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Airbus, Boeing eye after-sales market, but there's room for Singapore players
AS Airbus and Boeing swoop in for a bigger slice of the lucrative after-sales service market, maintenance, repair and overhaul (MRO) players in Singapore would do well to either partner them or focus on niche segments to maintain their edge, analysts say.
Overall, Singapore as an MRO hub - with a 10 per cent global output share - could also potentially stand to benefit from a bigger presence from both jetmakers.
Boeing has forecast that the demand for services to support the 41,000 global fleet to be delivered over the next two decades will be worth nearly US$8.5 trillion - surpassing the US$6 trillion value of the actual planes.
And the services market in the fast-growing Asia Pacific region - which will receive around 40 per cent of those planes - is expected to be worth some US$3.2 trillion.
As original equipment manufacturers (OEMs), Airbus and Boeing have the edge in a deep understanding of their aircraft, as well as a cost advantage, analysts say.
Shukor Yusof, analyst at aviation consultancy Endau Analytics, said: "Airbus and Boeing will have the leverage on clients when they sell their aircraft to include after-sales services that will be hard to beat as a package offering."
This means that local aerospace firms will need to share the after-market aircraft servicing pie with Airbus and Boeing, said Corrine Png, chief of transport equities research firm Crucial Perspective.
However, MRO companies which have, or plan to have, tie-ups with the two jetmaking leaders could receive a boost by garnering access to more third-party airline customers, she added. Partnering the major components and parts suppliers would also give them an edge.
Airbus saw an 18 per cent bump to US$3.2 billion in revenue from services last year, Reuters reported.
Meanwhile, Boeing Global Services (BGS) - which covers commercial and military aircraft - raked in revenues of US$14.6 billion last year. BGS is reportedly eyeing annual revenues of US$50 billion in the next five to ten years, a target which will likely require acquisitions.
Both planemakers already have a presence in Singapore, teaming up with joint venture partners such as Singapore Airlines Engineering Company (SIAEC) and Singapore Airlines in areas ranging from maintenance services to pilot training, while Airbus subsidiary, aircraft component and service company Satair, is said to be planning to expand its operations here.
But Singapore's overall aerospace cluster, which is home to some 130 companies, may also reap rewards as Airbus and Boeing ramp up their presence in the Republic. "This is important as there are agglomeration economies to be reaped and it will help to increase Singapore's lead over competitor MRO markets in the region," Ms Png said.
Elsewhere in the region, countries such as Thailand and Malaysia have made no secret of their ambitions to wrest market share from Singapore, banking partly on their ability to offer lower labour costs.
Mr Yusof said: "Singapore's aerospace ecosystem is robust to withstand Airbus and Boeing getting embedded in the MRO segment because they complement the complex supply chain with a strong, skilled labour force.
"Local companies will have to be on top of their game, or find areas where Airbus and Boeing may not be involved in. Our view is that many local companies will be able to cope given the growth in the region and with support from the government, in terms of continuously developing the MRO sector."
For instance, SIAEC also caters to regional operators of Embraer's E-Jets, thanks to its Philippines-based unit which is an authorised service centre for Brazil plane-maker Embraer.
SIAEC chief Png Kim Chiang said there are "significant mutual benefits" to be gained from working with the OEMs through strategic relationships and synergistic joint ventures.
He said: Against the backdrop of an increasingly challenging operating environment... we have been investing in innovation and embracing the latest technologies to increase our competitiveness."
In 2016, it set up an innovation and technology group to accelerate the adoption of new technologies, and has earmarked up to S$50 million to invest in innovation initiatives and technology adoption projects.
In particular, SIAEC is building up capabilities in areas such as data analytics, additive manufacturing and automation to increase productivity and bring down unit costs.
President of ST Engineering Aerospace Lim Serh Ghee said: "More than just competitors, OEMs are also our partners and customers. While OEMs have been getting more involved in the MRO aftermarket, their core business is still ultimately in design and manufacturing and ensuring annuity of after-market parts sales. They would still need partners with good geographical footprint and depth in relevant MRO capabilities."
ST Engineering Aerospace - which has carved out a reputation for itself as a leading airframe MRO player - has a global presence, which will allow it to support OEMs and jointly benefit from the growing aftersales market, he said.