VZCZCXRO2783
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGP #0167/01 0570420
ZNR UUUUU ZZH
R 260420Z FEB 09
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 6418
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 2239
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC

UNCLAS SECTION 01 OF 02 SINGAPORE 000167 
 
NEW DELHI FOR EHRENDREICH 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR EIND EINV ETRD ECON SN
SUBJECT:  OUTLOOK MIXED FOR SINGAPORE'S AVIATION REPAIR INDUSTRY 
 
SINGAPORE 50 
 
¶1.  (SBU) SUMMARY:  2009 is expected to be difficult for the 
aviation maintenance and repair overhaul (MRO) industry in 
Singapore.  As the recession deepens and leisure travel slows, some 
carriers may be forced to ground older planes and default on 
payments.  MRO companies face challenges securing new contracts, 
holding on to existing customers, and paying high material and 
supply costs.  However, there is a lag between reductions in air 
traffic and their effect on MRO demand, providing MRO firms useful 
lead time to adjust capacity.  Companies anticipate the business 
environment will improve in late 2009 and early 2010.  Several firms 
intend to increase hiring and training for staff to upgrade skills 
during the downturn to prepare for intense competition when business 
improves.  Industry contacts emphasized that the slowdown in 
business will not affect MRO firms' commitment to safety.  END 
SUMMARY. 
 
Mixed Outlook for Aerospace and MRO Industry 
-------------------------------------------- 
 
¶2.  (SBU) The Association of Aerospace Industries Singapore (AAIS) 
recently surveyed approximately 40 local aerospace companies, whose 
responses provided a mixed outlook for 2009.  About 39 percent of 
the companies predicted growth of 1 to 10 percent, while 34 percent 
expect contraction of 1 to 10 percent.  Respondents identified 
challenges such as securing new contracts from existing customers, 
attracting new customers, and managing the high cost of materials. 
Despite decreasing commodity prices worldwide, prices for materials 
and supplies for MROs have remained high because a small number of 
local distributors control the market in Singapore, Dr. Aloysius 
Tay, Executive Director of AAIS told Econoff February 11.  AAIS and 
its member companies are exploring new ways to buy direct from 
suppliers in the United States and the United Kingdom, and will host 
its first aerospace supplier exchange conference in May. 
 
Low Cargo and Passenger Traffic Will Hurt MRO Demand 
--------------------------------------------- ------- 
 
¶3.  (SBU) Aerospace firms are bracing for more adversity in the 
marketplace, CHIA Peck Yong, Senior Manager for Public Affairs at 
SIA Engineering, told Econoff February 13.  Air cargo and passenger 
traffic volume has dropped in recent months due to the economy 
(reftel), although leisure travel numbers were buoyed by a holiday 
season that extended through the Chinese Lunar New Year holiday, 
which ended February 9.  Cargo traffic has dropped so severely that 
SIA Engineering postponed all of its projects converting passenger 
aircraft to cargo aircraft, Chia said.  He also pointed out that as 
passenger carriers trim flights, they usually ground the oldest 
planes in their fleets first because those aircraft are less 
fuel-efficient and require more maintenance.  (Note:  Singapore 
Airlines just announced it will ground 17 of its older planes to cut 
capacity by 11 percent.  End note.) 
 
¶4.  (SBU) When carriers also reduce utilization of newer aircraft 
that require less servicing, the pace of scheduled maintenance 
checks slows, adding further downward pressure on MRO business, Chia 
said.  However, more sophisticated aircraft require higher value 
work, such as laser welding, so companies can still earn solid 
margins even while working on fewer planes.  The MRO industry also 
lags trends in air traffic, providing MRO firms three to six months' 
visibility on changes in air traffic volumes to adjust MRO capacity 
as needed, Chia added. 
 
