
Chackchai Panichapat, executive director, Amata, told AIN the company is hoping to see business move in aerospace: “We see potential in Asian countries just looking at the number of flights at airports.” He added that if investors are interested, Amata could allot a 100-acre zone for a cluster of aerospace industries. While he admits Singapore is “far ahead of us in the aerospace industry,” he said, “we also have a good opportunity here. We hope to see aerospace grow as did the automotive industry here, but much faster.” In addition, he pointed out that “with the law strict against bribery, U.S. and Western countries will find it easy to do business here.”
Leveraging on its solid record of accomplishment in Thailand, Amata has established its first overseas-integrated industrial estate on 700 hectares in Bien Hoa City, Vietnam, the construction of which is to start in 2015. It is also looking at a similar park in Myanmar.
As aircraft manufacturers struggle to cut costs to make their global supply chains competitive, Senior Aerospace’s Thailand facility at Amata, which carries out machining of turbine blades for engine-maker Rolls-Royce, has won contracts from Germany’s MTU Aero Engines. Senior Aerospace has been growing; it recently acquired UK-based Weston, a manufacturer of high-precision components and subassemblies for the commercial aerospace market, which specializes in machining and assembly of aerofoils, aluminum and hard metal structural parts and premium aircraft-seat structures. Weston has content on each of the Airbus A320 family, A330, A350 and A380 platforms, both on engines and on aircraft structures.
Another company leading the march is Triumph Structures. “Location wise we chose this because it is close to port and seaport, and logistics are in place,” said Alex Beysen, the company’s president. Triumph manufactures piece parts that get integrated into composites. “We feed the assembly lines…we do subassemblies, like paneling, here…we are building machine parts, and later the hinge assemblies will be fitted into composites for the A330. It is simple now but will become complex in future. “However, Beysen is clear that “large assembly and major structures are not going to happen [here].”
Technical skills remain an issue in the country, however. “Skilled labor [and getting] engineers is a problem in the highly specialized fields of problem solving and systems,” said Beysen. “We need people who can understand specifications…We are investing in people trained at Thailand University.” With its sprawling facility built for future, Beysen is looking ahead 10 years–and is not overly concerned with the military coup. He told AIN, “It’s business as usual and a safe environment despite the coup.”
With the facility producing composites as well as machining parts for Boeing and Airbus, Triumph is looking at more autoclaves to optimize production to enable a cost advantage. The established auto industry is a definite advantage, as “getting people to shift from auto to aerospace in machining is easy, [but] composites is more difficult,” he said. While conscious about neighboring countries also looking at getting into parts manufacture, he is clear: “Singapore is way too expensive. We have no plans to open a subsidiary there.”
The nascent industry is not devoid of issues. “Thailand is not a cheap country. We cannot hire foreigners…staff turnover is high. Customs procedures need to be improved and there is a need to address skill levels,” said one supplier.
The Civil Aviation Training Center (CATC), setup to train personnel for aircraft maintenance, aircraft services and other aviation-related services, takes trainees from neighboring countries alongside students from Thailand. Of the 100 pilots that receive training every year, 60 are sponsored by Thai Airways. “As demand increases, we have plans to train the trainer,” said a CATC official.
Michelin, meanwhile, is working with schools that are starting to integrate learning with technical skills. “Michelin hires students in the last year of study that they spend with us. We have been successful in helping modify the curriculum,” said the official.
Moving forward, as the AEC draws closer, market access will be key, not just for Asean, but India and China–a reason, perhaps, why Thailand is in a hurry to catch the flight to growth.