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Monday, February 1, 2010

Asia’s MRO Hub

An expansion of maintenance, repair and overhaul (MRO) facilities, development of the Seletar Aerospace Park and new partnerships have positioned Singapore as a regional aerospace hotbed

By Kathryn B. Creedy

Seletar Aerospace Park, located in the northeast region of Singapore, will include a 5,500-foot runway, aircraft parking areas and an aeroengine run-up bay. Developers expect the 300-hectare industrial park to contribute S$3.3 billion in annual output by 2018. Illustration courtesy Singapore Economic Development Board
Singapore’s maintenance, repair and overhaul (MRO) facilities are on the leading edge of a trend that is seeing airlines in the region depending more and more on original equipment manufacturers to support their equipment, according to avionics OEMs.

Taking a cue from the low-cost airlines, mainline carriers are hoping to exact the cost savings of outsourcing not only their repair work but their spares depots. Avionics manufacturers Rockwell Collins and Honeywell have seen their asset management businesses grow, especially for new aircraft entering service in the region.

“Since the last Singapore Airshow (held in 2008), airlines have shown more interest in anything that adds value in terms of fuel efficiency and saving money on operations. There is a growing trend toward depending on the OEMs to provide a package of programs to support their equipment,” said Pak Chin, Honeywell Aerospace vice president for Asia-Pacific airlines.

“They are looking for anything that provides predictable service levels and costs, including power by-the-hour. Our asset management program includes the inventory. Airlines don’t even own the inventory and spares anymore,” Chin said.

Singapore is ranked No. 1 by the “Doing Business” project of The World Bank Group in terms of the ease of conducting business. The island nation is home to more than 100 aerospace companies, which have captured a quarter of the Asian MRO market. The industry in 2008 employed 19,000 people. Leading players such as ST Aerospace and Goodrich Corp. carry out comprehensive MRO services from airframe maintenance to engine overhaul to aircraft modifications and conversion.

Singapore’s aerospace industry has grown at an average rate of 13 percent since 1990 to become the most comprehensive MRO hub in Asia, according to Embraer. The Brazilian manufacturer opened a regional training center and established a regional components distribution base in Singapore as part of its $40 million investment and expansion plans for the Asia-Pacific region in 2007.

Embraer points to the 10-member Association of Southeast Asian Nations (ASEAN) roadmap for liberalization, saying it will bring new opportunities for aircraft in the 70- to 120-seat capacity segment, Embraer’s sweet spot.

Aerospace companies including ST Aerospace, Pratt & Whitney and Rolls-Royce, have announced plans to build manufacturing and MRO facilities at Seletar Aerospace Park. Illustration courtesy Singapore Economic Development Board
“The opportunities are ripe,” said the company. “Traditionally, Asia Pacific’s low-density markets have been served by larger aircraft in the 120- to 150-seat range, which has not always been economical. With right-sizing, airlines will be able to economically serve markets that are not necessarily feasible with the mainline aircraft.”

Over the next 20 years, Embraer forecasts a requirement of 520 new and 70 pre-owned jets in the 30-to-120 seat segment in Asia Pacific; this represents 8 percent of projected new deliveries globally. At the same time, the turboprop fleet in service is expected to increase with 720 new aircraft to be acquired in Asia Pacific, representing 24 percent of projected new deliveries.

Embraer estimates Asia’s share of the business jet market is presently between 10 and 12 percent of the total, but the expectation is it will grow by 9 percent annually in the next 10 years. This will more than double the existing number of jets in Asia from the current 600 to 700 units. Demand will be lead by the appetite for business jets in India and China.

Singapore’s aerospace industry achieved a record output of S$7.1 billion in 2008, according to Embraer.

“As an aviation hub for MRO activities, Singapore has made significant investments in infrastructure, training and development,” Embraer said in response to questions from Avionics.

The company said the entire aerospace industry has benefited from that investment. “This has given rise not only to an enviable foundation for aerospace and aviation companies to do business but we are also supported by a highly skilled manpower base for this specific sector. At the same time, development of the 300-hectare Seletar Aerospace Park both signals the coming of age of Singapore’s aerospace industry ambitions while reinforcing the country’s excellent connectivity and an efficient supply chain.”

Seletar Aerospace Park, which was first announced in 2006, is expected to contribute S$3.3 billion in output annually by 2018. Seletar Airport was built by the British in the island’s north in 1928, occupied by the Japanese during World War II, and then reverted to a British military base until 1968. Currently, it is a secondary airport used largely by flying schools and private charter companies. Seletar is home to about 30 aerospace companies, such as ST Aerospace, Jet Aviation, Fokker Services Asia, Hawker Pacific Asia and Execujet. Development of the aerospace park is expected to be completed in 2018.

In addition to MRO activities, Seletar-based aerospace companies will focus on design and manufacture of aircraft systems, components and, eventually, light aircraft. Plans call for the park to grow its business and general aviation activities and to house educational and training institutes and research facilities on a dedicated regional aerospace campus.

Embraer’s training center in Singapore houses a Level D flight simulator and provides classroom and computer-based training as well as Virtual Procedures Training (VPT) for the E-Jets family of aircraft, while the regional component distribution base provides round-the-clock spare parts support for Embraer’s list of clients in the region.

Located about 30 minutes from the city and 20 minutes from Changi International Airport, the new Seletar Aerospace Park will also have an upgraded airport, designed to support industrial and business aviation activities including a 5,500-foot runway, aircraft parking areas and an engine run-up bay.

Among the industrial park’s anchor clients is ST Aerospace, which has opened hangars for airframe maintenance and modifications. It will focus on narrowbody Boeing 757 passenger-to-freight conversions with the hope of becoming a complete nose-to-tail, one-stop shop. Additionally, engine manufacturer Pratt & Whitney is building a 105,000-square-foot engine parts facility there.

