Bucking the trend
Maintenance, repair and overhaul provider ST Aerospace (Singapore Technologies Aerospace Ltd) employs more than 8,000 engineers and technical specialists worldwide. Even the recent turbulent times for the airline industry have failed to dent its growth.
If times are tough for the MRO sector, Singapore’s ST Aerospace isn’t showing much evidence of it. In the first quarter of this year it announced new maintenance contracts valued around US$258 million.
||ST Aerospace is to add a sixth passenger-to-cargo conversion line to cope with the success of its business
Ranging from three months to a year, these contracts for aircraft maintenance and modification, component total support and engine total support business will be carried out at facilities in the Americas, the Asia-Pacific and Europe.
During the same period the company re-delivered 144 aircraft to various customers for airframe related maintenance and modification work. For passenger-to-freighter (PTF) conversions alone, it handed over five converted freighters. It also serviced 58 engines and 11,971 components for both commercial and military customers.
It was a heavy workload, but that’s nothing new for the MRO. In the last quarter of 2010, ST Aerospace clinched nearly $260 million worth of work, following nearly $300 million worth of contracts signed in the previous quarter.
By all accounts, the MRO major is heading for an even more successful 2011. In 2010, ST Engineering, parent of ST Aerospace, reported a net profit of $395.7 million. ST Aerospace’s contribution was $169.1 million, up 13% on the previous year.
It was a remarkable performance given that ST Aerospace’s revenue was much the same as in 2009. The figures become more impressive considering there has been no broad-based recovery in the MRO sector, with most airlines deferring heavy maintenance to conserve cash. The year also saw the continued depreciation of the U.S. dollar, which affected the sector.
But ST Aerospace president, Chang Cheow Teck – the 20-year veteran of the company took up the post in May last year - has no doubt how the company managed to perform so well.
“Our comprehensive yet integrated offering is one key reason why we have been able to stay resilient and continue to grow from strength to strength amidst the changes and challenges in the competitive MRO market,” he told Orient Aviation.
In the downturn, revenue remained relatively stable, although some work was deferred as airlines tried to conserve cash. “That said, we believe our business is on the right track as we continue to engage our customers in longer term contracts,” said Chang.
||'ST Aerospace is in a good position to benefit from the growing MRO market in China because we have been steadily building a broad-based capability there'
||Chang Cheow Teck
“At the beginning of the year, we were expecting some recovery in our business from mid to late 2011, but the current unrest in the Middle East with its consequential higher fuel prices and the ongoing crisis in Japan, have cast shadows on the robustness of this recovery.”
However, Chang said ST Aerospace adopted a long-term strategic view to its business. “We remain optimistic about the growth prospects of the aviation market in the Asia-Pacific, as well as the dynamic growth of the air cargo market,” he said.
“We will continue to invest in new capabilities to extend the scope of our services and in new locations to improve our cost structure and reach to our customers.”
Chang said China was a case in point. “ST Aerospace is in a good position to benefit from the growing MRO market in China because we have been steadily building a broad-based capability there, covering airframes, engines and import/export. We have also established strong and sustained partnerships with customers and the local authorities alike.
“At the same time, we are serving an increasingly expanding customer base, not just airlines operating in China, but also those flying into the country. We continue to contribute to the employment of the local community, with Chinese hires representing between 83% and 100% of staff at our various facilities.”
The joint venture company with China Eastern Airlines (CEA), Shanghai Technologies Aerospace Company Limited (STARCO), has been profitable since 2006. “STARCO specializes in commercial airframe heavy maintenance and modifications. It has successfully completed C checks and other work on 480 aircraft since it commenced operations in January 2005,” said Chang.
“In March last year, STARCO unveiled its latest hangar complex at Pudong International Airport in Shanghai, China. This new hangar can accommodate, at any one time, two narrowbody and three widebody aircraft, including an A380.”
STARCO now operates from Hongqiao and Pudong airports in Shanghai, with a total of three hangars that can simultaneously accommodate three narrowbody aircraft and six widebody aircraft. All CEA’s heavy maintenance work is undertaken by STARCO. It has completed about 360 major contracts for the CEA group of airlines (including CEA Jiangsu, CEA Wuhan and China Cargo).
