By Arun Sivasankaran
Eager to build on the success it has had in wooing international aerospace companies, Thailand is continuing to invest in infrastructure improvements along its Eastern Economic Corridor (EEC) as it seeks to strengthen its economy and take advantage of the fact that the Asia Pacific is fast becoming the epicenter of global aviation.
Public and private funds worth US$45 billion will be spent on the second phase of expansion of the region, which was earlier called the Eastern Seaboard of Thailand. The funds will be used for the general development of the region that covers the three coastal provinces east of Bangkok – Chonburi, Rayong and Chachoengsao – and will include the expansion of the Laem Chabang port, the country’s largest deep-water port, the construction of a motorway as well as a high-speed railway linking the country’s three major airports in the country – Suvarnabhumi, U-Tapao, and Don Mueang.
The focus, however, will be on the development of the U-Tapao airport, the planned MRO facility near it and the proposed airport city built around the airport. The infrastructure development will cover over 400 hectares and will be geared toward attracting investment from companies in the aviation industry; the plans include an expanded passenger terminal, the maintenance and overhaul (MRO) facility, free trade zone, cargo zone and an aviation training center. The proposed aerotropolis will have connectivity to not just the two other major airports but also highways and seaports. Work is expected to be complete by 2023.
Major Plans for U-Tapao Airport
Plans for the U-Tapao airport include the construction of a new runway by 2021 as well as a third terminal at the airport. The US$5.9 billion expansion of the U-Tapao international airport comes at a time when the country’s two existing international gateways, Suvarnabhumi and Mueang, are finding it tough to handle the increase in traffic. Air traffic in Thailand is growing much faster than the global average and has doubled every 15 years since the Eighties and is expected to grow at an average annual average rate of 3.8 percent over the next two decades to reach seven billion passengers by 2034. According to media reports, the terms of reference for the expansion of the airport will be released in July this year.
Once expansion of the U-Tapao airport is complete, it will be equipped to handle 15 million passengers a year, says Salil Wisalswadi, Executive Director of Basic and Supporting Industries of the Thailand Board of Investment, who attended MRO Americas earlier this year to apprise North American companies about the investment opportunities available to them in Thailand.
“Traffic at the airport has been increasing steadily; the number has already crossed one million in 2018,” Wisalswadi tells Asian Airlines & Aerospace. “We expect at least 2 million passengers by the end of the year.”
Timing it to Perfection
Work on the proposed airport city and the overall development of the EEC has been timed to take advantage of the fact that the Asia Pacific region is the fastest growing aviation market. According to IATA, more than half of the new passenger traffic will come from the region over the next two decades. Four of the five fastest growing markets in terms of additional passengers per year will be from Asia, it adds.
With Asia forecast to have a 40 percent share of the global fleet by 2027, industry experts expect a substantial increase in MRO demand in the region. The combined MRO demand in Asia Pacific, China, and India is expected to be double that in North America by 2027. Thailand believes it has what it takes to become a major MRO player in the Asia Pacific region.
“We already have major international MRO companies operating in Thailand such as Triumph Aviation Service – Asia (TASA), Chromalloy, Rolls Royce, TurbineAero and Scandinavian Aircraft Maintenance (SAMTHAI),” says Wisalswadi, “We are confident about attracting new investment; many European companies have already expressed interest in coming into the proposed aeropolis; we will have a better idea soon.”
Wisalswadi believes Thailand is better poised than Singapore to attract new investors in the MRO sector. “Singapore has its limitations when it comes to space. We are growing; there are studies that show that the cost of doing MRO business is lower in Thailand than in Singapore. The quality of MRO services in Thailand is also higher. We create over 180,000 engineers and 200,00 scientists every year; we also have many universities offering degrees in aerospace engineering besides aviation training centers.”
The country’s current MRO focus is on components, engines and line maintenance; its MRO expenditure is expected to reach a total of US $10.6 billion by 2024. The top five components produced in Thailand – wheels and brakes, APU, IFE components, engine-fuel and control, and landing gear – are forecast to generate more than US$1.7 billion through the same time period. About 6.3 percent of the total commercial airlines’ MRO expenditure in the Asia Pacific during the period is expected to occur in Thailand. ‘
Airbus in the Picture
In what is expected to provide considerable momentum to the country’s efforts to become a MRO powerhouse, Airbus and Thai Airways International (THAI) have inked an agreement to establish a new joint venture MRO facility at the U-Tapao International Airport. The project is expected to cost about US$338 million, with the joint venture company and the Thai Navy sharing the cost.
As per the agreement signed June 22 at the Airbus headquarters in Toulouse, the proposed facility will be one of “the most modern and extensive in the Asia-Pacific region, offering heavy maintenance and line services for all widebody aircraft types.” The facility will feature the latest digital technologies to analyse aircraft maintenance data, as well as advanced inspection techniques, including the use of drones to monitor aircraft airframes. Also proposed are specialised repair shops, including for composite structures, as well as a maintenance training center.
“THAI and Airbus have undertaken extensive studies to validate the business plan for this exciting project,” said Usanee Sangsingkeo, THAI acting president. “We are confident that this venture will bring significant economic benefit for THAI and will be a major driver in the development of the wider aerospace sector in Thailand.”
“This will further strengthen the long-term partnership between our two companies and also contribute to the success of Thailand’s new eastern economic zone,” said Guillaume Faury, president of Airbus Commercial Aircraft. “With the fleet of widebody aircraft in the Asia-Pacific region set to triple to around 4,800 aircraft over the next 20 years, the project represents a sound business opportunity for both our companies.”
Apart from betting big on the EEC and investing in improving infrastructure along the corridor, Thailand has also been proactive in telling the world about it. Over the last few months, the country has taken representatives of major aviation companies, as well as international journalists, on a tour of the EEC in an attempt to spread the world about the opportunities that are available for potential investors. More such “discovery missions” are on the anvil.
In addition to creating the infrastructure needed for investment, the Board of Investment has also increased the incentives offered to international companies interested in the EEC. For companies looking to invest in the EEC zone at U-Tapao airport, an exemption from corporate income tax would be provided for more than eight years while a 50% corporate income tax reduction would be given for five years. Import duty exemption are also provided to such companies.
The multipronged approach seems to be working. In May this year, AirAsia Group announced that it would invest US$50 million in a MRO facility at the U-Tapao airport. In February, Rolls-Royce signed an agreement with Thai Airways to offer testbed capacity for the airline. Not long after that, Airbus signed a deal with Thai Aviation Industries to support Thailand’s law enforcement and military helicopters until 2020. Sikorsky has announced that Thai Aviation Services would serve as its Customer Support Centre.
There are also reports of Boeing being in discussions with the government for a joint venture company that makes aircraft parts; the aviation giant also wants to set up a training center for maintenance technicians. Japanese tiremaker Bridgestone will start producing aircraft tires in Thailand by 2019. With a host of major companies either committing to invest in the EEC or on the verge of doing so, the chances of Southeast Asia’s second largest economy consolidating its position as Asean’s regional aerospace hub seem bright.