Market Profile for Aviation in Southeast Asia While every effort is made to ensure the accuracy of the information contained herein, New Zealand Trade and Enterprise, its officers, employees and agents accept no liability for any errors or omissions or any opinion expressed, and no responsibility is accepted with respect to the standing of any firms, companies or individuals mentioned, or if the world economic conditions have changed since the research was undertaken. New Zealand Trade and Enterprise reserves the right to reuse any general market information contained in its reports. 1.0 THE MARKET & COMPETITIVE ENVIRONMENT 1.1 Market structure and size The Asian region is forecast as the fastest growing aviation market over the next twenty years. Asia Pacific is now considered a key location for growth potential not only in aviation but in business, tourism, trade and communications.1 Asia Pacific is predicted to have the second highest fleet growth at 6.6% over the next 10 years. To meet the growth in passenger numbers, the growth in aircraft movements is forecast to be equally significant over the next 20 years. By 2025 Asian airports are expected to handle more than three times the volume of movements handled in 2005, with growth averaging 6% per annum.2 1.1.1 Philippines The Philippines aviation industry is growing with further encouragement from an expanding tourism industry. Tourist arrivals in 2008 increased by 1.5% from the previous year and recorded passenger movement of 36.16 million.3 Budget airlines are popular in the Philippines with four new players recently entering the market (PAL Express, Cebu Pacific, Zest Air and Southeast Asia Air). Aviation imports and exports continue to grow. The top three imports in 2007 were airplanes, other parts of airplanes/helicopters, and aircraft engines. The top exports were aircraft parts, other parts of airplanes/helicopters and aircraft engines valued at US$281 million, US$46 million, US$20 million consecutively.3 Maintenance companies such as Lufthansa Technik now have a presence in the Philippines servicing their partner airline Philippine Air Lines (PAL) as well as other domestic airlines and other international carriers. There is no manufacturing of airplanes or helicopters in the Philippines.3 The Civil Aviation Authority of the Philippines (CAAP) indicates that there are now nine international airports, 17 Principal Class 1 airports (used for jet services), 13 Class 2 airports (used for propeller aircraft and small jet aircraft with capacities of up to 19 passengers) and 47 Community airports (used for general aviation and propeller services). The biggest international airport in terms of passenger capacity is the Ninoy Aquino International Airport complex (Terminals 1, 2 and 3). Other major international airports are Mactan/Cebu International Airport in Cebu Island, Davao International Airport in Mindanao and the Clark/Diosdado Macapagal International Airport in Central Luzon. Clark Airport, which was the former headquarters of the United States 13th Air Force, has two parallel runways that can accommodate aircraft as large as the US Shuttle. It is said to be the next main international gateway for the Philippines. The aviation industry in the Philippines is highly competitive and rapidly expanding. The government has been attempting to open up airspace through the open skies policy and improving infrastructure..3 The Philippine market is very price sensitive and generally prefers short haul flights.4 The Philippines signed an Air Services Agreement (ASA) with New Zealand in November 2007. The ASA came into force in April 2009. 1 Source: Frost & Sullivan. Asia Pacific Aviation Engine Market, December 2007. 2 Source: Airports Council International. Global Traffic Forecast 2006-2025: Executive Summary. 3 Source: Philippine Department of Tourism 2008 Statistics and U.S. Commercial Service. Philippines Aviation Report, June 2007. December, 2009 2 1.1.2 Singapore Singapore is the regional leader for maintenance, repair and overhaul services (MRO) in the Southeast Asian aviation industry, with an average growth rate of 13 % in the aerospace industry since 1992.5 Singapore has the sixth busiest airport and the fourth busiest air cargo hub in Asia, and is also predicted to become an important training hub for aviation. It is well known for its design and manufacturing ability in particular within engine casting, gears, valves, and electronic power systems.6 According to the Singapore Economic Development Board the aerospace industry’s output was worth US$4.2 billion in 2006 and is estimated to be US$8.4 billion by 2018.6 MRO activities account for 90% of the industry output. Engine overhaul is the biggest segment in MRO accounting for 48% of the overall total. Singapore offers a full range of MRO services including airframe maintenance, engine overhaul, engine component repair, structural systems repair and avionics system repair. Independent and airline operated