In addition to the CEA group, STARCO serves other Chinese airlines and international operators. A Civil Aviation Administration of China (CAAC)-approved facility, STARCO also has obtained certifications from other airworthiness authorities in the U.S., Europe, Australia, the Philippines, Russia and Vietnam.
Last year, ST Aerospace invested in new markets, maintained a robust and diversified customer base and added more MBH (maintenance-by-the-hour) programmes.
New customers were signed and more work was secured from key customers, including All Nippon Airways, Delta Air Lines, FedEx Express, Japan Airlines and US Airways, as well as other customers from Australia, Bhutan, Finland, Malaysia, New Zealand, Russia and the Seychelles.
The company completed several cabin interior modifications and obtained European Aviation Safety Agency (EASA) Supplemental Type Certificates (STC) for Airbus A320 and A321 aircraft for Jetstar Asia and Ural Airlines respectively.
Late in 2010, ST Aerospace secured a B757- 200 passenger-to-passenger/cargo (combi) conversion programme from Guggenheim Aviation Partners for TNT Airways, a speciality of the MRO.
The PTF business has proven so successful that the company announced in March it would add a sixth conversion line this year, following the commissioning of a fifth line last August. Since the Singapore-based MRO provider received the single largest freighter conversion contract, from FedEx for 87 B757s in 2007, ST Aerospace has returned 31 of the aircraft to the customer.
“We are exploring new PTF conversion platforms in 2011,” said Chang. “For B767-300 PTF conversions, we successfully re-delivered the last of seven converted aircraft to ANA in late 2010. We anticipate demand coming back from 2012, as more feedstock will become available for conversion when the B787 comes on line.”
In another move to increase capacity and capability in readiness for the upturn in global business, ST Aerospace entered into a joint venture with Guangdong Airport Management Corporation to establish a heavy maintenance facility in Guangzhou, China.
Endorsed by the CAAC, ST Aerospace (Guangzhou) Aviation Services Company Ltd. was incorporated in late 2010 and is expected to begin operations in 2013.
The company’s aerospace sector continued to expand the customer base and repertoire of services for its components and engines business during the year. Leveraging the growing popularity of narrowbody aircraft such as the A320 and B737 families, ST Aerospace continued to globally market its component and engine MBH support programmes. Initially tailored for start-up airlines and low-cost carriers, the MBH solution has gained acceptance among traditional airlines in Asia and Europe. Customers include Jeju Air, Primera Air, Shanghai Airlines and Spring Airlines.
In the second half of 2010, MBH contracts with China Airlines and T’way Air were also added. To date, ST Aerospace is committed to provide MBH support for more than 700 aircraft.
China’s Spring Airlines, whose fleet of 22 A320 aircraft is supported by the component MBH programme, honoured ST Aerospace with an outstanding supplier award in 2010 for its expanded component support and airframe services, including C and D checks, seats and slides overhaul and aircraft-on-ground (AOG) support.
India’s Jet Airways selected ST Aerospace’s engine MBH solution for the 143 CFM56-7B engines that power the 67 B737 next generation aircraft operated by the airline and its low-cost carrier subsidiary, JetLite. The contract is worth $750 million.
Chang said the company’s components business continues to grow in Europe. ST Aerospace’s Madrid-based landing gear joint venture with Iberia Maintenance, which was set up in late 2008, secured FAA certification in January. It is the only FAA Part 145 certificated MRO station in Spain that specialises in A340, A330 and A320 aircraft landing gear.
ST Aerospace’s engine maintenance capabilities are focused on the CFM56 family and Pratt & Whitney JT8D power plants. The company has been appointed by General Electric (GE) Aviation Services to provide global on-wing support over 20 years for GEnx-1B and GEnx-2B turbofans, which power Boeing’s new B787 and B747-8 aircraft.
The company carries out engine MRO work at its facility in Singapore, but it is building a new engine facility in Xiamen, China, with a joint venture partner, Xiamen Aviation Industry Co. (XAICO). The new company, ST Aerospace Technologies (Xiamen) Company Limited (STATCO) plans to open the engine shop by the end of this year.
Chang said the Xiamen plant would complement the Singapore engine facility and enhance its ability to provide integrated MRO solutions.
The MRO market typically lags behind any pick-up in airline capacity, said Chang. That time lag could be six to 12 months, he indicated.
And when it comes there seems little doubt that even more work will come rolling in for ST Aerospace.