Podcast: Key Takeaways From MRO Asia-Pacific

Aviation Week MRO editors gather in Singapore to discuss what they heard at this week's MRO Asia-Pacific conference.

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Rush transcript 

Lee Ann Shay:

Welcome to this latest MRO Podcast. I'm Lee Ann Shay, Aviation Week's executive editor for MRO and Business Aviation, and I am here in Singapore with my colleagues James Pozzi, who is Aviation Week's MRO editor for EMEA, and Chen Chuanren, who is the Southeast Asia and China correspondent for Air Transport World. We're here in Singapore because we are in the middle of MRO Asia-Pacific, so this podcast will be what we've been gleaning so far for this event.

Gentlemen, first of all, thank you for joining me. I think, not surprisingly, supply chain issues have been a big topic of conversation so far. I moderated a panel yesterday where one of the participants said that he's seeing a lot more exchanges, used serviceable material has come up, the development of in-house capabilities, single source, all sorts of stuff. James, supply chain, what are you hearing?

James Pozzi:

In general, there seems to be a movement towards stocking higher levels of inventory. I think panelists from SR Technics remarked that they're holding more of it, but cautiously so, which I liked the description of. This, I guess, is a way of mitigating against possible disruptions. Of course, the engine supply chain has probably been disrupted more so than a lot of other segments in that sense, and getting critical parts with long lead times from OEMs is obviously quite problematic. So it makes sense that people are, or companies are keeping a lot of these stocked at the moment.

I think lead times are still far too long on LLPs and that's definitely a headache for MROs and airlines and other players in the region right now. So it's kind of reflecting what we're seeing elsewhere. Of course, USM, while there's a lot of it in the market, depending on the part that can be difficult to get hold of. But it seems to all be dependent on what the part is as well. There's no real prevailing trend in that sense, it is just all dependent on what the part is, and that can seem to change dependent on where we are in the year. I think the parts market and parts supply has been heavily disrupted and changing over the course of one to two years, and that's certainly the case in Asia by the sounds of it.

Lee Ann Shay:

Regarding used serviceable material, definitely a topic of conversation from airlines who are using it more. But again, just make sure that quality systems are in place for using that so no one gets caught in the AOG Technics situation. Regarding tear downs, there are more aircraft tear downs now, so hopefully there will be more used serviceable material entering the market. However, even though more aircraft are available for tear down, it's hard to get a slot, just like base maintenance slots are at a premium, tear down slots are at a premium too. So even if the tear down rate is increasing, don't expect the market to be flooded with used serviceable material.

Another supply chain thing, there's been several OEM MRO partnership agreements. Chuanren, you covered a couple of those.

Chen Chuanren:

Yes. Hi, Lee Ann. Welcome to Singapore. I guess one of the biggest, or newest announcements made at MRO Asia-Pacific is the partnership between Collins Aerospace and AirAsia MRO arm, ADE, Asia Digital Engineering. So what's going to happen is Collins is going to give ADE expertise in cell repairs, components repairs, and ADE hopes to attain these capabilities within 12 months to service their A320 seals. The ambition is to expand this capability to 320neos, or even the 330s, for the rest of the AirAsia fleet, as well as other 320s in the region. That's one of them. What just came up was the new maintenance by the hour agreement with ST Engineering with Japan Airlines. That is, of course, to service their 321 passenger to freighters, which is one of the newer fleet to enter Japan Airlines, sorry, Spring Japan, which is technically under Japan Airlines.

Lee Ann Shay:

Also, Honeywell and Spirit AeroSystems signed repair agreements too, so it definitely seems to be a lot of those happening in the region. I think we'd be remiss if we didn't talk about engine maintenance.

James Pozzi:

The Pratt & Whitney GTF, geared turbofan, issues dominated much of the discussion. Obviously, the groundings of the GTF announced recently will further impact the current generation market. Lease demand will grow for other options in the near term, and alternatives to that with higher lease rates pretty much expected as well. One panelist speaker said that to solve the capacity issue, which is a very real reality as a result of these groundings, short term, there'll be an approach of quantity of engines over quality of engines. These new engines, of course, going into the market, will replace ones grounded, sorry, on aircraft that have been grounded, or maybe even ones that have been undelivered considering some of the impacts to production as well. Of course, this is related to A320neo and their GTF engines, PW1100G engine types.

Of course, as I mentioned, there is a danger this will result in capacity shortages, and while more engines into the market in the near term does sound like an alternative, spare engine assets are at a premium too. So it's not really a given that these are going to be easy to access at all. Lessors could benefit though. As I said, lease rates will likely increase, and to provide assets to the market, they may be in a good position in terms of getting engines to operators at a higher price.

Chen Chuanren:

Yeah. If I may add, one interesting point brought up at the panel is that what the industry needs now is quantity over quality, in terms of [inaudible 00:07:22] engines. The panelists does not think that the quality of the engine will improve over the short term, so therefore quantity is needed to ensure that the airlines do not face a shortage of capacity from the groundings. The same panelists also mentioned that the airlines should consider to be aircraft or type agnostic. That means that they should consider even potentially leasing aircraft that is not part of their fleet, let's say from and Airbus narrow body to a Boeing narrow body, or even leasing wide bodies just to meet the shortfall in capacity.

Lee Ann Shay:

This conference started off very strongly with a lot of talk about India too. I think we definitely need to talk about that following the big Air India and Indigo aircraft orders during the Paris Air Show in June. It's definitely a country that has a lot of change, airports being built, new aircraft coming in. The Tata Airline Group, or Air India is consolidating four airlines down into one. Lots of growth. People from India were really stressing it's a better tax situation, so people shouldn't be thinking about the bigger tax tariff burdens in operating in India. But a lot of different companies are expressing interest in being part of that Indian market right now. Any comments?

