This article first appeared in The Edge Malaysia Weekly on December 4, 2017 - December 10, 2017

THE expansion of the fleets of Malaysia-based airlines over the next decade will fuel the growth of aircraft maintenance, repair and overhaul (MRO) service providers in the country and give it a boost towards its aim of becoming an aerospace hub in Southeast Asia by 2030.

This huge fleet growth, led by the AirAsia Group (AirAsia Bhd and AirAsia X Bhd), will increase the demand for MRO services in Malaysia, says Pierre Reville, CEO of Sepang Aircraft Engineering Sdn Bhd (SAE).

“The market in Asia is growing above the world’s average at between 4.5% and 5%, so Airbus’ fleet in this region will double in 10 years. We (SAE) should be able to increase our market share and footprint,” he says in an exclusive interview with The Edge.

SAE is a wholly-owned subsidiary of European commercial aircraft manufacturer Airbus SAS, which acquired the remaining stakes it did not own in the MRO services provider in October for an undisclosed amount. Before the deal, Airbus owned 93.78% of SAE.

While Airbus has been a shareholder in SAE since 2011, it was prompted to increase its investment by the recent increase in aircraft orders in the region and the Malaysian government’s efforts to promote the aerospace industry.

“This is a strategy to develop the services to support the lifecycle of the products. We are able to offer our customers in-house services with Airbus-backed SAE in terms of engineering and support,”Reville says.

“I think this is the beginning of a trend where Airbus wants to develop its footprint in maintenance in supporting its planes in this region,” says Reville, who has 40 years of experience in the MRO industry.

Under the Malaysia Aerospace Industry Blueprint 2015-2030, the target is to capture at least 5% of the global MRO market and become No 1 in Southeast Asia for aerospace component sourcing.

Malaysia also aims to capture 3.5% of global market share in engineering and design services and lead in supplying a competent workforce for the industry in Southeast Asia.

The growth in aircraft orders and fleet expansion of Malaysia-based airlines will be key towards achieving the targets, observers say.

To date, the AirAsia Group and Malaysia Airlines Bhd (MAB) have placed orders for 687 aircraft from Airbus and Boeing. As for Malindo Air, orders for aircraft are placed by its parent company, Indonesia-based Lion Group.

According to Airbus’ Global Market Forecast 2017, between 2017 and 2036, up to 14,280 planes will be delivered in Asia Pacific, comprising 41% of global demand. Malaysia is well-positioned to tap into this growing market, says Reville.

The growth in air travel and its impact on MRO services have been witnessed first-hand by the staff and management of SAE. Over the last 10 years, SAE — which started just serving the AirAsia fleet — has grown to become a major MRO facility in Southeast Asia serving multiple airlines.

Today, 15 airlines send their Airbus A320 aircraft and ATR turboprop planes to SAE for periodic checks, maintenance and component repairs. They include Scoot from Singapore, Indigo from India and Vietjet from Vietnam.

Partnership with multinational OEMs to be MRO catalyst

Airbus’ invesment in SAE will be a boost for the bigger ambition of MRO operations at KLIA Aeropolis, says Malaysia Airports Holdings Bhd managing director Datuk Badlisham Ghazali.

“There are potential positive impacts and gains from partnerships of Malaysian MRO and aeronautical companies with multinational corporations, such as knowledge and technology transfer in terms of capabilities and efficiency.

“These may help the companies move up the value chain and become more competitive internationally,” Badlisham says an email reply to The Edge.

It is not too far-fetched to say the success of MAHB’s aerospace belt, stretching from Subang to KLIA to Melaka, will depend on the country’s ability to attract foreign OEMs.

KLIA Aeropolis is one of MAHB’s aerospace engineering and aviation developments.

According to the KLIA Aeropolis master plan, the development is expected to contribute a cumulative RM339 billion in gross domestic product and create an additional 200,000 jobs by 2055.

Besides KLIA Aeropolis, MAHB is also promoting Subang AeroTech Park, a 60-acre site near Subang Airport, for aerospace components manufacturing, engineering and MRO industries.

Badlisham says land preparation at Subang Aerotech Park is expected to be completed by the end of this year. Many MRO companies and manufacturers of aerostructures have registered interest in the development, he says.

“We recently signed with Axis REIT, which will be developing a manufacturing facility for Senior Upeca Sdn Bhd, a key strategic supplier to Spirit Aerosystems (a major aerospace Tier 1 supplier to both Airbus and Boeing).

“This deal is expected to bring in an estimated RM74 million worth of investment. In addition to this, the pipeline includes MoUs with the likes of GE Aviation and Global Turbine Asia-Safran,” Badlisham says.

The MRO industry in Asia has long been the domain of airlines, which set up their own dedicated MRO facilities to service the needs of their own fleets, before expanding to undertake third-party contracts.

For example, SIA Engineering Company Ltd (SIAEC) was the engineering and maintenance arm of Singapore Airlines Ltd before it was spun off and listed on the Singapore Exchange.

For the financial year ended March 31, 2017, SIAEC reported revenue of S$1.104 billion and a net profit of S$337.2 million, almost doubling from S$181.2 million the year before.

In Indonesia, Garuda Airlines’ maintenance arm PT Garuda Maintenance Facility AeroAsia tbk is now listed on the Indonesian Stock Exchange after raising US$84 million for its parent company in an initial public offering in October.

However, this is not the case for Malaysia. AirAsia’s bid to buy Airbus’ stake in SAE was scuttled earlier this year, leaving the group with no direct MRO facility, while MAB Engineering only serves MAB’s fleet.

Besides SAE, other independent MRO providers in Malaysia include Airod and RUAG Aviation Malaysia Sdn Bhd.

“There are a considerable number of MRO players in Malaysia that are either from Europe or the US, covering all major sectors including airframe, engine and component maintenance for large airlines, commuter and helicopter operators as well as defence sectors,” says RUAG Aviation Malaysia general manager David Jones via email/

“RUAG Aviation is one of those independent MRO component repair centre that act as a hub in Asia on behalf of component OEMs,” he adds.

RUAG is a Swiss technology company based in Bern, Switzerland. In Malaysia, it provides regional aircraft component services, principally to the turboprop and helicopter market. Malaysia is the group’s first investment in Southeast Asia, making Subang its regional hub.

Most of the MRO companies in Malaysia are confident about the direction the government is taking in promoting the industry.

“Malaysia has made a number of initiatives, including a steady flow of trained English-speaking technicians and engineers, ensured that aerospace is a focus sector, and developed a blueprint for the development of the aerospace industry.

“It is important to continue to provide high-quality services with excellent turnaround times with focus on meeting customer requirements to remain ahead of the game wherever possible throughout the Asian region,” says Jones.

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