MALAYSIA TO CAPTURE BIG MARKET SHARE IN AVIATION MRO INDUSTRY

KUALA LUMPUR, Jun 23, 2008 (AsiaPulse via COMTEX) -- FRSU | Quote | Chart | News | PowerRating -- Even with stiff regional competition and challenges in the aviation industry due to rising fuel costs, there is still a significant market share for the aircraft maintenance, repair and overhaul (MRO) industry in Malaysia.

Aerospace and Defence consultant Azman Aziz, from Frost & Sullivan, a global growth consulting company, said Malaysia has the potential to capture more market share in the aircraft MRO industry with the existing infrastructure and available facilities.

In an email interview with Bernama, Aziz said established infrastructure provided by Malaysia's MRO services companies such as Airod and Malaysia Airlines' (KLSE:3786) engineering division as well as General Electric (a multinational global conglomerate)'s aviation facility in Subang, supports the growth of Malaysia's potential in the MRO sector.

Driving the demand for the MRO services, he emphasized, is the increasing amount of aircrafts and airlines operating in the region.

The development of low cost carriers (LCC) in the region is a boost for third party MROs as the LCCs business model does not support an in-house MRO facility unlike legacy carriers, Aziz said.

Aziz added that it will be also up to the marketing efforts and expansion strategies of the local companies to ensure that a significant share of the pie is captured.

Another consultant in Aerospace and Defense practice, from Frost & Sullivan, Kenneth Chan said while there will definitely be impact from the rise in crude oil prices on the development and expansion plans of aircraft MRO providers, there were still niche areas of growth that MRO providers could focus on.

One area where MRO providers will be looking into is expanding their core capabilities, Chan told Bernama in an email interview.

Chan emphasized that with newer and more modern aircrafts such as the Boeing B787 or Airbus A350 which are expected to enter the market in the near future, MRO providers will have to upgrade their aircraft type capabilities in order to survive the stiff competition in the market.

As far as the level of impact on crude oil prices on the aerospace industry, Chan said it remains to be seen how the industry reacts to it through individual company strategies.

Scheduled aircraft deliveries are not expected to change in the short term, but in the long term, future aircraft orders may be affected, Chan said.

Aircraft operators may also choose to be more conservative with their aircraft orders, and the type of aircraft that they wish to procure, Chan said.

Aziz pointed that it is also up to the local companies to initiate progressive strategies to capture a larger market share in Asia Pacifics MRO market, and also to provide distinctive products and services amidst stiff competition against regional players.

It is not sufficient for Malayia MRO companies to just focus on regional competition; consideration also have to be made for global competitors, Aziz pointed out.

Chan said to remain competitive, Malaysian MRO providers will have to upgrade their tools and equipments to handle different aircraft types, improve their software capabilities, while keeping the price packages competitive and increasing the skills of its technical workforce.

The leading MRO players in the world include Hong Kong Aircraft Engineering Company Limited also know as HAECO, China based TAIKOO (XIAMEN) Aircraft Engineering and Lufthansa Technik, a subsidiary of flag carrier of Germany, Lufthansa.

According to Chan, Malaysia has some of the best MRO providers in the world and their price packages are ranked as one of the most attractive around the world.

In Malaysia, Airod's achievement in winning the "Customised MRO Centre of the Year" award from Frost & Sullivan this year has successfully elevated Airod and Malaysia's competency in the world, showcasing Airod as an international MRO company, Aziz said.

Customised MRO work covers specific modifications done to an aircraft, with the approval of the regulatory bodies and manufacturers.

According to a statement by Lockheed Martin, known as the worlds largest defence group, Airod will continue as Lockheed Martin licensed International Service Center for the C-130 (military aircraft) for an additional period of four years, until August 2012.

The aviation MRO industry is expected to grow at a compounded annual growth rate of 6.1 percent in Asia Pacific to US$45 billion by 2018 from US$25 billion this year, according to the "Asia Pacific Growth Excellence in Commercial Aerospace Industry" data provided by Frost & Sullivan.

The largest aviation MRO revenue share last year for the Asia Pacific region was in commercial fixed wing which accounted for 47 percent of total revenue in aviation MRO, followed by military rotary wing (23 percent), military fixed wing (13 percent) and civil rotary wing (17 percent).

While there may be impact on other works due to rising crude oil prices, existing business should proceed as usual, Chan said, with minimal impact from oil price changes, due to regulatory requirements by aviation authorities on aircraft maintenance, to ensure the airworthiness of an aircraft.

However, lack of technical expertise in several countries in the Asia Pacific can hurt the MRO segment in terms of the exodus of local talent to more developed regions such as Europe and the Middle East.

Lack of technical expertise is also there in the areas of components manufacturing and aircraft design.

"While several countries in Asia are pursuing programs to design and build indigenous aircrafts, many other countries wishing to do so still lack the funding and expertise to develop their own aircraft manufacturing programs," Aziz said.

However, countries in the Asia Pacific region, has shown the technical capability for outsourcing manufacturing projects in the aviation sector.

According to Aziz, there is a global wave of manufacturing globalization where an increasing amount of manufacturing packages is being outsourced to Asia Pacific nations.

The trend, according to the Aziz is expected to continue in the future, with more and more western companies striking joint ventures and manufacturing agreements with local partners within the region, especially in China and Japan.

It was reported that Airbus is scheduled to commence its A320 assembly line in Tianjin, China in August this year while Boeing has outsourced major manufacturing processes for the new Boeing 787 to Japanese companies Kawasaki Heavy Industries (TSE: 7012) and Mitsubishi Heavy Industries (TSE: 7011.

Apart from these, companies from Maalysia such as Asian Composites Manufacturing Sdn Bhd (ACM) and CTRM or Composites Technology Research Malaysia will continue to receive aviation component manufacturing packages from aerospace giants such as Boeing, Airbus and Goodrich, Aziz added.

SME Aerospace Sdn Bhd is another Malaysian company that is involved in production of aircraft parts, components and assemblies for customers worldwide with approval from major global aerospace giants that include BAE Systems, Airbus, Boeing and GKN Aerospace Services.

According to the data provided by Frost & Sullivan on Aviation Manufacturing in the Asia Pacific, aviation manufacturing for the region is expected to grow at a compounded annual growth rate of 7.2 percent, from US$50 billion this year to US$100 billion in 2018. Airframe components constituted the largest share in terms of aviation manufacturing revenue share in Asia Pacific last year.

(BERNAMA-OANA)

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