As Asia edges towards becoming the world’s leading travel market, Thailand is gearing up to become a full-service aerospace hub, but does it have the facilities, resources and safety standards to dominate this lucrative industry?
On an icy cold January day in 2009, US Airways Flight 1549 travelling at 316 feet per second struck a flock of migratory geese shortly after take-off from New York’s LaGuardia airport. After losing thrust in both engines due to bird ingestion, Captain Chesley “Sully” Sullenberger immediately switched on the auxiliary power unit (APU) – a small turbine engine that delivers supplementary power to aircraft systems. Seconds later, the crew made an emergency water landing on the Hudson River. The APU had provided the necessary power to keep the flight controls and displays working, allowing the aircraft to touch down safely. All 155 people on board survived.
Located in the tail cone compartment of almost every commercial airliner, the APU is just one of many critical aircraft components that are currently being repaired and overhauled in Thailand. Indeed, over the past two decades the country has been laying the foundation to become a formidable competitor in the region’s multi billion dollar aircraft maintenance and manufacturing industries.
“Thailand has a history of building very strong industries that include both the electronics and automotive sector,” said Ajarin Pattanapanchai, deputy secretary general of Thailand Board of Investment (BOI). “We’re looking to repeat the same success and become a full-service leader in the aerospace industry.”
Thailand may seem overly ambitious to some, but as Asia edges towards becoming the world’s leading travel market, and with Airbus and Boeing predicting the region will need between 12,500 and 15,000 new aircraft in the coming 20 years, the country has been popping up on the radar screen of international investors. According to BOI, 24 companies are actively involved in aircraft part manufacturing in Thailand while 12 companies perform aircraft and part maintenance and repair. In a region where Singapore is considered the king of aerospace with more than 100 companies – including the greatest number of original equipment manufacturers in Asia-Pacific along with a vibrant maintenance, repair and overhaul (MRO) market – Thailand seems to have its work cut out for it. But according to the 2016 Top Markets Report Aircraft Parts Country Case Study by the US Department of Commerce, “the growth of aircraft fleets in other Asian countries (like China) and the high cost of doing business in Singapore may challenge Singapore’s dominance in the future”.
These market dynamics may work in Thailand’s favour as it seeks to cement its position as a formidable contender in a highly lucratively industry. “I’m personally convinced that Thailand can become a full-service aerospace hub,” said Peter Gille, director of Operations and Engineering at Triumph Aviation Services – Asia (TASA). “This is in fact what I’m personally trying to contribute to.”
Established in 2005 as a subsidiary of Triumph Group and situated some 60km outside of Bangkok, TASA has capabilities to repair and overhaul APUs, thrust reverses, composite structures and engine and airframe accessories. It is also one of three aerospace companies in the world to supply high-detailed component repair – the other two are Honeywell and Chromalloy – and the only supplier to develop outside manual repairs.
“Any parts that come from engines and APUs such as super alloy blades, diffusers and combustion chambers, are repaired by TASA’s repair line product (RLP) staff using schemes that are either propriety to Triumph or to the original equipment manufacturer,” said Gille. “RLP’s biggest outside customers are Dublin Aerospace, China Airlines, China Southern Airlines, Garuda and GMF AeroAsia.”
According to Gille, Thailand’s attraction lies in its strategic location, low-labour costs and generous incentive packages. Through an extensive network of free trade agreements, suppliers can also tap into global markets.
“When we scanned Southeast Asia back in 2004, we saw that the gravity of our customers were in the region,” he said. “Thailand is very centrally located, and with two international deep-sea ports on the Eastern seaboard, and several international airports, it’s very easy to move product in and out.”
Despite the current political uncertainty in Thailand, Ronald Vuz, the president of Triumph Structures Thailand – a manufacturer of aerospace composite structures – said it is business as usual. “Thailand is very pro-business. We’re in a free trade zone. This is a big part of the reason why we bought this facility. The country also has very strong regulations and agreements.”
