GMF seeks more part­ner­ships to ex­pand

The Jakarta Post - - BUSINESS -

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.

Cour­tesy of GMF AeroAsia

Iwan Joe­niarto

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