ASEAN Aerospace And MRO Industry In The Wake Of COVID-19

The COVID-19 pandemic has an unprecedented adverse impact on the aviation industry and, consequently, on the MRO business, without clear visibility on the timing of its recovery, according to Singapore-based SIA Engineering Co. Ltd. Border controls imposed by countries worldwide and the precipitous decline in travel demand has forced drastic cuts in flight capacities and grounding of aircraft.

In response to the worsening crisis, the International Air Transport Association (IATA) is projecting a more realistic U-shaped recovery for the air travel industry, with domestic travel coming back faster than the international market. 

Many expect that because of the impact of the pandemic, activity in the commercial aerospace market will take several years to return to the levels seen just a few months ago. Some players in the aerospace manufacturing industry, including Boeing and Rolls-Royce, have even announced workforce reduction and production cuts.

However, Boeing is seeing some green shoots. Some customers are reporting that reservations are outpacing cancellations on their flights for the first time since the pandemic started, while some countries and U.S. states are starting cautiously to open their economies again.

• Boeing, in fact, has resumed production of the 737 MAX at the company’s Renton, Washington factory.

• On 14 April 2020, IATA released an updated analysis showing that the COVID-19 crisis will see global airline passenger revenues drop by US$314 billion in 2020, a 55 percent decline compared to 2019. Airlines in Asia Pacific will see the largest revenue drop of US$113 billion in 2020 compared to 2019 (-US$88 billion in 24 March estimate), and a 50 percent fall in passenger demand in 2020 compared to 2019 (-37 percent in 24 March estimate).

According to Oliver Wyman:

• As of late April, over 65 percent of the pre-COVID fleet of 27,500 commercial aircraft have been parked
• The current trajectory for fleet reductions and lower aircraft utilisation would reduce global MRO demand in 2020 by over $48 billion, or 53 percent

Here’s an update of what has been happening in ASEAN’s aerospace and MRO industry amid the ongoing COVID-19 pandemic.

Indonesia

• Indonesia’s national airline, Garuda Indonesia, has resumed domestic flights starting May 7, 2020.
• PT Garuda Maintenance Facilities (GMF) AeroAsia expects to see increasing demand for MRO services from non-affiliated international airlines and has projected an 80 percent y-o-y increase for MRO services, from 71 percent in 2019

Philippines

• AirAsia is set to gradually resume services in the Philippines on June 5, 2020, following the Philippine government’s directive of easing community quarantine restrictions in Metro Manila and several parts of the country. The resumption of services will initially be for key domestic routes, and will gradually increase to include international destinations by July 1.
• Air Carriers Association of the Philippines (ACAP), comprising: Philippine Airlines, Cebu Pacific and AirAsia Philippines, sees the industry shrinking in the next two years. The association has requested government assistance, including waiver of airport charges and credit guarantees
• Infrastructure projects still ongoing: Lufthansa Technik and Metrojet Engineering

Thailand

• Airbus withdraws from MRO joint venture with Thai Airways
• Thai Airways has filed for bankruptcy protection to rehabilitate business (to restructure under the supervision of the local bankruptcy court). Will not resume its international flight operations until 30 June.
• The proposed MRO project at the U-Tapao Airport will proceed as planned despite Thai Airways International (THAI) entering bankruptcy. The THB11 billion project has already been approved by the Cabinet and a contract is expected to be signed in June. (The Nation Thailand)

Singapore

85 percent of the Singapore industry is involved in maintaining and repairing aircraft. Singapore also plays a small but critical role in the global aerospace supply chain, with its SMEs having a key role in MRO and manufacturing—supporting special processes, tooling, testing, logistics, manpower, and other services. (Association of Aerospace Industries Singapore)

• SIA has announced that it will resume flights to 27 destinations and increase no. flights for other services in June & July
• Government has set aside S$750 million of support for the aviation sector and consolidation is expected to happen over the next 12 to 18 months.
• Collins Aerospace, which just opened a 10,000 sq ft innovation hub in Singapore, is “monitoring the evolving market conditions very closely”. 
• Rolls-Royce has scaled down its operations in its facility which tests Trent aero engines (Channel News Asia)
• ST Engineering 
  • expects a slowdown in its aerospace unit due to deferred MRO services and lowered original equipment production rates 
  • however, the company has secured about $838 million across its spectrum of aviation manufacturing and MRO businesses
    • The MRO contracts included A320 heavy maintenance contracts and CFM56-7B engine maintenance contracts from Chinese airlines, and a component Maintenance-By-the-Hour (MBHTM) contract from a Southeast Asian airline to provide comprehensive component maintenance services for its entire fleet of Boeing 737 and Bombardier Q400. 
  • The Group is discussing with its customers to adjust delivery schedules or address order cancellations due to the evolving crisis. As at the end of 1Q, the Group’s order book remains robust.
• BOC Aviation, a company involved in aircraft sales and leasing has extended its Engine MRO contract with Lufthansa Technik for another five years.
• Through the enhanced Jobs Support Scheme (JSS), companies such as ST Engineering and SIA Engineering Company (SIAEC) will receive millions in additional wage support to cushion the devastating blow that COVID-19 has dealt the aerospace industry. (The Business Times)

Vietnam:

• Suspended all international and most domestic flights in March and April in an effort to curb the spread of the coronavirus, domestic flights have resumed since April 22, after the government lifted a lockdown order, while international flights are expected to partially resume from June 1.
• Will not consider applications for new airlines as it looks to prioritise the recovery of its aviation sector after the impact of the novel coronavirus, according to the Civil Aviation Authority of Vietnam (CAAV). (Bangkok Post)

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