By: Vanitha Nadaraj
The Asia Pacific region is expected to be the largest air travel in the world within the next decade. The annual air traffic in Asia Pacific is growing at 7.3 percent. This is much more than the global average of less than 5 percent. It is mainly because the Asian middle-class population is expected to grow exponentially. By 2032, the middle-class population will grow by about 400 percent.
The growing low cost carrier industry is also a contributing factor. Although many of them on Southeast Asia are struggling to be profitable, they are still expanding their footprint and the number of routes on offer.
With greater air travel, comes greater demand for aircraft. The fleet size of airlines is heading towards 12,000 aircraft for the Asia Pacific region up till 2032. This is double the current number and more than a third of the global demand in 2032.
The top two commercial aircraft makers Airbus and Boeing are struggling to meet the present demand. Airbus has a backlog of almost 7,000 as of Dec 31, 2015. The year 2015 saw a record delivery of 635. Boeing also made record 762 airplane deliveries in 2015 but backlog is close to 5,800. Clearly, both these top manufacturers cannot cope.
Apart from commercial aircraft, the aerospace industry also includes defence. Southeast Asia as a region (excepting Myanmar) is now among the top defence spenders in the world. This region is the next growth opportunity for defence, according to a 2014 McKinsey report.
These countries have collectively doubled their military spending between 1992 and 2012. Maritime patrol aircraft, radar systems and combat planes, along with submarines and naval defence systems, were high on procurement lists. Defence spending in Southeast Asia will reach US$44.5 billion in 2018 compared with US$38.5 billion this year.
Aerospace industry in Southeast Asia
All of this is good news for original equipment manufacturers (OEMs) and investors in the aerospace industry in Southeast Asia. The aerospace and defence industry is forecast to generate US$1.6 trillion by 2020.
Initially, the top economies in Southeast Asia concentrated on maintenance, repair and overhaul (MRO) services. Now they have expanded into areas like pilot training and the production of aircraft components with the aim of becoming Tier 1 or Tier 2 suppliers themselves.
Economic development strategies now include the aerospace and defence industry as one of the ways to introduce or increase value-added manufacturing and increase skills competency in the local workforce.
The Philippine aerospace industry has seen massive growth in the last five years and it is expected to grow more in the next 10 years. The country is expected to post revenues of up to US$1.5 billion by 2025. This is a huge leap from US$226 million in 2014. In 2008, Philippines was earning less than US$6 million from its aerospace industry.
In Indonesia, Honeywell International has invested in an avionics plant on Bintan Island that produces avionic radio systems, communication and navigation equipment and other cockpit components for aircraft. These products are used in corporate jets, helicopters and the largest commercial aircraft in the world.
But it is the maintenance, repair and overhaul (MRO) services that Indonesia is trying to focus on. The value of aircraft maintenance in Indonesia in 2015 is estimated to reach US$900 million. The figure is expected to reach US$2 billion in 2020. The current MRO in Indonesia can only absorb 30 percent of that value.
Thailand is developing an aerospace industrial estate targeting MRO and Tier 2, 3 and 4 aerospace manufacturing segments. This can bring US$650 million per year by 2023 once the first phase of the park is operational. When all three phases are fully operational, it can generate US$1.5 billion every year for Thailand.
Vietnam is also getting into the aerospace scene. Local company Aerospace Engineering Services JSC will be partnering with Airbus to produce spare parts for its aircraft. Airbus is also considering establishing a production facility in Vietnam, the only Southeast Asian facility specialising in producing the wiring harness used in the most popular Airbus model, the A320.
Singapore is an old player in the aerospace industry in the region. Its aerospace industry has more than a quarter share of Asia’s MRO industry. The industry has grown at an average rate of 10 percent in the last two decades. Singapore’s ST Aerospace is the world’s largest independent airframe maintenance, repair and overhaul player.
