MROs bet on Asian growth

 - January 28, 2010, 4:08 AM

Maintenance, repair and overhaul (MRO) service providers are here at the Singapore Airshow chasing more market share in a still-promising Asia-Pacific region.

Executives at Heico (Stand B87), Lufthansa Technik (Stand K65) and Ameco Beijing (Stand F81) told AIN that while they have been hit by the economic slump, they are still betting on expansion. They see setting up new maintenance equipment, offering new PMA (parts manufacturer approval) parts and developing local subsidiaries as ways to lure airline customers. Singapore’s SIA Engineering also sees demand rising.

Heico co-president Eric Mendelson said the region now accounts for 20 percent of the company’s sales. Ten years ago that figure was 5 percent. “Here at the show, we want to communicate to our customers that we are the leading provider of cost-saving solutions in PMA parts and repair,” he said.

The China-based company also employs 30 people in an engineering and information technology center in Bangalore, India, and operates a distribution facility in Singapore. “We also have employees on site at many airline customers, as well as our technical representatives in the region,” he added.

Heico offers 700 new products per year, Mendelson said, including 500 new PMA parts, plus DER (designated engineering representative) repairs. However, the additional offering last year could not offset the economic slump and overall sales did decline (see below). Nonetheless, sales to Asian customers still grew by a single-digit percentage.

According to Mendelson, Heico is the largest independent manufacturer of PMA parts. For the fiscal year that ended Oct. 31, 2009, net sales totaled $538 million, including PMA parts, repair and other activities, an 8-percent decrease over the previous year.

Airline and Freight Growth
Wolfgang Weynell, Lufthansa Technik’s vice president for marketing and sales for the Americas, Central and Western Europe, Asia and Australia, said he has seen airline demand in the Asian market falling but now believes there is a light at the end of tunnel. “It is picking up and freight volumes are growing,” he told AIN.
In the Asia-Pacific region, many aircraft have been parked and orders deferred, while airlines have postponed some nonessential maintenance jobs–such as those involving “soft” intervals, like thrust reversers, as opposed to those for engines, which carry “hard” time limits.

Things have been different in China, though, where “the market for MRO services has always grown,” Weynell said. However, he added that he now sees the entire Asia-Pacific region as “promising.” His opinion was echoed by a spokesperson for Ameco Beijing, the Lufthansa Technik affiliate. “For the Chinese market, despite of the economic slump, Chinese airlines first stepped out the shadows,” he said.

Lufthansa Technik claims to hold an estimated 12-percent market share in the region, which is increasing, “as we grow locally through our subsidiaries and get work–in component repair, for example–from our customers for our European facilities,” Weynell explained.

In value, demand is expected to grow by 20 to 22 percent between 2010 and 2014, for the sector the company addresses. Lufthansa Technik’s forecast is based on a fleet growing from 4,700 to 6,600 aircraft over the period. “The Asian fleet is quite modern, which fits our MRO portfolio,” Weynell pointed out.

The Asian portion of Lufthansa Technik’s revenues is estimated to be in the 20- to 25-percent bracket, and growing. The ratio is even higher in terms of workforce. The firm counts 8,500 employees in the region (including those in joint ventures), out of a total of 26,000.

Customers now want MRO service providers to come closer to their bases, Weynell said; hence the recent opening of a sales office in Melbourne, Australia, “with support staff available at short notice.” Ameco Beijing, Lufthansa Technik’s joint venture with Air China, is about to offer Airbus A380 base maintenance with a dedicated new A380 hangar and equipment.

Long-Term Contracts
Another trend in customer demand is for more long-term contracts. “Customers want to secure attractive rates for longer periods,” Weynell commented. He also mentioned increasing interest for total component support offers.

Lufthansa Technik has been continuously addressing the pressure for lower prices. For example, in three years the average turnaround time for component repair has been cut threefold, from 15 to five days. “We have established our own lean academy,” Weynell added. Moreover, the Germany-based group benefits from economies of scale due to the fact that it has no fewer than 2,000 aircraft under component service contracts.

For the time being, no further expansion is planned in Asia. “In Melbourne, we opened LTQ–our joint venture with Qantas Airways for General Electric and CFM56 engines–one year ago and we further developed Lufthansa Technik Philippines,” Weynell said. Nevertheless, more technicians are being qualified at Airfoil Services, a joint venture with MTU, located near Kuala Lumpur, Malaysia.

Similarly, an Ameco Beijing spokeswoman told AIN that the Chinese company “finished an expansion period at the end of 2009.” It has invested $180 million for facility expansion over the last three years. This takes into account a central warehouse, a heating system upgrade and an A380 hangar. A hangar for Boeing 747 overhaul and painting began operations last fall.

Ameco is planning that its revenues will grow with the Asian MRO market. In 2009, the firm’s turnover grew by 9 percent, to approximately $366 million. The year before, it recorded an 18-percent growth over 2007.

Revenues from third-party customers, both domestic and international, now occupy 40 percent of the total, a figure it wants to increase to 50 percent. Currently, Air China alone accounts for 60 percent of its income.

Ameco said it also has implemented cost-cutting action. “Lean Project and Six Sigma management in production helped us increase revenues in 2009,” the spokeswoman emphasized. The company has a workforce of nearly 5,000, with no plans for an increase.

In Singapore, SIA Engineering Co. seems to see demand picking up again. Singapore Airlines’ maintenance arm has restored the wage cuts–implemented in June 2009–and discontinued the no-pay leaves, effective January 1.

The cuts were between 10 and 20 percent, for its entire management staff. This was followed by the implementation of no-pay leaves for all employees as of July 1, 2009

Gameco Granted Mod Certificate

Late in December, China’s Gameco (Stand D35) received the certificate of Civil Aircraft designated modification design organization representative (DMDOR) from the Chinese civil aviation authority (CAAC). The Guangzhou-based company is a joint venture between China Southern Airlines, South China International Aircraft Engineering and Hong Kong’s Hutchinson Aircraft Maintenance Investment.