Listen as James Pozzi, Lee Ann Shay and Tom Broughton discuss highlights—including tariffs, engine leasing trends and engine material availability—from Aero-Engines Asia-Pacific in Hong Kong.
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Transcript
James Pozzi: Welcome to the MRO podcast. I'm James Pozzi, MRO editor for the EMEA regions. And today we are recording from Hong Kong at the conclusion of Aviation Week's Aero-Engines Asia-Pacific Conference. So joining me today on the podcast is Lee Ann Shay, executive editor for MRO and Business Aviation. Lee Ann has been covering the conference with me and has moderated some panels as well. Leanne, thank you for joining us. And also joining us today, a bit of a break from the norm, really. Also joining us is Tom Broughton, who of course has overseen the conference agenda and content this week, and he's been very much front and center and integral to putting that together and joining us. So Tom, for the first time, welcome to the MRO podcast. Thanks for joining us.
Tom Broughton: Yeah, thank you, James. Thank you, Leanne. My first time here on the podcast, so very pleased to be in such good company.
James Pozzi: Excellent. If you could just maybe set the scene, Tom, just to start. Maybe give us some of, I guess, the numbers or some of the interesting takeaways from your side, in the events team, that you've got from the last couple of days of this event.
Tom Broughton: Yeah, of course. Well, as James has said, we've just wrapped up Aero Engines Asia Pacific, here in Hong Kong. It's the second year we've been here, second year in a row, I should say. And we've had over 330 attendees on site from regional airlines, lessors, MROs, OEMs, traders, and more. The event has seen about a 30% increase across both attendance and exhibition growth, compared to 2024. I think really for me, the atmosphere on site has been fantastic. There's been a great attendance on our conference sessions with really highly engaged audience asking questions, engaging in polls, and engaging with our speakers. The networking has been nonstop, both in the showcase exhibit area, but also for Brella, which is our one-to-one meeting area.
But for me, sitting in the events team, being in Hong Kong is just fantastic. We have a great relationship with HAECO, who are our partners, our host sponsors. And in partnership with them, we brought this event to Hong Kong for the second year in a row. The support and guidance from HAECO at this event is just fantastic. From a content perspective, they put us on the very leading edge of market trends. We heard from a CEO, Richard Sell, in the keynote yesterday, sharing how HAECO are navigating tariff uncertainty, maintaining their long-term commitment to the industry and to sustainable growth.
I'm sure James and Leanne will be sharing more about that, Richard's coverage of the keynote. But for me, one more standout and a highlighting one of the real benefits of being here in Hong Kong, we had a power session today on day two of the event, focused on the Chinese tear down and USM market. We were really fortunate to be joined by representatives from Xiamen Airlease, Xaero, Sintek and [inaudible 00:03:01] Technologies. And I think by doing this event in Hong Kong, so close to the mainland, it's really beneficial to have the buy-in from those Chinese companies firsthand and connect them of course with the international attendees that we know so well these shows. So yeah, for me it's great to be here. We've had a really fantastic few days.
James Pozzi: Yeah, thanks, Tom. I echo what you said there. It's been a really interesting conference and some really good speakers too as well. And let's, as you mentioned, of course, Richard Sell, of course the CEO of HAECO Group. Lee Ann, you sat down with Richard this week at the conference and you got some really interesting insights. Let's start with tariffs, of course. We did a podcast on that... The last podcast episode was on that subject. Of course, MRO Americas where we were a few weeks ago in Atlanta. It very much dominated proceedings there too. What did Richard have to say, I guess, from his perspective of a company based in Hong Kong, but with, I guess interest in the US and China?
Lee Ann Shay: Regarding tariffs, Richard Sell talked about a lot of other things. But on the tariff front, they're not changing their strategy and he emphasized just that HAECO is continuing to take a long-term focus. They're not changing their objectives. At this point they are not changing their capacity or production planning. And Richard said, "I'm encouraged by the dialogue with their customers. I'm encouraged by the dialogue with our OEM partners and others. There seems to be a balanced, sensible and cool-headed conversations taking place." And he's not seeing knee-jerk reactions at this point.
So even though there are a lot of uncertainties and tariffs did come up several times, right now there's just too many unknowns. And I think this cool-headed approach is very pragmatic. And he did say that HAECO does operate in a couple of free trade zones, so services there could be exempt from tariffs.
James Pozzi: In Hong Kong and in China. Yeah, yeah. That was interesting I thought.
Lee Ann Shay: Yeah. But in addition to tariffs, HAECO is celebrating their 75th anniversary, so big milestone to them. And as Tom had mentioned to you, HAECO is also continuing to make some big sustainability investments, everything from solar panels to a water reduction. But he also talked about their expansion in Asia-Pacific and potentially in the Middle East.