Singapore hosts one of the world’s top three international airshows, the Singapore Airshow held two years. This event attracts high-level delegations from government, military delegations, and leading aerospace companies. This year’s airshow will be from Feb 16-21.
The government is presently redeveloping an old airfield into a cluster of aerospace related industries and training facilities. The 320ha Seletar Aerospace Park is to be completed by 2018.
Malaysia’s answer to Singapore’s Seletar Aerospace Park
Malaysia’s answer to Singapore’s Seletar Aerospace Park is the Asia Aerospace City, which will also be completed in 2018. This city will sit on a 3.5 million square feet of space or the size of 55 football fields, and will be the hub for aerospace original equipment manufacturers (OEMs) in Southeast Asia. The Asia Aerospace City is estimated to have a value of RM1 trillion (US$242 billion) by 2020.
This government initiative is led by Mara, a Malaysian government agency for human capital and entrepreneurship and which has generated bout 30 percent of total manpower in the country. Mara’s subsidiary, Mara Aerospace & Technologies Sdn Bhd is the lead content developer for the Asia Aerospace City.
To create a continuous skilled talent pool of about 20,000 Malaysians graduating in engineering annually, a number of expertise partners have been roped in. These include the German-Malaysian Institute, Universiti Kuala Lumpur’s Malaysian Institute of Aviation Technology, Sepang Aircraft Engineering Sdn. Bhd which is an Airbus Group company, and Glyndwr University in North Wales, renowned for its aerospace education.
For now, there is much focus on developing a strong OEM supply chain that will dictate the industry. There is a need to collaborate with top global players and at the same time develop a strong supportive local SME community.
Mara Aerospace & Technologies’ business consultant Muhammad Syamil Md Silmi says: “OEM presence in Malaysia will be the catalyst towards further industry growth.“
“We are pleased to report of our early successes in this regard, such as Rolls Royce’ procurement of aero engine parts from UMW (one of the largest companies in Malaysia involved in a wide spectrum of businesses) and Airbus establishing a tooling supply chain in Malaysia.
“Both of which would not have occurred without our solutions. There are further deals in the pipeline and we are excited over the prospect of more OEMs entering Malaysia,” he tells Asean Today in an email response.
Asia Aerospace City is a brand for an aerospace hub and Subang is its access point. In the long term, there are plans to set up another Asia Aerospace City in another part of the country.
Malaysia’s blueprints on aerospace
In 2014, the aerospace industry generated RM19 billion (US$4.6 billion) in revenue and RM4.2 billion (US$1 billion) in investments, with 19,500 jobs created. Malaysia’s aerospace industry is projected to contribute revenue of RM32.5 billion (US$7.8 billion) by 2030, in line with the Malaysian Aerospace Industry Blueprint 2015-2030.
Malaysia is positioning its aerospace industry to be the top aerospace training and education destination and the top aerospace manufacturing centre in Southeast Asia by 2020 and 2025 respectively. The local aerospace industry aimed to capture 5 percent market share in the MRO sector and for the engineering and design services sector to obtain a 3.5 percent global market share. Both by 2030.
This is the second blueprint. The first was for the 1997-2015 period and during that period, Malaysia attracted a multitude of aerospace companies and activities, including Airbus, Rolls Royce, Spirit Aerosystems and Messier-Bugatti-Dowty.
Kuala Lumpur International Airport (KLIA) was opened in 1998, replacing Subang as the main airport. Subang was renamed the Sultan Abdul Aziz Shah airport and is now a major regional airport known as Skypark, as well as a major international hub for aircraft maintenance, repair, and overhaul.
From 2009-2014, Malaysia’s aerospace industry attracted 41 projects with accumulated investments of RM5.3 billion (US$1.4 billion), 19 of which are projects involved in maintenance, repair and overhaul (MRO) activities.
And then there is the Langkawi International Maritime and Aerospace (LIMA) Exhibition held every two years, which serves as a reminder of the commitment to create a thriving aerospace industry.