While the bulk of MRO activity remains at Changi, most of the new activity is happening at Seletar, including a $320 million investment by Rolls Royce, which is building the first plant in Asia to manufacture engines for large commercial aircraft. This “Facility of the Future” will test and assemble Trent engines for the Boeing 787 and the Airbus A350XWB, developing and incorporating the latest in engine assembly techniques. Rolls-Royce will also establish a wide chord fan blade (WCFB) factory alongside its engine assembly facility at Seletar. The factory will be the first outside the United Kingdom to manufacture hollow titanium WCFBs, a specialist component.

From its MRO facilities in Singapore, its largest worldwide, Goodrich services more than 40 airlines in the Asia-Pacific region, Since 1995, Goodrich has substantially expanded its presence from a 16-person operation in a 3,000-square-foot facility to more than 500 staff in a 550,000-square-foot facility, offering a range of MRO solutions to commercial and military aerospace customers across the region.

Goodrich activities include aerospace research and development, a critical component of its operations in Singapore. Two years ago, the company’s Singapore team received accolades for its development of a prototype fan cowl for next-generation narrow body engines.

Among other companies, Boeing, EADS, Pratt & Whitney and Rolls Royce have committed to partner with Singapore’s Agency for Science, Technology and Research (A*STAR) to carry out aerospace-related research.

Shifting Markets

The expanding capabilities at Singapore come as the North American commercial aircraft MRO business faces headwinds, according to Frost & Sullivan.

“Low-cost Asian and Latin American MROs are capturing considerable market share and turning the heat on the MROs in North America,” stated the consulting firm. “Aircraft maintenance, repair and overhaul for commercial fleets is not likely to absorb as much money as it has in the past, as the ongoing economic decline has airlines deferring fleet expansion plans … and further adjusting capacity.”

Annual revenues for the North American MRO market will be largely flat for the next several years, dropping marginally from $16.4 billion in 2008 to $16.26 billion by 2014.

“Two key issues faced by the airline industry are the need for lower maintenance costs and risk in the aviation supply chain,” said Frost & Sullivan analyst Nathan K. Smith. “Industry observers state that original equipment manufacturers are better suited to reduce supply chain risk while third-party MROs can provide lower maintenance costs.”

That may be the formula for success in Singapore as avionics OEMs such as Rockwell Collins and Honeywell take advantage of emerging trends. Honeywell, with a 30-year presence in Singapore, already manufactures equipment there. Rockwell Collins is partnering with local companies to provide support.

The trend toward more reliance on OEMs is creating opportunities in Asia, leading companies like Honeywell to partner with local MROs to become part of their overall support offerings.

“A lot of traditional airlines have always done their own repairs,” Chin explained. “They’ve created their own capabilities around repairing their own avionics. We are seeing airlines reconsider in-sourcing versus out-sourcing. They see advantages to outsourcing, especially to an OEM. Ten years ago, that was unheard of but we are seeing it more and more. We are now negotiating with third parties to become part of their overall aircraft support offering. We expect that to continue and we see that evolving to where we are an integral part of that third-party activity.”

Last year, Honeywell and ST Aerospace agreed to a five-year contract expanding their relationship to provide service for cockpit avionics and mechanical systems installed on the Boeing 737, Airbus A310 and other legacy aircraft.

ST Aerospace is an authorized repair station for Honeywell’s Quantum line of avionics and the RDR-4B Weather Radar System.

Honeywell at this writing was working on an expansion of its collaboration with ST Aerospace, but Chin would not comment on the specifics, saying only that an announcement would come in the “near future.”

Rockwell Collins offered a similar perspective. “There are a couple of things we are watching evolving out of Asia-Pacific,” said Ken Estelle, vice president and general manager of Technical Service Solutions. “There is more reliance on the OEMs, especially for new platforms entering service such as the A380. We are moving from the old break/fix business model. Customers want us to manage our overall product for their fleet and we are now buying back spares and managing spares availability for them.”

Estelle said airlines are taking a more integrated approach when they order equipment. “Singapore Airlines is looking at how they can do that on the A380 and how it can expand the program to its Boeing 777s,” he said. “In addition, they are working with third-party MROs to contract for nose-to-tail support. And from our perspective, you see a greater alignment between the OEMs and third-party MROs to partner in offering an umbrella solution.”

Rockwell Collins has two major service centers in Asia — the one in Singapore, opened in 1995, and another in China as part of a joint venture with China Eastern to support the region’s air-transport industry. Singapore has more capability, and the growth there has allowed the company to serve most of Southeast Asia, according to Estelle.

Many manufacturers maintain small facilities largely to position spare parts distribution, Estelle said. But Rockwell Collins has a broad range of capabilities to support is products, including the full range of cockpit communications as well as some in-flight entertainment (IFE) components, he said.

“We are able to cover 90 percent of Rockwell Collins products” in Singapore, Estelle said. “This facility is focused on the air-transport market, but we are watching the growth of both business jets and regional airline equipment in the region. So far, the repair for that equipment is done in Wichita, but as the market grows here we may revisit our capabilities.”

Honeywell and Rockwell Collins are not the only companies eyeing expanded relationships in Singapore. SIA Engineering in September signed a 10-year maintenance service agreement with Panasonic Avionics Corp. for maintenance of the Panasonic eX2 IFE system on Singapore Airline’s A380, A330, A340-500 and Boeing B777-300ER aircraft. The contract covers line maintenance work on the system, including trouble-shooting, rectification and functionality checks. The latest contract, which expands IFE support to the entire SIA fleet, is a follow-on to a previous agreement between the two companies reached in 2007.

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