Flag carrier Garuda Indonesia’s aircraft maintenance unit, the Garuda Maintenance Facility AeroAsia and private airline giant Lion Air Group’s Batam Aero Technic announced a joint venture to build a maintenance repair and overhaul (MRO) facility in Batam to compete with neighboring Singapore.

The adult children of Indonesian migrant workers (TKI) in Malaysia would especially be employed to work in the facility, said Coordinating Economic Affairs Minister Darmin Nasution, who inaugurated the facility construction in the Hang Nadim International Airport complex of Batam, the Riau Islands, last week.

“Rusdi Kirana [Lion founder and Indonesian ambassador to Malaysia] will bring [adult] children of TKI in Malaysia who have spent dozens of years in Malaysia to be trained here, so they’re not lost from Indonesia. This is a high-tech industry so it’s not going to be a street workshop work. It’s an advanced workshop,” Darmin said in his remarks.

MRO facilities are crucial to support Indonesia’s progress in developing its aviation industry with the operational costs of airlines making up 60 percent of overall costs, according to Darmin.

“Garuda and Lion are only capable of handling 30 percent of aircraft maintenance; where do the other two-thirds [of the demand] go? To Singapore. Of course we don’t want this to drag on so it’s very important to cheerfully welcome this commitment that has been signed” between Garuda and Lion, the minister added.

Batam has proximity with Singapore, a hub for international flights and the location of the Original Equipment Manufacturer as a place to stock aircraft spare parts.

The Office of the Coordinating Economic Affairs Minister and the Transportation Ministry are in the very near future to announce policies aimed at boosting aviation industry competitiveness as the total number of aircraft in the Asia-Pacific region is predicted to reach 11,680 by 2025, making it the biggest MRO market in the world.

“The government wants the aviation industry to grow sustainably and become competitive,” Darmin said, adding that Garuda and Lion can propose that their MRO facilities in Batam be categorized as a special economic zone (SEZ). “An industry like this can suffer financial loss at first, so they need a tax holiday, which is only applicable for investors in SEZ,” he added.

There are currently 700 aircraft operating in Indonesia, a number that is likely to soar to 1,200 by 2028, presenting an enormous opportunity for a domestic MRO industry. Total aircraft maintenance costs reached US$3 billion per year but the domestic MRO industry only has the capacity to handle $620 million.

The VIPs attending the kick off of the MRO construction in Batam signified the importance of the facility for the aviation industry, jobs creation and competitiveness among regional players in the aircraft maintenance industry.

Apart from Darmin and Rusdi, Transportation Minister Budi Karya Sumadi, Garuda Indonesia president director I Gusti Ngurah Akshara Danadiputra, Garuda Maintenance Facility (GMF) AeroAsia director Tazar Marta Kurniawan, Lion Group president director Edwart Sirait, Batam Aero Technik (BAT) president director Rai Pering and regional government representatives were present.

“Why Batam? Because it’s near Singapore so aircraft parts can be secured quickly,” said Lion’s Edward.

Lion has invested Rp 10 trillion (US$703.48 million) and employed 15,000 workers in Batam with a 30-hectare MRO facility at the Hang Nadim airport. Phase 1 and 2 of the hangars, which are already built, have the capacity to handle eight aircraft of the Boeing 737 type. Construction for the phase III hangar and the joint venture with GMF is underway.

Tazar of GMF AeroAsia said the company’s collaboration with BAT in the MRO industry was among the attempts to go global, as Indonesia has the competitive advantage of land availability and low labor costs relative to other countries.

GMF in 2015 built four MRO hangers in the Soekarno-Hatta International Airport near the capital city Jakarta with the capacity for 16 aircraft.

As of July up to 100 aircraft have been maintained from different airlines, including foreign airlines.

“For next year 37 aircraft have booked GMF services,” Tazar said, adding that the main challenge for the MRO industry is to handle more diversified aircraft engine types. Currently, Indonesia’s MRO industry capabilities are limited to handling Boeing 737 NG and Airbus A320.

Under the joint venture, GMF AeroAsia and BAT are to build eight hangars at Hang Nadim airport capable of accommodating 25 Boeing 737 and Airbus 320 aircraft. “The market will be all airlines including from other countries,” said BAT’s Rai.

Rusdi reiterated his commitment that Lion’s MRO facilities in Batam would especially employ the adult children of Indonesian migrant workers in Malaysia’s oil palm plantations, those who studied in vocational schools built by the Indonesian government in Malaysia.

“What these children of TKI have been doing is spending one week to study and another week to work in oil palm plantations. They are enrolled in vocational schools and we will recruit them to work at Kirana Polytechnic Batam so they can then work at this MRO facility,” Rusdi said.

— Riza Roidila Mufti contributed to the story from Jakarta

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