Chen Chuanren:

Yeah, I think one of the latest companies to express interest in India is Thales Avionics. They already have a hub in Singapore, and what is so-called a satellite station in China, and they have ambition to set up a similar satellite station in India to service avionics for the entire Asia-Pacific region. Taking in supply chain from Southeast Asia and feeding into Singapore, India and China in a more complimentary manner, so that they can also manage capacity in these three stations. So it's something that Thales is working towards too, although they haven't given us the timeline. But it's safe to say that India is definitely a market they do not want to be out of.

James Pozzi:

India is an interesting one, it's really dominated conversation at this show. And I think it's fair to say that with India it is always in the sight lines of MRO, whether it's a full capability MRO or someone further down the chain, maybe a parts vendor, for example, or a parts specialist even, they are all considering India as a location, that's no secret. I think it's accepted that one of the prerequisites of entry into India would be through joint ventures, reflecting how maybe the market 15, 20 years ago approached China, when they set up joint ventures, like Western MROs, to start operating there and get a foothold in the market. So yeah, local partners is key because we haven't seen a lot of companies just set up there off their own bat, it's usually as a result of a joint venture or a partnership.

There's only around 700 aircraft in the fleet now, but that's going to grow, that's going to more than double over the next decade. Spurred on, of course, earlier this year by the orders by the likes of Air India and Indigo. Lots of new aircraft coming into the market there over the next 10 years. So that means there will be a lot of opportunity, a lot of MRO required.

I think it'll be very interesting when Safran sets up their Leap shop there. That could be a game changer, because that's someone setting up MRO, a big OEM setting up MRO in the country. Because, of course, India has always had a healthy manufacturing element for various industries, but in terms of repair capabilities, it still needs a lot of work. I think there's capabilities there that are glaringly obvious in their absence. Engine MRO, for example. There's very few engine specialist providers, or ones with engine capability. That's one shortfall that needs to be addressed I think.

And just continue to build the infrastructure. I know that the Indian government has made it, let's say, more favorable to try and do business, or they've certainly made moves to do that to attract more companies to invest in India. But yeah, that's something that may, for the next five years at least, be something to watch, I think. Because MROs do have plans, they're all considering India when you talk to them, it is not something that's going unnoticed, so I'm interested to see where they invest and how they do so.

I mentioned the Safran shop setting up, another interesting potential turning point could be, I think in the 2023/24 financial year, the intentions of the Indian government to sell off Air India Engineering. Of course, that was kept as a government asset while Tata bought Air India, which is a debt ridden airline, they bought that just over 18 months ago now, but the engineering division is still in government hands. The privatization is going to happen, as I said, during that time period, so it'll be interesting to see who steps in, who buys it, and what the long-term plan is there, because that could maybe be a gateway into India for one MRO provider who is looking to be part of that.

Another potential issue though could be around skills. I mean India, the world's biggest population in terms of people, so that opens up a very large pool in terms of workforce, but it'd be interesting to see how they retain talent in the country. Because of course, Indian workers are very skilled, good capability, have often been poached, it's fair to say, by companies in the Middle East, or maybe ones further east in the Far East, as mechanics and engineers, et cetera. So it'll be interesting to see what India can do there about retaining and developing that talent pool to really carry the MRO industry forward. Because, I guess, without people you can't ever really do anything in terms of development and growing an industry. So yeah, keeping people in the industry in India will also be a challenge of the next five to 10 years.

But it's certainly an exciting time, and as I said earlier, it's very noticeable just how much India was coming up in the conversation. So yeah, a lot to be done there, I think. But I think there'll be some very interesting, almost game-changing things happening there in the next few years.

Lee Ann Shay:

While there is a lot of excitement around India, justifiably so, I think we need to keep in mind China. A few people have said that they think India is where China was about 20 years ago. China is still rebounding. The domestic market seems to be full throttle, but it's my understanding that the international market is still maybe half its pre-Covid capacity. Chuanren, you cover China. Any thoughts?

Chen Chuanren:

Yes, you're right, Lee Ann. Based on the CAS, the regulators report, China's international capacity is still around 52% of 2019 levels, mainly because of, again, due to border restrictions and visas restrictions. Right now, there's still a number of countries that have not fully resumed visa free entry to and from China. [inaudible 00:15:54] are preventing Chinese from heading overseas, in a group that is. So that is one of the main reasons why Chinese carriers have not fully flown out of China. And most of the big three, which is China Southern, China Eastern and Air China have all complained that there's an over capacity within domestic China, because all your wide bodies are now used within China. That's something that they are complaining, and they're hoping that regulators can approve flying rights overseas as soon as possible, so that they can use their wide bodies in a more meaningful manner, so to speak.

Lee Ann Shay:

Speaking of widebodies, let's circle back to where we are in Singapore. ST Engineering on Saturday announced that it's going to be building a new four bay widebody facility, the first bay of which should be available by the end of 2025, with the other three available in 2026. So capacity is definitely a big topic, and I guess that's not just unique to Asia-Pacific.

Gentlemen, thank you for doing a little recap. We're in the midway of MRO Asia-Pacific, so still more to come, but that's a wrap for this podcast. A big shout-out to Guy Ferneyhough, who will be editing this podcast. Thank you, Guy. And thank you all for listening. Please don't miss the next episode by subscribing to the MRO podcast wherever you listen to them. And one last request, if you're listening in Apple Podcasts and would like to support it, please leave us a star rating or write a review. Thank you so much.