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The First MMRO Venture in China by Boeing as Chief Investor

Publish Time1/23/2008 8:35:23 PM
Brief View


Thanks to the booming aviation market in China, the domestic aviation MMRO (modification, maintenance, repair and overhaul) market is expanding quickly. According to China Business News, the first MMRO joint venture between The Boeing Company (Boeing), Shanghai Airlines Co., Ltd. (SAL) and Shanghai International Airport (Group) Co., Ltd. (SIA) has started its hangar construction at Shanghai Pudong International Airport. The first phase of the construction is expected to be finished by April, 2009. This is not only the first share-controlled investment by The Boeing Company, an aircraft manufacturer, in the MMRO sector in China, but also its first share-controlled venture outside the United States.

Boeing Shanghai Aviation Services Co., Ltd. (Boeing Shanghai), a joint venture between Boeing, SIA and SAL, was established with a total registered capital of US$85 million and a total investment of US$1.03 trillion, of which investments by Boeing, SIA and SAL accounted for 60%, 25% and 15% respectively.

The phase 1 construction, including a hangar with accommodation capacity of two wide-body aircraft, kicked off yesterday and is expected to be commissioned by April, 2009. Moreover, the second phase will be completed by 2010, adding to the capacity of the hangar up to four 747 or 777 aircraft with a spectrum of services provided ranging from aircraft maintenance, repair and modification to part and component repairs.

This is the first MMRO investment by Boeing outside the US with share controlled. Before Boeing Shanghai, all the MRO companies in China were invested mainly by airlines companies, such as AMECO, a joint venture between Air China and Lufthansa, and STARCO, between Eastern Airlines and Singapore Aerospace Ltd.

“Compared to the competitors, Boeing Shanghai will be more effective at aircraft maintenance and modification with its easy access to support of Boeing as an aircraft manufacturer” said Mr. Chou Chi, president of Shanghai Airlines.

According to the prediction by Boeing, China will become the second biggest aviation market in the world after the United States, with about 2,900 aircraft added to its fleet in 20 years’ time when China will own 1/3 of the aircraft in Asia. “With the growth of the needs for aircraft in China, the MMRO market will continue to grow in order to suit the demand of the market which the existing MMRO companies cannot satisfy by far” said Mr. Chou Chi.

Most of the costs of an airline company comprise oil, labor and repair costs, where the repair cost accounts for over 15% of the total costs. More and more oversees airlines have outsourced their aircraft maintenance and repairs to China for its competitive price and service. “We will not only attract more customers in Asia, but those American and European customers as well with our competitive price and turn-around time” said Mr. Marco L.E. Cavazzoni, chairman of the Board of Boeing Shanghai.

According to the analysts of the industry, the joint venture was established mainly in order to tap into the huge potential passenger-to-freighter market in China, which is almost a niche market so far. According to people in the loop, the price of a Boeing 747 for passenger or freight is over US$ 100 million while a fifteen-year-old Boeing 747-400 costs only less than US$ 20 million. Therefore, if the PTF conversion cost is estimated at US$ 15 million, the total cost of a converted 747-400 freighter is only US$ 35 million.