James Pozzi: Yeah, I was very interested in the growth as well, of course. That was of course it's worth mentioning for the HAECO global engine support business. They do a lot of service like hospital shop visits, for example, that just opened an expanded facility in Dallas. And they have the locations that obviously in Hong Kong, their main base, London, near Heathrow and Amsterdam too. Yeah. And he mentioned obviously the Middle East and also possibly India as well as an alternative. So one to watch there, I think, because that geographically would make a lot of sense. And I think what was interesting with Richard, I agree, pretty bullish about the prospects, pretty positive. I think tariffs, of course we've said before, seem very unwelcome just because the uncertainty. Richard actually made a point that what, he spoke on a Wednesday, he said, "What I'm saying on Wednesday may be different on a Thursday," it can just change day to day.
I woke up this morning in Asia and there was reports or speculation editorials that there could maybe be talks between the US and China about a larger trade deal for example. But as it stands, it's worth mentioning there's a sort of 10% baseline, which is implemented early this month, but the China-US one is the more extreme end of the scale. The US has implemented a 245% tariff on goods coming into the country from China. And China reciprocated with I think 125%. So there is a belief, I guess, that it will change hopefully for the better. I think that's what the industry is holding out for. But yeah, it will change fast and seemingly on a daily basis. So we'll be interested to see what it looks like when this podcast is released and you'll listen to it. Lee Anne, also, any other insights that really stood out for you this week?
Lee Ann Shay: Since I'm the one who usually brings up supply chain, I'm very tempted to talk about that, and I probably still will, but I wanted to mention digital implementation. There's lots of really interesting discussions about digital things from Hong Kong Express, for instance, is implementing an electronic logbook and other people had talked about these different digital tools to reduce turnaround times, operational efficiencies, AI application developments, AR Adil Shah mentioned one being a dynamic task card generation that kept working on. ADR mentioned advanced analytics, predictive maintenance. I guess several other companies mentioned that as well. Drone inspections. Oh, and Richard Sell also mentioned that HAECO is implementing autonomous mobile robots to enhance material handling.
James Pozzi: Yeah. Asia Pacific as a region's always been pretty good on that side, certainly in my time in the industry. Would you agree with the digitalization? They've been pretty forward-thinking in that sense.
Lee Ann Shay: Yep.
James Pozzi: And also the hardware side as well. You mentioned the robotics.
Lee Ann Shay: And that kind of ties back to labor. The last several years we've talked a whole lot about labor shortages, supply chain problems, and these new initiatives also make things more efficient, faster turnaround times. And I think that leads into supply chain. The last couple of days, people have said that the supply chain generally is improving, but it's still problematic. One of the panels that I moderated, there was a whole question about what is the biggest challenge to predictable production planning and not surprisingly, engine material availability was that the number one response at 63% and labor was a distant second at 19. So that's just indicative of those two issues are still problematic.
James Pozzi: Yeah. And it's interesting, because age particular, it may be seen on a country by country basis. When you talk to people in Europe or North America with business arms or interest in APAC, they always say that it's generally a bit more straightforward to get labor in Asia than it is in Europe or North America. They seem to think, and it's interesting comparing the two, but regardless, given the growth and we heard about the need for more capacity a lot, you will need the people as well. So it is a challenge in its own right as well still. But as I agree very much behind material availability, that seems to be keeping a lot of people up at night.
Lee Ann Shay: Yeah. So a quick question. How many times do you think we heard the word module swap over the last two days?
James Pozzi: Oh yeah, that came a lot. Yeah, certainly in my own panel actually, the one I moderated, so yesterday on services and MRO demands. Yeah, I mean that feature pretty prominently.
Tom Broughton: I think as well on that panel, James, it was good to hear from FTI Aviation. One of their leaders joined our session and we hear from FTI across all our events globally. But yeah, interesting to see that they're very keen in the region, keen to come to the event, share their experiences of leading in that module swap and business, and seeing that driver. I think other representatives on that panel were equally happy to talk about their experience in module swaps. So definitely very keen. Yeah, I think definitely a very prominent tool in the MROs arsenal.
James Pozzi: Yeah. And it seems the expectation is there will be a lot more module swaps. That's not going to, that's been a big trend in the industry the last couple of years, of course. That doesn't seem like that's going to change. It seems like a lot of operators will still favor or look for maybe the module swap. Still a strong pension for PBH agreements on engines. Several reasons for this. Operators for example, it seemed that they, sorry that the PBH will provide lessors with the assurance that the parts and repairs are genuine and OEM approved. So it gives them that certainty. We heard some good insights from engine lessors this week, who shared those views. Also on engines and that inflection point from current generation to new generation. New engines of course are designed for higher efficiency, greater, sorry, lower fuel burn, but they do have a shorter time on wing at the moment as they're maturing and building up that durability.
