GMF seeks more partnerships to expand
PT Garuda Maintenance Facility (GMF) AeroAsia, a unit of flag carrier Garuda Indonesia, has recently kicked off its initial public offering (IPO) process, promising the biggest IPO in Southeast Asia for a maintenance, repair and overhaul (MRO) company in almost two decades.
The Jakarta Post’s Farida Susanty spoke with GMF president director Iwan Joeniarto about the future of the industry and the company’s expansion plan. Here are excerpts of the interview:
Question: How do you see the prospect of the MRO business in Indonesia?
Answer: The [growth potential] is still tremendous. In Indonesia alone, the industry’s value has grown from US$1 billion to $2.1 billion in just five years. And imagine, from that number, only 32 percent has been absorbed by GMF, while the rest goes to foreign MROs. So, there are still big opportunities and challenges in Indonesia. What are these challenges? The first [challenge] is capability. That’s why we have to build partnerships [with other companies]. The second is human resources development. Skillful workers are required, especially in the MRO sector. But we have prepared [our human resources development] for years and we have been working with polytechnics for that. The next is funding. Expanding our capacity will need a big investment because the required investment in the MRO sector is not cheap. [The sector] is also very prone to technology development.
GMF has repeatedly stated that it aims to be among the world’s top 10 MROs. Can you elaborate on the company’s plan moving forward?
We hope to be in the top 10 by 2021, but our revenue would have to hit $1 billion. According to our calculations, if we can earn $1 billion [in revenue] in five years, we will be in the top 10, considering the development of our competitors. So, it’s more about the revenue scale of the top 10 MROs. We will need to have partnerships and joint ventures, and build new facilities to reach that [goal]. This year, we are targeting to earn $58 million in net profit, up by 13.7 percent. We hope to achieve that by increasing revenues to $424.8 million from $389 million in 2016. So, that’s around a 20 percent increase. Our revenue growth from 2014 to 2021 is expected to be around 20 percent to 21 percent. It’s huge.
What will GMF need to expand?
Within five years, we have planned several joint ventures to support our aim to be a total solution and maintenance service provider. The partnership can be forged with domestic and foreign partners to increase our capacity as a lot of aircraft maintenance is still being shifted to foreign companies because of our lack of capacity. One of the problems is in aircraft component maintenance. That is one sector that needs to be supported by joint ventures. Also we need partnerships in aircraft engine maintenance because the required investment is so big. For components, we have already signed an MoU [memorandum of understanding] with one of the world’s biggest MROs operated by Air France and KLM.
What kind of impact do you expect from the partnerships?
With the joint venture, we hope that the [revenue] proportion sourced from our parent company will decrease. Currently, the portion from our parent company is at 68 percent, and non-affiliated companies at 32 percent. We want to reverse that. But for the parent company itself, we haven’t tapped into its full [potential] because it still uses the service of other companies. And with partnership, we expect some planes that are usually sent to Europe [for MRO service] to be directed to us, especially for regional [airlines]. It will be more efficient as well, because the airlines don’t have to travel far for their MRO.
What are the main goals of GMF?
We have a target to invest around $400 million within the next five years, and the investment will come from various sources. In the short term, we want to increase our capacity through partnerships. In the long term, we want to build additional facilities, such as a new facility in Batam [Riau Islands] for our domestic [operation]. We have also prepared to partner with foreign entities to build new facilities in their respective countries to get closer to our customer. We plan to go to the Middle East, East Asia and Australia to explore our opportunities.
What are the reasons behind GMF’s decision to target these regions?
Australia and the Middle East have seen a significant growth in [air] fleets. The second [reason] is because we want to get closer to our customers, especially for light maintenance. In Australia, the cost of labor is high and the country doesn’t specifically develop its MRO industry; it [focuses] more on other industry segments. In the Middle East, the workers are also from abroad; from the Philippines, Bangladesh and Thailand. Because MRO is labor intensive, we want to build a facility there as we have a large labor force. So, we looked for places with a large [air] fleet and where the MRO industry is not advanced.
How is the State-Owned Enterprises Ministry’s development of an aviation service hub progressing?
We are still working on it. GMF will be the coordinator for the MROs; we will also gather MROs operated by state enterprises. Propeller maintenance, for example, will be handled by a joint operation unit between GMF and MMF [PT Merpati Maintenance Facility]. For the military, maybe PT DI [Dirgantara Indonesia] will handle it. It’s more about synergy and the utilization of joint facilities.
The government has scrapped the import duty for aircraft components. What more can the government do to support the industry?
It [the 0 percent duty] is only for 25 components. There is still a long way to go. [The tax exemption] hasn’t really affected [GMF] much. The government could help the industry with land concessions. We have to pay land concession fees because [our facility] is located on land owned by the airport authority. It’s been pretty hard on GMF’s costs. If this can be deregulated, the government would be able to give [the industry] a further boost. Also, the government could provide human resource in the aviation sector as it is quite expensive [to train] staff.