Soaring aviation fuel prices are already adversely and significantly affecting the entire aviation industry, including the maintenance, repair and overhaul (MRO) portion of the industry and the cargo conversion specialty business within that segment, causing volatility and challenges, an executive says.
“In the short term there has to be a degree of uncertainty, but depending on the aircraft conversion type, we think there are still promising opportunities available in the long term,” says Albert Leung, General Manager Marketing of Hong Kong Aircraft Engineering Company Limited (HAECO).
Commenting on freighter conversion market, Leung says it is heavily dependent on the cargo conversion window, which is refl ected by the difference between the market price of available passenger feedstock aircraft and the market demand of converted freighters. “At present (in the market) for feedstock is affected by delays to the A380 programme which has resulted in some operators holding onto their 747- 400 passenger aircraft. The fuel price increase has also influenced operators to hold their 747-400 rather than the 747 Classics.
“Similarly the output market is always affected by the short-term demand for cargo lift capability which at present is showing signs of relative weakness. A similar argument applies to the 767-300 conversion market which is affected by 787 delays,” Leung says.
HAECO’s strategy
Asked about HAECO’s strategy, Leung says the company, which is always customer focused, continues to deliver high quality services at competitive prices on all types of heavy maintenance.
Regarding market trends, he says: “Over the last two to three years the freighter conversion market has attracted a number of new entrants. I think some of them have discovered that freighter conversion alone is not as profitable as they anticipated.”
HAECO, a leading aeronautical engineering group engaged in the maintenance, modifi cation, repair and overhaul of commercial aircraft and their components, is publicly listed on the Hong Kong Stock Exchange. It has the technical capability to carry out two simultaneous freighter conversions (determined by business case feasibility studies).
Between 1995 and 2002, HAECO carried out a total of nine passengers to freighter conversions. Five conversions were performed at the former Kai Tak Airport site between 1995 and 1997 and the remaining four were done at Hong Kong International Airport at Chek Lap Kok between 1998 and 2002.
HAECO’s major conversion order customer is The Boeing Company from whom it has received a total of 50 orders, 25 of which were completed by its Xiamen-based sister company Taikoo (Xiamen) Aircraft Engineering Company Limited (TAECO) which was established in 1993.
TAECO
HAECO holds a 56.55 per cent stake in TAECO which does its conversions in the mainland where costs are cheaper. TAECO’s other partners include Cathay Pacifi c Airways, Japan Airlines (JAL) and Boeing each hold a 9.09 per cent stake, while Xiamen Aviation Industry Co. Ltd (Xiamen city) has a 10 per cent stake. Others, including the Civil Aviation Administration of China (CAAC), hold the remaining stake.
Leung says TAECO, which started its Boeing Converted Freighter (BCF) Project in April 2005, celebrated the redelivery of its 25th B747-400 BCF to a Boeing Customer in July 2008. TAECO has currently three B747-400 conversion lines.
TAECO is also the fi rst conversion centre under the Boeing supplemental type certificate (STC), which was secured from the US Federal Aviation Administration in December 2005.
Leung says TAECO’s experience in B747 “Classic Cargo Conversions” includes conversion of two B747-200 from passenger to freighter, one B747- 200 from combi to freighter and three B747-300 from combi to freighter.
TAECO’s sixth hangar, which is now under construction, is due for opening in early 2010 will be able to accommodate two wide-body aircraft simultaneously for heavy maintenance.
STAECO
“Our experience in B737-300/400 conversions lies mostly within our other sister company Taikoo (Shandong) Aircraft Engineering Company Limited (STAECO) which is based in Jinan,” Leung says.
STAECO does conversions of B737- 300/400 Passenger to Freighter (PTF) with PEMCO STC. From 2006 to 2007, STAECO converted 9 PTF aircraft while TAECO did one PTF conversion.
At present, STAECO has two conversion lines while TAECO has one line capability.
Airbus conversion
In July 2008, HAECO, TAECO and Sichuan Airlines Group and Sichuan Haite High-Tech Co., Ltd. signed an agreement to form a new joint venture aircraft engineering company – Taikoo Sichuan Aircraft Engineering Services Company Limited (TSAES) – at Chengdu, Sichuan Province, in Mainland China.
HAECO and TAECO will take a 40 per cent and 9 per cent stake respectively in TSAES, while Sichuan Airlines and Sichuan Haite will hold 42 per cent and 9 per cent respectively in the venture. TSAES will provide aircraft conversion, heavy maintenance, line maintenance, fleet technical management, inventory technical management and other engineering services for Airbus aircraft.
With a total investment of about 1 billion yuan (US$146 million) to 1.2 billion yuan, the project will be developed in stages, with Phase One, including two one-bay narrow-body hangars, costing around 150 million yuan. The fi rst hangar is scheduled to commence operation in the first half of 2010.
The facility – first Sino-foreign joint venture in Mainland China to specialise in Airbus aircraft maintenance – will be located at the northern end of the runway at Chengdu Shuangliu International Airport, and will cover an area of about 450 acres. Upon completion, the whole facility will be able to accommodate four A340 and four A320 aircraft at the same time, providing over 3,000 technical positions.
