With the world’s two largest airframers forecasting that Asia Pacific (Apac) will lead maintenance, repair, and overhaul (MRO) demand over the next 20 years as the region grows its share of the global in-service fleet to about 40 percent in 2038, it is no surprise that Lufthansa Technik (Chalet K65) is eyeing to increase its presence here. “The Asia Pacific market is growing tremendously with a very positive outlook,” Gerald Steinhoff, Lufthansa Technik’s v-p of corporate sales for Asia Pacific, told AIN. “We put great efforts in expanding our portfolio of services, especially for the new aircraft types like the Airbus A350 or the Boeing 777X.”
Airbus (Chalet CD23-35) estimates the cumulative value of the services business for commercial aviation in Apac at $1.8 trillion over the next two decades, accounting for a 40 percent share of the global market. Boeing (Chalet AC04, S23, U09, U23), which adopts a larger scope of the services segment and also incorporates the business and general aviation markets in its long-term outlook, projects Apac’s commercial aviation services demand will see 5.1 percent annual growth over the next 20 years. The U.S. OEM forecasts the cumulative value of this demand in Apac to reach $3.5 trillion, dominated by tasks and services associated with maintaining, restoring and upgrading the airworthiness of aircraft
To fulfill the growing demands for technical aircraft services in Asia, Lufthansa Technik implemented a regionalization policy to be closer to its customers and tailor its product offerings. The regional set-up resulted in a vast and growing portfolio of contracts and partnerships with industry players across Asia, such as Airfoil Services Sdn Bhd (ASSB) in Malaysia and Lufthansa Technik Philippines (LTP). ASSB, a joint venture with MTU Aero Engines (Chalet J65), specializes in the engine repair of airfoils for high-pressure compressors and low-pressure turbines, while LTP provides base and line maintenance to various commercial aircraft including Airbus A320, A330, A350, and A380, as well as Boeing 777 in cooperation with Philippines' aviation support service provider MacroAsia Corporation. As part of its investment drive in the region, Lufthansa Technik currently is building a 10th hangar bay at its Manila MRO site. The new, 9,000-sq-m hangar will increase LTP’s capacity by 20 percent and add 400 new jobs to its current 3,200-strong local staff.
According to Steinhoff, LHT is looking to collaborate with more OEMs to expand its portfolio of services. Lufthansa Technik Shenzhen last year signed cooperation agreements with UK’s Meggitt (Chalet S24) and Honeywell (Chalet CS30) for providing component MRO services for commercial aircraft in mainland China. “We have further investments and new cooperation [deals] planned for the region, which we will be announcing soon,” he revealed.
Greater China with “its incredible aircraft growth rate” is one of LHT’s key markets in Asia, Steinhoff noted. “The development there is mainly influenced by four large airlines and drives all of Asia forward. China Southern, for example, will very soon have more than 1,000 aircraft in its fleet.” The German company’s network in the country includes the Ameco joint venture with Air China in Beijing—the largest provider of technical support services for aircraft in China employing some 11,000 staff—Lufthansa Technik Component Services Asia Pacific in Hong Kong, which is the headquarters for its component business in the region, and Lufthansa Technik Shenzhen (LTS). LTS offers a broad range of products and services in the fields of composite materials, component services, engine parts repair, and spare support for AOG.
Opportunities Beyond China
“We also see great opportunities in India, Korea, and Japan, and are increasingly focusing on emerging niche markets, where the industry is disrupted more and more by—partially evolving— low-cost airlines,” Steinhoff asserted. There is a general increasing demand for MRO services in Apac, he said. “We expect further growth in the components and engines, especially mobile engine services, which helps our customers adapt to shop capacity constraints and save money.” A new trend is also becoming visible for aircraft modifications, specifically in-flight entertainment, and connectivity (IFEC), he added. “As mobile communication is ubiquitous in Asia, in-flight connectivity is an important service feature for airlines,” Steinhoff said, touting the company’s Lconnect as the “excellent” connectivity solution for airlines in the region. “Last year, we have already closed two contracts together with antenna manufacturer Honeywell with local providers in Indonesia and China, and more countries will follow.”
Despite the high demand and the large size of the market, doing business in Apac comes with challenges. Lufthansa Technik in 2018 grew its sales revenues by 3.4 percent to more than €610 million in the region. However, this is below the 9.5 percent increase recorded by the company and lagging on the 20 percent increase in year-over-year revenue produced by the Americas region and the gain of nearly 9 percent posted by the Europe, Middle East and Africa region. “We are still facing a particularly competitive environment,” Steinhoff explained. “The civil aviation market in the Asia Pacific region is characterized by strong growth, but also by economic tensions and airlines in crisis.”
The main challenge in going forward, he acknowledged, is to maintain the balance between growth and risk. “We have developed a strong and secure position in many markets. In Northeast Asia especially, we have a strong customer base of economically stable airlines. For example, we provide every single A320 operated in Japan with components. We also have a strong standing in Korea and Taiwan. On the other hand, we need to assess the risks with new contracts even more thoroughly and make conscious decisions. To this end, we are involving our financial experts more closely. We have transferred these functions directly to our team in Asia. Of course, this approach does not make our competitive situation any easier. It is, therefore, very important that we engage in dialogue with our customers and ensure that we address our customers’ needs.”