So this is leading to an increase in maintenance costs. Yet, the belief was airlines are still in this region, still, they see those fuel savings they're getting as a positive trade off, despite the higher maintenance costs they're incurring, because maintenance costs seem to be going up across the board. We saw some figures yesterday from airlines and they weren't all from this region. It must be worth mentioning there were some North American ones in there. But yeah, the maintenance costs do seem to be going up generally, I guess things like inflation as well, and just price escalations. So that was an interesting one. I think as well from the lessors, they're kind of really, I mean it goes without saying anyway, they're really monitoring lease agreements, because things like geopolitical shifts that we're seeing, we talked about a lot over the last year, sanctions, for example, on certain countries and maybe even tariffs now, they could influence lease agreements going forward.
So that's something they're really looking at. Again, not to be too lease heavy, but yeah, the production delays for Boeing, for example, are driving up lease rates too. That's something that has been mentioned a few times. And also worth mentioning, the Asia Pacific fleet. It's a relatively young fleet. There's a lot of new aircraft in the region, but it's also a high percentage of it is leased, compared to owned. And that's definitely a strong regional trend there. And this means, given the lack of favorability from lessors towards PMAs for example, these still aren't really cutting through. Maybe they are in other regions where carriers have become a bit more open and susceptible to doing that. So yeah, so they were the points that stood out. I said quite less or heavy in some of those, but yeah. Interesting nevertheless. And Tom, I know you had a word or two for the OEMs this week. [inaudible 00:13:37] very topical.
Tom Broughton: Yeah, absolutely, James. I think again, tied back into the supply chain points, we can press that down Williams buzzer once again, but we always like to hear from the OEMs at these events and of course to have them in attendance. So many of the production durability challenges, naturally the OEMs are essential to those and we hear about so much of them at the moment. But I think as much as OEMs are central to those challenges, they're support is naturally critical to solving those issues as they collaborate within industry partners.
So just to make a quick plug and shout out for the show, we had GE Aerospace, we had Pratt & Whitney and Rolls-Royce all join us here in Hong Kong this week. And Rolls-Royce in particular spoke on both the panel on day one of the event, about shifting engine maintenance sports clearance. They were joined by regional airlines and lessors. And also today we had a presentation on their technical product updates as well. So I think, and having spoken to both those speakers after the event, it was really beneficial for them to engage with the market. Here's some feedback, some honest feedback, I'm sure, but I think beneficial for the OEMs to be here and definitely beneficial for our other attendees to have the OEMs join us here as well. So really good close to the event as well, to all three major engine OEMs join the show.
James Pozzi: Also, worth mentioning just about repair developments too. That was the last panel of the day. I think there's a few things worth sharing about that, goes without saying, there's a big need for repair development, both for existing and new products in the market. Heard an interesting stat today that only 20% of Leap engine repairs are currently available, which is not really surprising, I guess, given it's a relatively new engine, not been serviced for under a decade of course. But yeah, that just shows the scope of what could maybe still be made available to the market. But that said, a lot of in-region services are being built, adding of new capacity repair capability too. We'll see a lot of that I think over the next few years, certainly in the engine space. Yeah, essentially, I guess one of the reasons to stop work going out with the region, because there is still a lot of work.
We hear about Asia growing and there's a lot of established players here. We also talked about HAECO earlier and ST Engineering, obviously to name but few. There's a lot of established operations out here, but a lot of work is still going out of the region. So building up that in-region repair capability. I guess there's also a sustainability tilt to that as well, keeping things sort of localized and not going or venturing too far and obviously costs as well would be a factor in that. So yeah, I think we'll see a lot more of that in the next few years. And yeah, that kind of capability drive, which the 10 years I've been in the industry has kind of hasn't really stopped in Asia Pacific, has just keeps going and going. But yeah, there's some very interesting projects down the line on that too from MROs.
Lee Ann Shay: And I agree. There continue to be lots of investment in both capability and capacity. It's a strong app to market here, especially for engines. Brian Coad mentioned the Aviation League 2025 forecast. There's 38.9 billion dollars of MRO demand in the Asia Pacific in China, but 53% of that is engine MRO, that's 25 billion dollars. So this year, 2025, 53% of overall MRO demand here in Asia Pacific is for engine MRO.
James Pozzi: Yeah, and that shows the opportunity, but the scale of it as well. Well, that brings us to the end today. Leanne and Tom, thank you so much for joining us today on the MRO podcast and giving your insights and sharing your thoughts on Aero Engines Asia Pacific. Excellent. Well, don't miss the next episode by subscribing to the MRO podcast, wherever you listen to podcasts. And one last request. If you're listening in Apple Podcasts and want to support this podcast, please leave us a star rating or write a review. Thanks.
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