Aviation Week & Space Technology - 3 November 2014

Jeremy Torr Singapore

Moving On?

Malaysian’s MRO division is profitable. But

will that put it at the top of the ‘for sale’ list?

T

he current state of imbalance in

the Southeast Asian MRO mar-

ket is clearly illustrated by the

example of Malaysian Airlines (MAS).

Even before the disastrous losses

of MH370 and MH17, the airline had

seen three consecutive yearly losses,

capped by a spectacular RM 1.17 bil-

lion ($359 million) in 2013. As a result,

key investor Malaysian sovereign state

fund Khazanah stepped in early in

August this year, buying out existing

shareholders and imposing a signifi-

cant restructuring.

As part of this plan, the airline is to

see up to 6,000 jobs cut, subsidiary

businesses potentially sold of, and new

management put in place. The entire

company would then be restructured

by a special task force that would mold

the carrier into a slimmer, more ef-

cient airline that could return to the

stock exchange by 2019.

According to MAS’s in-house union

Malaysia Airlines System Employees

Union (Maseu), up to half of the redun-

dancies or job cuts could come from

the MRO subsidiary, Malaysian Aero-

space Engineering (MAE).

“If MAE is sold, about 3,000 em-

ployees in the division will be afected,”

claims Maseu’s president, Alias Aziz.

Whether a substantial number would

actually lose their jobs is not clear, but

it is likely that some would be let go as

the operation gets smaller. The days of

working for a fat and overweight gov-

ernment-supported carrier are likely to

be gone soon for many MAS employees.

Meanwhile, in regional neighbors

Singapore, Indonesia and Vietnam,

carriers like AirAsia, Lion Air, Tig-

erair, Scoot and Cebu Pacific are all

expanding their operations at break-

neck speed—and having to fly aircraft

overseas to find cost-effective MRO

facilities to take their bulging fleets.

As spokesman Mochamad Aviv from

Indonesian MRO GMF told Aviation

week, the local growth of MRO in Indo-

nesia is expanding at 15-20% a year. The

company is due to add a new hangar

at its Soekarno-Hatta base to house 16

narrowbody aircraft—one of the largest

in Asia, along with a new hangar at the

recently revamped Bintan MRO facil-

ity near Singapore. But Aviv notes that

planning for the manpower required for

this expansion through 2023 is already

taking considerable efort.

The paradox is that MAE has been

one of the better-managed and more

profitable subsidiaries at MAS. The di-

vision has a solid reputation for MRO

servicing not just for MAS, but on a

wide range of aircraft for major carriers

like Qantas, Gulf Air, Air France, KLM,

and several local low-cost carriers.

With some 18 bays for widebody and

narrowbody aircraft in six hangars at

three airports, MAE claims up to 100

international customers worldwide.

The division also saw a 16% jump in

income in fiscal 2013 compared to 2012,

and has slimmed down its workforce

over the last year, but the disastrous

first half of 2014 for MAS changed

things dramatically.

The losses at MAS group already

have seen MAE forced to pull out of

its Indian joint venture with GMR in

Hyderabad, set up only three years

ago. And with the pre-MH370/MH17

order of up to 100 new aircraft from

Airbus now in question, it is highly pos-

sible that potential training and skills

upgrades will also be put on hold.

However, what is bad news for the

state carriers could be good news for

the increasing number of low-cost car-

riers (LCC) springing up around the

region. Maseu’s Aziz said that several

regional carriers have expressed inter-

est in taking on ex-MAS employees,

partly due to its solid reputation and

good training record.

Which poses the question for the

MAS restructuring team whether to

retain its MRO operation at its exist-

ing bases at Subang or KLIA and lease

out the infrastructure assets such as

hangars, or to sell of the whole divi-

sion as a going concern and factor out

its maintenance to one of the other lo-

cal operators such as Haeco, ST Aero-

space, Lufthansa Philippines or even

Ameco in Beijing.

A parallel issue also will face tech-

nicians at MAE—to move to another

country where the demand for labor is

higher but wages are lower, or stay in

Malaysia and hope that local LCCs will

pick up the slack. Maseu is optimistic,

but the reality might be harsher.

“Aside from AirAsia, there are a lot

of other airlines that want workers

from MAS,” said Aziz. “They know

that MAS has quality.” Certainly, ini-

tiatives coming out of Thailand and the

Philippines indicate that both are keen

to set up local MRO centers, with the

help of overseas majors like Airbus and

Lufthansa that see the built-in demand

for skilled MRO operations in coming

years. The key question is, are those

skilled workers also the mobile ones?

But the fate of MAE and its staf, like

that of MAS, depends heavily on po-

litical winds. AirAsia and MAS/Khaza-

nah put together a share-swap deal in

2011 to help maximize productivity and

cut costs. But pressure from vested in-

terests was enough to push Khazanah

into backtracking and scrapping the

deal just one year later.

As Malaysian Prime Minister Najib

Razak recently said: “We have to look

at it from all angles. It’s not a private

company, so there are certain reper-

cussions in what you want to do.” c

MRO Edition MRO ASIA

MRO10 AVIATION WEEK & SPACE TECHNOLOGY MRO EDITION NOVEMBER 3/10, 2014 AviationWeek.com/mro

MAS Engineering operates 18 bays

in six hangars at three airports.

MAS ENGINEERING

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