The Asia-Pacific market for maintenance, repair, and overhaul (MRO) services would appear to favor well-resourced providers offering certainty to airlines averse to the risks they see in using smaller, independent outfits. Airframers and engine OEMs have come to benefit in that environment, as have big MRO providers such as Lufthansa Technik (LHT), which has invested significantly to serve the region's varying needs.
For the technical arm of the German flagcarrier new business opportunities depend on strong ties with the various governments in the region, most notably in China, where LHT controls 80 percent of a joint venture in Shenzhen with Beijing Kailan Aviation Technology Company. While the Asia-Pacific region accounts for some 20 percent of its revenues, China theoretically presents a huge growth opportunity but also challenges to navigate its bureaucracies and develop relationships, according to LHT's head of corporate strategy and market analytics Sven Taubert.
China ranks as the region’s biggest market and will remain so for at least another 10 years, he added, meaning no company doing business in Asia can afford to discount it. Other major MRO providers exhibiting at the Singapore Airshow this week include locally-based SIA Engineering and SR Technics.
“The uncertainty over Taiwan and the trade war with the U.S., we all know about that,” said Taubert. “And every company I guess is a little bit cautious about that, but no one is in the position to ignore China‘s potential. However, talking to my colleagues from the other companies about China, there is a lot of uncertainty on many faces.”
Notwithstanding China’s slow recovery from Covid, that country’s gradual emergence from the pandemic has many Western companies re-evaluating their strategies for 2024, noted Taubert. Nevertheless, LHT will practice caution, preferring to grow organically at its existing facilities in Shenzhen. “That's our strategy worldwide,” he explained. “We first start with our existing footprint, see where we can grow organically, and try to have more centers of excellence somewhere. This reduces complexity and is how we started in Hamburg.”
LHT Eyes India's Potential
Lufthansa Technik also expects to apply a version of that model in Bangalore, India, where it now operates an AOG desk. Although the company hasn’t yet established a workshop at the facility, it performs “a lot of digital stuff” there.
“I would say India is definitely a very, very interesting country for us,” Taubert noted. LHT counts Air India Group and Vistara as major customers in the subcontinent, while it also works with IndiGo, the largest Airbus narrowbody customer in the world. He applauded the Tata Group’s takeover of Air India as a significant move toward stability in a country that has struggled in that regard.
“You need political and economic stability,” he stressed. “And, of course, some of the countries in Asia are not there yet.” Taubert pointed to Japan as an example of a country in the region whose stability tends to attract Western companies. “It's always easier for a Western company to step into these markets compared to, for example, emerging markets like Indonesia, which is still very vibrant and where a lot of airlines come and go.”
Further hurdles Western interests must clear to gain access to Asia include an inconsistent regulatory environment in the region. Taubert explained that because most of the airline activity involves international flying, the MRO business in Asia-Pacific as a whole presents a unique challenge compared with North America and even Europe. Differing regulatory regimes make it harder to maintain an effective total component support product, for example.
“It is not always that easy to get parts from one country to another,” he said. “So, this is a special situation there, while it is much easier in North America, where between at least the U.S. and Canada there's no real border as well as in the European Union.”
Fragmented MRO Market
Andrei Grskovic, a partner with global consultancy Oliver Wyman, agrees, characterizing the region’s regulatory framework as “highly fragmented.”
“You don't have the equivalent of an FAA covering the entire region, right?” Grskovic asked rhetorically. “The licensing to even get [the equivalent of a] Part 145 shop, you have to do that in every single country to establish a greenfield. Then you do have places like China, where it's extremely difficult to greenfield anything or come into the country yourself…But oftentimes it's not attractive to do, just from an economic perspective.”
Happily, Asia hasn’t suffered from the shortage of skilled mechanics seen in North America and Europe, largely due to the region’s large pool of young professionals graduating from a comparatively ample number of technical schools, noted Grskovic. “In North America and Western Europe, you have a completely different labor force and, frankly, an aging labor force on top of that,” he concluded.