MRO account for over 36 % of the revenue. Furthermore there are no taxes or tariffs on aviation equipment to Singapore making it a free trade hub. Singapore is the home to a number of original equipment manufacturers (OEMs) from the US, UK, and France, who have either set up their own repair centres or have gone into joint-ventures with local companies. In the biggest upheaval to Singapore Inc in decades, Temasek Holdings is set to acquire Changi Airport and its operating businesses. From 1 July 2009, the Civil Aviation Authority of Singapore (CAAS) and the Changi Airport Group will work together to build a future for Singapore aviation, driving Singapore’s national aviation policy, regulatory and air traffic services functions. Changi Airport had a rise in passenger numbers in 2008 to 37.7 million, although there was a dip in air freight by 2%. The maintenance of business jets is also expected to become a growing market in the Singapore MRO sector.5 1.1.3 Viet Nam While Viet Nam’s aviation industry is still relatively small, it has grown significantly in recent years. In 2008 it was named the fourth fastest growing tourist destination in the world. Travel is seen as highly important by the Vietnamese to provide access to markets for business but also for leisure.7 Total passenger numbers reached 9.3 million in 2009, a 6.6% increase from 2008. The government is planning to increase passenger capacity to 32.5 million by 2015 and 63 million by 2020. There are currently 21 major civilian airports in Viet Nam, of which three are international airports: Noi Bai (Hanoi), Danang (Danang), and Tan Son Nhat (Ho Chi Minh City). Tan Son Nhat is the largest airport in the country, handling approximately 70% of international passenger traffic.8 The government plans to increase the number of airports to 26 by 2020, ten of which are to be international airports. Throughput capacity is planned at 65 million by 2015 and 123 million in 2020. 4 Source: U.S. Commercial Service. Philippines Outbound Travel and Tourism Industry, April 2008. 5 Source: U.S. Commercial Service. Singapore Country Report, 2009. 6 Source: U.S. Commercial Service. Singapore Aerospace Market Report, June 2007. 7 Source: U.S. Commercial Service Viet Nam Travel and Tourism Report, October 2008. 8 Source: U.S. Commercial Service. Viet Nam Country Commercial Guide, March 2009. December, 2009 3 Aviation has been marked as a sector in Viet Nam for top priority development. However the government aim to improve airport infrastructure and increase fleet numbers will be a challenge to meet due to costs.8 According to the Civil Aviation Administration of Viet Nam, the country needs US$2.84 billion for airport infrastructure upgrades to 2015, and another US$2.73 billion required for airport development from 2016-20. Financing will come from the state budget, official development assistance, and foreign investment capital. Almost all of the equipment and parts used in the aviation sector are imported. European and Japanese suppliers are very active in the market. Some European firms have been present in the market for a number of years and have built up extensive relationships with key agencies in the sector. One of the key advantages that the European and Japanese suppliers have is that the industry in Viet Nam is familiar with their technology.9 Aviation training has become a major development area for airlines, with most airlines such as national flag carrier Vietnam Airlines frequently send cadets overseas for pilot training. A flight training centre has recently been established, and will develop a flight training operation pending approval of an aerodrome. 1.1.4 Indonesia In Indonesia, the Director General of Civil Aviation (DGCA) is responsible for the safety and regulation of civil aviation. Its functions include supervising airport and airworthiness standards, air traffic control regulations, airspace management and air service agreements. The country’s aviation sector, comprising mainly of airports and airlines has grown over the years. Recently, the government initiated efforts to revamp the system. Following an EU ban on Indonesian airlines, authorities are focusing on improving safety standards for operators. The ban has been lifted for four Indonesian airlines including the national carrier, Garuda Indonesia since July 2009. 1.2 Growth rate The growth of aviation in the Southeast Asia region has resulted in a wide range of current or planned investments in all sectors of the industry by governments, airlines and other aviation companies. The expansion of local and international destinations offered by low cost carriers is one sector that has seen significant growth. A continued rise in tourism in both the Philippines and Viet Nam will continue to fuel demand and growth of the aviation industry, through a variety of means. The desire to travel for business and leisure within Southeast Asia and further abroad is also growing in the Philippines and Viet Nam.