Local Aerospace and MRO Projects on Hold 
---------------------------------------- 
 
¶5.  (SBU) MRO customers, particularly smaller carriers, are starting 
to default on payments, crimping cash flow at a time when MRO firms 
are already finding it difficult to access credit lines.  Some 
aerospace and MRO companies have put expansion plans on hold as a 
result of the economic downturn, AAIS's Tay stated.  SIA Engineering 
has postponed work on a new hangar designed specifically for the 
Airbus A380, Chia noted.  Reports indicate that aircraft engine 
manufacturer Rolls Royce delayed a project to build a new facility 
in Singapore.  (Note:  Media reported that Pratt & Whitney postponed 
a project at Seletar Airport, but that project is in fact on track, 
Daniel Long, General Manager for a Pratt & Whitney division in 
Singapore told Econoff February 20.  End note.) 
 
Companies Reluctant to Cut Personnel, Opt for Training 
--------------------------------------------- --------- 
 
¶6.  (SBU) Singapore's aerospace companies are doing their best to 
keep the approximately 19,000 people employed by the sector on the 
job.  The AAIS survey indicated that about 70 percent of industry 
respondents will increase spending on training to upgrade staff 
 
SINGAPORE 00000167  002 OF 002 
 
 
skills, and approximately 75 percent intend to maintain or increase 
hiring, compared to 24 percent that said they would cut staff.  Chia 
said that SIA Engineering will only lay off permanent staff as a 
last resort.  The company would first look to trim contract labor, 
which comprises 5 to 10 percent of SIA Engineering's personnel, then 
explore reducing variable portions of wages, such as bonuses and 
paid leave.  Pratt & Whitney contacts indicated that there are no 
immediate plans to cut staff. 
 
¶7.  (SBU) AAIS's Tay predicted that hiring will remain flat for the 
highly skilled Licensed Aircraft Engineers (LAEs) who have the 
authority to sign off on completion of work on an aircraft. 
However, companies still need lower-level skilled technicians that 
can work on various parts of an aircraft, though they do not have 
the authority to sign off on the work.  Companies could source 
talent from the local polytechnic universities to meet some of the 
demand for skilled technicians, but firms will likely also have to 
hire foreign workers to fill the gap, Tay noted.  Three times as 
many polytechnic students graduated in 2008 with diplomas in 
aerospace fields than in 2003. 
 
¶8.  (SBU) Echoing Tay's analysis, Chia emphasized that the MRO 
business is labor intensive and requires highly skilled technicians. 
 He anticipated that employee training programs initiated last month 
as part of a government stimulus package would be well utilized in 
the aerospace sector.  The aviation and aerospace industries 
suffered severe downturns following 9/11 and the outbreak of severe 
acute respiratory syndrome (SARS) in 2003.  In both cases, Chia said 
competition intensified during the recovery, and companies want to 
be in a position to win passengers and take market share when 
business improves.  Often air carriers choose not to recommission 
the planes they have grounded and opt instead to buy new aircraft. 
Aerospace and MRO firms need to be prepared with highly skilled 
personnel able to work on newer planes, Chia concluded. 
 
¶9.  (SBU) During a half-day seminar held February 20 on the 
aerospace industry and surviving the economic downturn, the Economic 
Development Board and the Science Engineering and Research Council 
encouraged industry to continue investing in training and R&D to 
prepare for the economic recovery.  Despite the current environment, 
Singapore still aims to double output and manpower in the aerospace 
MRO sector in the next 10 years.  More than 100 companies already 
have MRO work conducted in Singapore, which has six percent of world 
market share in MRO. 
 
Safety Still the Priority 
------------------------- 
 
¶10.  (SBU) Despite the economic downturn and challenging business 
environment, MRO work will continue because regulations require 
routine maintenance after certain periods of flight hours, Tay 
noted.  He is confident that LAEs will continue to uphold the 
highest safety standards and will not sign off on aircraft repairs 
or allow planes to fly unless they pass the same quality standards 
that were in place when economic times were better.  Doing so would 
put airlines at risk of losing their operating certificates. 
 
SHIELDS