Asia's Emerging Aerospace Parks

By Leithen Francis / Singapore
Published June 5, 2011 AVIATIONWEEK.COM

 SINGAPORE—Southeast Asian countries are developing aerospace parks to attract foreign investment, but poor planning means most lag behind market leader Singapore.

Thailand has enormous potential to be a center for maintenance, repair and overhaul (MRO) because Bangkok is an air transportation hub for Asia-Pacific and it has a secondary airport that would be an ideal base. Prime Minister Abhisit Vejjajiva said in 2009 that Thailand would develop Don Mueang Airport into an MRO hub. The director general of Thailand’s civil aviation department, Wuthichai Singhamanee, was leading the initiative, but things have stalled since he retired last year. Sumpun Pongthai, the director of the flight standards bureau of the department of civil aviation, says national airports operator Airports of Thailand (AoT) leads the push; however, an AoT spokesman says Thailand’s ministry of transport is in charge. But government decision-making has taken a back seat as Thailand prepares for elections this year.

The uncertainty over policy is having an adverse impact on investment. France’s Vallierre Aviation wanted to start a MRO firm there to do narrowbody heavy checks, but Vallierre CEO Grégoire Lebigot says: “Our project in Don Mueang was postponed as the strategy of the airport authority was somewhat unclear.” EADS was looking to establish a landing gear overhaul center at Don Mueang, but this too appears to have come to nothing.

Brunei is more organized in its efforts. Sheikh Rashid Salam, the Brunei Economic Development Board’s (BEDB) head of local business development, says it is targeting MRO firms and training organizations. “We are talking to people about establishing a flight simulator center” and are trying to get a training organization for maintenance engineers.

He says Royal Brunei Airlines would be a good partner for overseas MRO firms because the carrier has EASA Part 145 certification and there is a 1,930-sq.-meter hangar available at Brunei International Airport. This empty hangar used to store the Sultan of Brunei’s Boeing 747.

“We’ve got a skilled workforce,” says Rashid, adding that local MRO workforce rates are $30-35 per hour. “You can bring foreign workers into the country, and there is no income tax, sales tax, capital gains tax, export or manufacturing tax.” The corporate tax rate is 22%, and companies that invest in Brunei can apply for an eight-year tax holiday, he says. “If they spend a certain amount, they get three more years of tax holiday.”

While the BEDB has a comprehensive package, one of the challenges it faces is that Brunei is small. The population is only around 400,000.

Indonesia, by comparison, is Southeast Asia’s largest airline market. It too wants an aerospace park, but questions persist over whether Indonesian regulators can work together to streamline the process. Richard Budihadianto, CEO of Indonesia's largest MRO firm, GMF AeroAsia, says Indonesia needs more MRO firms because the incumbents cannot absorb all the work. The majority of Indonesia’s heavy maintenance work goes overseas, mostly to Malaysia and Singapore. Budihadianto is trying to generate support for an aerospace park, but the government has yet to decide on a site or provide incentives.

Malaysia is more advanced in its efforts. It has established the Malaysian International Aerospace Park at Subang Airport, Kuala Lumpur’s old international airport. Subang Airport is home to Malaysia Airlines Engineering & Maintenance (MAS E&M) and Airod, a military MRO. GE Aviation has two Subang businesses: GE Engine Services and GE On-Wing Support.

The aerospace park’s highest-profile tenant is Spirit Aerosystems. During the 2009 opening ceremony of its manufacturing and design facility, Spirit CEO Jeff Turner remarked that “although Spirit is an aerospace company, it’s also a people company, and it is the people in Malaysia that convinced me that this is a great place for Spirit to grow globally.”

Malaysia has tried to ensure that it has a skilled and qualified workforce. MAS E&M has a training center at Subang. Other training organizations include Politeknik Sultan Salahuddin Abdul Aziz Shah, which has a diploma course in aircraft maintenance; and Kedah Industrial Skills and Management Development Centre, which has courses on aircraft composites manufacturing.

Malaysia has had some success, but no one appears able to beat Singapore. Singapore’s Economic Development Board (EDB) estimates the city-state accounts for 25% of Asia-Pacific’s commercial MRO work. The investments keep pouring in. Rolls-Royce says it is investing at least S$700 million ($560 million) in Singapore’s Seletar Aerospace Park to develop a wide-chord titanium fan-blade factory as well as an assembly and test facility for commercial aircraft engines. It announced that the plant will assemble Trent 1000s, used on Boeing 787s, and also be equipped to handle other types of Trent engines. The fan-blade factory building was completed in December, and the assembly plant building will be completed in May. Assembly of the first engine is due in mid-2012.

The plant will have the capacity to produce 250 engines per year, but it will take several years to ramp up to that rate, says Jonathan Asherson, Rolls-Royce regional director for Southeast Asia. He predicts some of Rolls-Royce’s suppliers will establish factories in Southeast Asia to manufacture parts that can then be sent to the Singapore assembly plant. “Logistics is a big factor in overall cost,” says Asherson. One of the advantages Singapore has is its world-class infrastructure, he says.

Rolls-Royce was confident about the decision to set up the Singapore site—its first outside the U.K.—because its other investments in the city-state have been successful, says Asherson. Singapore Aero Engine Services, a joint venture with SIA Engineering Co., supports Trent engines. “That positive experience de-risked our decision,” says Asherson, adding that it proved Singapore can provide skilled labor at the right price. SIA Engineering is training workers for the assembly plant, while Singapore’s Institute of Technical Education is training workers for the fan-blade factory.

Another favorable factor is Singapore’s monetary policy. It limits wild fluctuations in the value of its currency by pegging it to the U.S. dollar and a bundle of other currencies. Asherson says mitigating fluctuations in the U.S. dollar is important to exporters like Rolls-Royce.

Finally, government support is another important factor in Singapore's success, says Asherson. Authorities offer inducements such as tax incentives and training and innovation grants. The main player in this area is Singapore’s EDB. It is also the main party companies turn to when looking to invest, and its role is to take the lead and coordinate the other government ministries and agencies to ensure the investment and approval process is efficient.

Other Southeast Asia nations often fail to do this and end up bouncing potential investors from one ministry or government agency to the next. Asherson says the Singapore EDB is good at asking questions and finding out what is important to investors. “They really do try find out from us what we value” and, as a consequence, can demonstrate that they have “an understanding of our industry,” he says.

Lim Kok Kiang, the EDB director of transport engineering, says that about 75% of the plots at Seletar Aerospace Park’s phase one and phase two developments already are taken or reserved. But new plots will be available under phase three, which is scheduled to start in the second half of 2012. He says Singapore’s Jurong Town Corp. (JTC), which manages the park, is targeting smaller suppliers in the aerospace sector by building factories that will be available for lease. JTC is also building aircraft hangars that can be shared facilities, he adds.

“The key here is integration,” he says, adding that there is a competitive advantage in being in such as park. “These smaller businesses can reap the synergies of co-location” and over time give work to each other.
Singapore’s biggest advantage is the head-start it has on the other Southeast Asian nations. It already has a huge cluster of aircraft MRO and original equipment manufacturer (OEM) businesses. As a result, MRO firms elsewhere in Southeast Asia still may have to send some work to Singapore because that is where the OEMs are.

In the MRO industry, time is money. If an MRO firm has to send a component to Singapore, it may be more productive to do all the airframe or engine work in Singapore.

This is the challenge the other Southeast Asian nationals face in developing aerospace parks to woo MRO investment. In some respects, countries such as Indonesia and Thailand should have developed MRO hubs decades ago. Now they have to play catch up.