The greener future of Asia's aviation sector

Singapore just played host to yet another successful installation of the Singapore Airshow 2016 with some 50 deals inked, out of which 10 carried a total value of US$12.3 billion.

Despite a global slowdown, opportunities abound in almost every area in the aviation sector including commercial, MRO (maintenance, repair, and overhaul), manufacturing, and technology and Singapore continues to prove its mettle as a leading aviation and aerospace hub in this region.

If we look at Singapore alone, the growth is just phenomenal. Its Seletar Aerospace Park, which is home to Rolls-Royce, Pratt & Whitney, and ST Aerospace, is now being planned for further development as it could run out of space by 2026 given its current growth rate.

According to JTC, although only half the 120ha of available land has been taken up by about 60 local and foreign firms, plans are on for the next phase of Singapore's aerospace industry development. 

This is no surprise as Airbus has predicted that the wider Asia Pacific region will lead in world traffic by 2034, dominating 36 percent of the world’s revenue passenger kilometres (RPK) by 2034, up from 29 percent in 2014, and averaging an annual 20-year growth of 5.7 percent, outpacing a world’s 4.6 percent growth over the same period.

The spare parts business, meanwhile, is a US$14 billion market and represents more than US$30 billion when we encompass all potential transaction opportunities on assets that are potentially subject to lease transaction.

The question of how airlines can make their business greener is not merely about corporate social responsibility or reducing carbon footprint. When we examine the spare parts business, we are also looking at parts that are potentially sitting idle in warehouses.

Now, what if airlines and MRO companies were to convert their idle aircraft components into cash, or enable other airlines to make use of it? What if this conversion in return gives them the opportunity to better manage their cash flow and find new lines of revenue?

As the structure of financial needs for airlines is constantly evolving, companies need to look at ways to operate more efficiently using smart capital. In this industry, safety is a key success factor, therefore, players cannot disregard all the necessary investments needed to keep their aircraft flying in good and safe conditions.

Asian airlines are also faced with looming maintenance costs as their fleet reaches the eighth to tenth year mark where heavy investment is required. Older aircraft will be replaced by new ones, which need significantly less maintenance but high investment in staff training, new tools, new technology, and new spare parts. This will result in costs being pushed up, which will then leave an impact on capital if no smart solutions are offered.

With the changing aviation landscape in Asia, airlines, aircraft companies, and MROs will need to take full advantage of opportunities that will help them accelerate their growth, restructure their operations, and ultimately better control and protect their cash and cash-equivalent assets. They will need to find innovative solutions that are smart and to a certain degree, “green” where they can outsource existing assets without putting a dent in their P&L.