FARNBOROUGH AIR SHOW
by Jennifer Meszaros – July 11, 2016, 5:00 AM
Thailand’s relatively low wages make it a logical choice for MRO.
In an attempt to duplicate the success of its automotive industry—the 12th largest in the world—Thailand is ramping up its push to become a full-service aerospace hub, and a major player in the region’s multi-billion-dollar aircraft maintenance and manufacturing industries. The country’s presence here at the Farnborough International Airshow falls under the remit of its Board of Investment (Hall 4 Stand A110).
Thailand may seem overly ambitious to some, but Peter Gille, director of operations and engineering at Triumph Aviation Services—Asia (TASA) remains bullish on the country’s growth prospects. TASA’s capabilities include repairing and overhauling auxiliary power units (APU), thrust reversers, composite structures, and engine and airframe accessories.
“I am personally convinced that Thailand can become a full-service aerospace hub,” Gille told AIN. “This is, in fact, what I am personally trying to contribute to.”
Dozens of industry leaders agree. Over the past two decades, Thailand has attracted significant investment from several U.S. companies such as Triumph, Honeywell, General Electric and Chromalloy, along with French tire manufacturer Michelin and German manufacturer Leistritz. According to Thailand’s Board of Investment (BOI), 24 companies are actively involved in aircraft part manufacturing while 12 companies perform maintenance and repair on aircraft and parts.
Thailand’s not-so-secret weapon lies in its strategic location, low labor costs, expanding network of free trade agreements and generous incentive packages. Situated in the heart of Southeast Asia, the country offers convenient trade with China, India and so-called Asean countries (Those in the Association of South East Asian Nations). Moreover, Thailand’s two international deep-sea ports on the eastern seaboard enable suppliers to tap into global markets.
“Thailand is centrally located and very pro-business,” said Ronald Vuz, president of Triumph Structures Thailand—a manufacturer of aerospace composite structures. “We are in a free trade zone. This is a big part of the reason why we bought this facility. The country also has strong regulations and policies along with great logistics. It is very easy to get product in and out.”
Speaking to AIN last month, Segsarn Trai-Ukos, country director for Michelin, said the country’s geographical advantage prompted the company to switch its base of operations. “We recently moved our headquarters from Singapore to Thailand. We wanted to be closer to our customers and closer to our factories,” he said. “For us, this was a strategic decision.”
Despite uncertainties over Thai politics, the World Bank’s Ease of Doing Business 2016 report places Thailand as the second-ranked emerging economy in Southeast Asia in which to do business and the 49th in the world. Aerospace companies say they have no complaints when it comes to serving overseas customers.
Gerton van den Oetelaar, engineering director of Chromalloy Thailand, said, “95 percent of our work is engine component maintenance. On average, we have 82 to 100 customers worldwide. Having agreements with BOImakes us very competitive.”
The agreements that van den Oetelaar allude to are laid out in well-defined investment policies that include a string of fiscal and non-fiscal incentives that range from corporate tax exemptions to assistance with customs, work permits and product sourcing. Available incentives include an exemption of import duties on machinery, no export requirements, an eight-year corporate income tax exemption and permission to own land.
“Airlines often want their parts in a very short time,” van den Oetelaar told AIN. “We ship anywhere in the world in two, three days, max. This is because we have priority clearance from BOI to import and export.”
Thailand’s generous investment packages do not end there. Recognizing the importance of infrastructure and the need for greater integration between core industries, Ajarin Pattanapanchai, deputy security general of BOI, told AIN that a policy launched early last year aims to ramp up further investment in aerospace activities.
Dubbed the Super-Cluster initiative, the program allows future companies to be eligible for eight-year corporate tax exemptions and an additional five-year reduction of 50 percent, provided they are in the designated cluster areas.
For industries with significant importance, Pattanapanchai said that the Ministry of Finance will consider granting 10 to 15 years’ corporate income tax exemption, personal income tax exemption for renowned specialists and matching grants to support investors in high-value-added activities such as training and research and development (R&D).
In order to be eligible, companies must collaborate with academic or research institutes to improve the level of human resources and technology. “In order to accelerate investment, projects need to apply this year and generate revenue in 2017. But for big projects, the BOI may consider a time frame on a case by case basis,” Pattanapanchai said.
Having a broad-based game plan that includes cooperation between institutions, the government and the private sector have long been a part of Thailand’s DNA in building up competitive manufacturing industries. Today, aerospace companies benefit from the country’s advanced auto manufacturing and electronics industries.
“Many of our Thai employees came from the automotive industry,” said Vuz. “While we provide training, the automotive industry has paved the way for people to enter aerospace.”
Arnd Balzereit-Kelter, managing director of Leistritz, agrees. “Thailand has experienced a slowdown in the automotive industry. So we are leveraging off this and hiring people from the sector.” Leistritz’s Thai division is a global supplier of components for the forging of compressor blades for aero engines such as the International Aero Engines V2500, Pratt & Whitney PW1000G (with P&W partner MTU), and Rolls-Royce Trent 700, 900 and 1000.
Compared to neighboring countries like Vietnam, Cambodia and Laos, Thailand has more skilled labor that companies can tap into. According to Gille, the country has civil engineering schools and two main universities that offer aerospace programs
“I am very impressed with the level of education,” Gille told AIN, “Fifty percent of our staff have bachelor or master degrees, and two employees have PhDs. They know what they are doing.”
Saying this, TASA and other aerospace companies recognize the need to invest in new capabilities, as manufacturers deliver next generation aircraft and engines with new technology. To remain competitive, companies across the sector offer employees in-house and overseas training.
“We have Thai people training Thais, and English-speakers training Thais to train other Thai people,” Vuz said. “Thais can do the work. They just need more experience and a chance to broaden their capabilities.”
Making sure there is a sufficient knowledge-based workforce to accommodate MRO growth, van den Oetelaar said Chromalloy offers roughly 200 training courses per year in areas such as machining and welding. The company currently employs more than 500 people and serves all the major airlines in the world.
“Quality is not an argument, it’s a standard,” he said. “You have to comply with regulatory requirements in this field.”
Aerospace companies are not only leveraging Thailand’s burgeoning talent base, they are also taking advantage of low labor costs. With aerospace work becoming more intensive and more costly, van den Oetelaar said it makes sense to be based in a country with relatively low wages.
“Asia is a growth region. There is going to be more maintenance required,” he said. “We focus on doing everything in house, which makes us very efficient and low-cost.”
While Thai employees may earn a lower salary compared to their Western peers, the cost of living and doing business in Thailand is substantially less.
“People go to India because the market is growing but it’s expensive with poor infrastructure. The cost of borrowing capital is very high compared to Thailand,” said Ketan Pole, chief executive officer of C.C.S. Advance Tech—a manufacturer of piece parts for Tier 1 and Tier 2 customers of Boeing, Airbus, Rolls-Royce and UTAS.
Pole told AIN that another benefit to Thailand is a competitive corporate income tax rate at 20 percent.
“In Southeast Asia, Thailand has advantages, “he said. “It makes sense to be here.”
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