These agreements that Vuz alludes to are laid out in well-defined investment policies that include a string of fiscal and non-fiscal incentives that range from corporate and personal tax exemptions to assistance with customs, work permits and product sourcing. Available incentives include an exemption of import duties on machinery, no export requirements, an eight-year corporate income tax exemption and permission to own land.
“Ninety five percent of our work is engine component maintenance. On average, we have 82 to 100 customers worldwide, and airlines often want their parts in a very short time,” said Gerton van den Oetelaar, engineering director of Chromalloy Thailand. “Having agreements with BOI makes us very competitive. “We ship anywhere in the world in two to three days maximum. This is because we have priority clearance from BOI to import and export.”
Recognising the economic benefits that maintenance and manufacturing bring, BOI is now stepping up efforts to accelerate aerospace investments. Dubbed the super-cluster initiative, companies are also eligible for the aforementioned eight-year corporate income tax exemption and an additional five-year reduction of 50%, provided they are located in designated cluster areas.
For industries with significant importance, Pattanapanchai said that the Ministry of Finance will consider granting 10 to 15 years’ corporate income tax exemption, personal income tax exemption for renowned specialists and matching grants to support investors in high-value-added activities such as training, and research and development.
In order to be eligible, aerospace companies must collaborate with academic or research institutes to improve the level of human resources and technology. “In order to accelerate investment, projects need to apply this year and generate revenue in 2017. But for big projects, the BOI may consider a time frame on a case-by-case basis,”
Having a broad-based game plan that includes cooperation between institutions, the government and the private sector has long been a part of Thailand’s DNA in building up competitive manufacturing industries. Today, suppliers can not only tap into Thailand’s 60-plus private and public institutes – some of which offer degrees in aerospace engineering – but they can also take advantage of the country’s advanced auto manufacturing and electronics sector.
“Thailand has experienced a slowdown in the automotive industry. So we’re leveraging off this and hiring people from the field. We have about 134 employees, and most of them are Thai. We run our facility in Thailand identical to [how we run] our centre in Germany,” said Arnd Balzereit-Kelter, managing director of Leistritz Thailand, a global supplier of components for forging of compressor blades for various aero engines.
“I am very impressed with the level of education – 50% of our staff have bachelor or master degrees, and two employees have PhDs. They know what they’re doing,” added Gille.
Suppliers are not only benefiting from Thailand’s burgeoning talent base, but they are also leveraging the low labour costs. With aerospace work becoming more intensive and costly, van den Oetelaar said it makes sense to be based in a country with relatively low wages.
“Asia is a growth region. There is going to be more maintenance required,” he said. “We focus on doing everything in house, which makes us very efficient and low-cost.”
“When I worked in the US, the highest-paid mechanic on the floor was about $4,700 per month. In Thailand, our best mechanics are getting just less than half of that,” said Gille. “The type of business that we do here is dominated by rework and parts, and the portion of labour of an engine is [negligible]. Eleven percent to 15% is the labour fraction, [and] all the rest is material and value-added services so it doesn’t really hinder us.”
While TASA may be on the high-end of the wage spectrum, companies regularly invest in education and new capabilities as manufacturers deliver next-generation aircraft and engines with new technology.
“Chromalloy offers about 200 training courses per year in areas such as machining and welding,” said van den Oetelaar. “We serve all the major airlines in the world.”
According to the 2015-2025 Global fleet and MRO market forecast by management consultant company Oliver Wyman, 56% of Asia’s fleet by 2025 “will be new technology aircraft requiring new technical skills and capabilities”. With a slew of new technologies poised to enter the market, “[m]arket participants will need aggressive and innovative plans for growth”.
While the report noted that “digesting innovative change is not standard fare for the MRO industry”, companies in Thailand said they are preparing for future demand.
“We are seeing stable growth. We currently have 500 employees and will be adding several hundred people over the next five years. There is significant future growth, and we have many projects in the pipeline,” said van den Oetelaar.
Chromalloy undergoes weekly and bi-weekly audits. With aerospace work set to boom, van den Oetelaar said that it is imperative that companies maintain regulatory oversight.
“Quality is not an argument, it’s a standard. You have to comply with regulatory requirements in this field.”