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A growth engine for the economy

Spore’s aviation players have been riding the wave of growth in the sector, but there are challenges, and opportunities too

OVER the years, aviation has become the lifeblood for Singapore’s economic growth. This is despite the fact that the sector’s direct contribution to gross domestic product (GDP) is rather small – at around 5 per cent.

But the industry’s impact on the well-being of the republic was amply demonstrated in 2003, when economic activity was badly hit by the Severe Acute Respiratory Syndrome (Sars) pandemic which saw aviation grinding to almost a halt.

If anything, the sector’s importance has grown since.

Last year, Singapore Changi Airport recorded annual passenger throughput of 36.7 million – an all-time high, representing a 4.8 per cent growth over 2006. With Terminal 3 now in operation, Changi’s total capacity is now 64 million passengers.

But such traffic is only part of the picture.

Singapore is also a critical hub for air cargo, handling some 1.9 million tonnes of airfreight last year.

Despite a marginal slowdown of 0.9 per cent compared to 2006, mainly due to the softening demand for electronics in the United States, as well as the growing preference by manufacturers to ship their products by sea instead of by air, the republic’s dominance in air cargo remains well established.

Aerospace industry

Singapore is also one of Asia’s largest and most comprehensive aerospace repair and maintenance centres, controlling some 25 per cent of total Asia market share and employing some 19,000 technicians, engineers and specialists.

The Singapore aerospace industry grew by 10.4 per cent to a record $6.89 billion last year. Value added was up 8.5 per cent to $2.69 billion, while the number of people employed by the industry grew by 8.2 per cent to 19,000 in 2007.

The industry, which encompasses manufacturing and maintenance, repair and overhaul (MRO), remains one of the fastest growing sectors in Singapore, attracting almost $500 million in investment last year.

Indeed, Singapore’s MRO cluster is already globally competitive, and in no small measure due to the efforts of IE Singapore.

The agency responsible for trade and commerce has been moving aggressively to help Singapore’s aviation cluster improve its global market share by identifying new growth areas, by marketing efforts, direct introductions and government-to-government lobbying.

For example, IE helped Singapore Technologies Aerospace (STAe) to establish its key MRO presence in Panama by introducing the company to key decision makers like Panama’s Minister of Commerce and Industry Alejandro Ferrer.

Singapore’s dominance of the Asian aviation and aerospace has been due to a combination of lucky geography and sheer grit. Air traffic in the Asia-Pacific region has grown significantly in recent years. And this growth has accelerated with the emergence since 2001 of low-cost airlines in Asia.

Some industry experts call this the commodatisation of air travel. Essentially, this means that air travel has become a mass market, with people who never envisaged getting on board a plane 10 years ago actually seeing it as a natural mode of intercity travel across Asia. This has resulted in more growth for the region’s airlines, more aircraft orders, more routes being opened up, and more airport infrastructure development.

Singapore’s aviation players – Changi, the MRO industry, the suppliers and the air logistics specialists – have been successfully riding this wave. But success also brings with it challenges. One of these is the challenge from competition.

Oil-rich nations of the Middle East are aggressively expanding their aircraft fleets, and have been making headlines with large aircraft orders at international airshows. Some US$23.5 billion in new airports infrastructure is coming onstream by 2012, providing capacity for 316 million passengers annually and taking total airport capacity to 399 million.

Meanwhile, China and India, which are enjoying phenomenal growth in aviation, are collaborating with existing global players to gain a foothold in the fast-growing MRO sector.

Along with the challenges come opportunities. The demand for new aviation infrastructure means more business opportunities for well-placed players.

For example, China, India, Vietnam and countries in the Middle East will see frenzied building of new airports over the next five to 10 years. The Beijing government alone will spend S$28 billion over the next five years on 42 new airports, while in India the government has issued a mandate for upgrading infrastructure at four metro airports, seven greenfield airports and 35 nonmetro airports.

In the Middle East, 10 leading airports will spend some US$24 billion to build new facilities and expand existing ones.

Not surprisingly, Singapore has been cranking up its game in the face of such formidable challenges.

Critical role

IE Singapore helped form the 14-company strong Singapore Airport Consortium (SAC), which includes Changi Airport International and Singapore Airport Terminal Services.

Initiated in 2004 under IE Singapore’s iPartners Programme, this consortium combines the experiences and expertise of Singapore players to jointly offer complete suites of products, services and solutions to airports beyond Singapore. Services offered include airport investment, design, building, management and maintenance and training.

SAC has over the years made inroads into China, India and even the Middle East and has become an effective vehicle for marketing Singapore’s aviation capabilities and for lobbying for Singapore interests in airport projects.

In early 2007, IE Singapore introduced the SAC members to PAE, an American infrastructure company with significant presence in Vietnam that had worked on airport projects there. In recent years, SAC members have partnered PAE in new airport masterplanning for various airport projects in Danang and Ho Chi Minh City.

Going forward, agencies like IE, A-Star, the Economic Development Board and others expect to play even more critical roles in growing Singapore’s lead in Asia-Pacific aviation and aerospace.

And their roles will become increasingly critical as the industry faces new challenges from rising fuel price, a potential slowdown arising from the US credit crunch and an anticipated huge supply surge as planes ordered over the last two years are delivered.

Source: Business Times 6 Mar 08

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