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Roundup: Singapore's aviation maintenance service sector outlook expected to remain challenging next year

Xinhua, December 14, 2015 Adjust font size:

As air travel demand outlook becomes uncertain and newer aircraft and engine models with longer maintenance cycle come into the aviation market, analysts forecast the outlook for Singapore's aircraft maintenance, repair and overhaul (MRO) sector next year remains challenging.

According to International Air Transport Association's (IATA) latest statistics, global air traffic (Revenue per passenger Kilometers) saw a strong 6.7 percent on--year growth on the back of a 6.0 percent growth in global capacity (Available Seat Kilometers) for first nine months this year, driven mainly by Asia--Pacific and Middle--East regions.

But given that the air travel sector is mainly driven by discretionary spending of individuals and corporations, the moderate world economic growth may dampen the future demand of air travel. In October, the International Monetary Fund had revised its global growth forecast 0.2 percentage point lower from the last update in July for both this year and next year. Indeed, OCBC Investment Research had already seen sign of weakening in global air passenger figures going into end of September, as stronger pick--up in capacity outstripped passenger traffic growth.

Singapore has come a long way in becoming the hub for aircraft MRO in Asia, with more than a quarter share of aircraft MRO industry in Asia. According to the Economic Development Board of the city state, the MRO industry has grown at an average rate of 10 percent in the last two decades.

However, with new generation jetliners such as the Airbus A350 XWB that boasts better fuel efficiency and travel comfort, Singapore aircraft MRO industry is facing structural changes. OCBC said these changes include newer aircraft and engine models which have longer maintenance cycle amid extension of on--wing life, and older engine models which get phased out without new product replacement. As a result, the MRO industry players will see reduction in aircraft and engine workshop visits by the aircraft fleets of their clients.

OCBC expects the slowdown in Singapore's aircraft MRO industry to last for at least another 12 to 18 months before the aircraft are due for maintenance again. The silver lining is that when these newer aircraft and engines are due for maintenance again, the amount of works to be performed on them may be heavier than if they were sent into the workshop earlier. This means higher revenue per maintenance job. But OCBC said on the whole, the outlook of the MRO industry may remain challenging even into 2017.

Maybank--Kim Eng Research also observed the workloads of Singapore's aircraft MRO industry have yet to pick up, yet the research house believed aircraft maintenance workloads should pick up by second half of next year, mainly driven by low oil prices as airlines may raise capacity and likely to defer fleet retirement.

Reactivation of older aircraft will drive a rebound in maintenance work for MRO service provider. Indeed, Maybank--Kim Eng forecast air traffic should continue to improve in 2016 given lower air fares, which will also bode well for MRO industry later next year. Endit