Market Profile

for Aviation
in Southeast Asia

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employees and agents accept no liability for any errors or omissions or any opinion expressed, and no responsibility is accepted with
respect to the standing of any firms, companies or individuals mentioned, or if the world economic conditions have changed since the
research was undertaken. New Zealand Trade and Enterprise reserves the right to reuse any general market information contained in
its reports.
1.0 THE MARKET & COMPETITIVE ENVIRONMENT

1.1 Market structure and size

The Asian region is forecast as the fastest growing aviation market over the next twenty years. Asia
Pacific is now considered a key location for growth potential not only in aviation but in business,
tourism, trade and communications.1 Asia Pacific is predicted to have the second highest fleet growth
at 6.6% over the next 10 years. To meet the growth in passenger numbers, the growth in aircraft
movements is forecast to be equally significant over the next 20 years. By 2025 Asian airports are
expected to handle more than three times the volume of movements handled in 2005, with growth
averaging 6% per annum.2

1.1.1 Philippines

The Philippines aviation industry is growing with further encouragement from an expanding tourism
industry. Tourist arrivals in 2008 increased by 1.5% from the previous year and recorded passenger
movement of 36.16 million.3 Budget airlines are popular in the Philippines with four new players
recently entering the market (PAL Express, Cebu Pacific, Zest Air and Southeast Asia Air).

Aviation imports and exports continue to grow. The top three imports in 2007 were airplanes, other
parts of airplanes/helicopters, and aircraft engines. The top exports were aircraft parts, other parts of
airplanes/helicopters and aircraft engines valued at US$281 million, US$46 million, US$20 million
consecutively.3

Maintenance companies such as Lufthansa Technik now have a presence in the Philippines servicing
their partner airline Philippine Air Lines (PAL) as well as other domestic airlines and other international
carriers. There is no manufacturing of airplanes or helicopters in the Philippines.3

The Civil Aviation Authority of the Philippines (CAAP) indicates that there are now nine international
airports, 17 Principal Class 1 airports (used for jet services), 13 Class 2 airports (used for propeller
aircraft and small jet aircraft with capacities of up to 19 passengers) and 47 Community airports (used
for general aviation and propeller services). The biggest international airport in terms of passenger
capacity is the Ninoy Aquino International Airport complex (Terminals 1, 2 and 3). Other major
international airports are Mactan/Cebu International Airport in Cebu Island, Davao International Airport
in Mindanao and the Clark/Diosdado Macapagal International Airport in Central Luzon. Clark Airport,
which was the former headquarters of the United States 13th Air Force, has two parallel runways that
can accommodate aircraft as large as the US Shuttle. It is said to be the next main international
gateway for the Philippines.

The aviation industry in the Philippines is highly competitive and rapidly expanding. The government
has been attempting to open up airspace through the open skies policy and improving infrastructure..3
The Philippine market is very price sensitive and generally prefers short haul flights.4 The Philippines
signed an Air Services Agreement (ASA) with New Zealand in November 2007. The ASA came into
force in April 2009.

1
Source: Frost & Sullivan. Asia Pacific Aviation Engine Market, December 2007.
2
Source: Airports Council International. Global Traffic Forecast 2006-2025: Executive Summary.
3
Source: Philippine Department of Tourism 2008 Statistics and U.S. Commercial Service. Philippines Aviation Report, June
2007.

December, 2009 2
 1.1.2 Singapore

Singapore is the regional leader for maintenance, repair and overhaul services (MRO) in the
Southeast Asian aviation industry, with an average growth rate of 13 % in the aerospace industry
since 1992.5 Singapore has the sixth busiest airport and the fourth busiest air cargo hub in Asia, and
is also predicted to become an important training hub for aviation. It is well known for its design and
manufacturing ability in particular within engine casting, gears, valves, and electronic power systems.6

According to the Singapore Economic Development Board the aerospace industry’s output was worth
US$4.2 billion in 2006 and is estimated to be US$8.4 billion by 2018.6 MRO activities account for 90%
of the industry output. Engine overhaul is the biggest segment in MRO accounting for 48% of the
overall total. Singapore offers a full range of MRO services including airframe maintenance, engine
overhaul, engine component repair, structural systems repair and avionics system repair. Independent
and airline operated MRO account for over 36 % of the revenue. Furthermore there are no taxes or
tariffs on aviation equipment to Singapore making it a free trade hub.

Singapore is the home to a number of original equipment manufacturers (OEMs) from the US, UK,
and France, who have either set up their own repair centres or have gone into joint-ventures with local
companies.

In the biggest upheaval to Singapore Inc in decades, Temasek Holdings is set to acquire Changi
Airport and its operating businesses. From 1 July 2009, the Civil Aviation Authority of Singapore
(CAAS) and the Changi Airport Group will work together to build a future for Singapore aviation,
driving Singapore’s national aviation policy, regulatory and air traffic services functions.

Changi Airport had a rise in passenger numbers in 2008 to 37.7 million, although there was a dip in air
freight by 2%. The maintenance of business jets is also expected to become a growing market in the
Singapore MRO sector.5

1.1.3 Viet Nam

While Viet Nam’s aviation industry is still relatively small, it has grown significantly in recent years. In
2008 it was named the fourth fastest growing tourist destination in the world. Travel is seen as highly
important by the Vietnamese to provide access to markets for business but also for leisure.7 Total
passenger numbers reached 9.3 million in 2009, a 6.6% increase from 2008. The government is
planning to increase passenger capacity to 32.5 million by 2015 and 63 million by 2020.

There are currently 21 major civilian airports in Viet Nam, of which three are international airports: Noi
Bai (Hanoi), Danang (Danang), and Tan Son Nhat (Ho Chi Minh City). Tan Son Nhat is the largest
airport in the country, handling approximately 70% of international passenger traffic.8 The government
plans to increase the number of airports to 26 by 2020, ten of which are to be international airports.
Throughput capacity is planned at 65 million by 2015 and 123 million in 2020.

4
Source: U.S. Commercial Service. Philippines Outbound Travel and Tourism Industry, April 2008.
5
Source: U.S. Commercial Service. Singapore Country Report, 2009.
6
Source: U.S. Commercial Service. Singapore Aerospace Market Report, June 2007.
7
Source: U.S. Commercial Service Viet Nam Travel and Tourism Report, October 2008.
8
Source: U.S. Commercial Service. Viet Nam Country Commercial Guide, March 2009.

December, 2009 3
Aviation has been marked as a sector in Viet Nam for top priority development. However the
government aim to improve airport infrastructure and increase fleet numbers will be a challenge to
meet due to costs.8 According to the Civil Aviation Administration of Viet Nam, the country needs
US$2.84 billion for airport infrastructure upgrades to 2015, and another US$2.73 billion required for
airport development from 2016-20. Financing will come from the state budget, official development
assistance, and foreign investment capital.

Almost all of the equipment and parts used in the aviation sector are imported. European and
Japanese suppliers are very active in the market. Some European firms have been present in the
market for a number of years and have built up extensive relationships with key agencies in the
sector. One of the key advantages that the European and Japanese suppliers have is that the industry
in Viet Nam is familiar with their technology.9

Aviation training has become a major development area for airlines, with most airlines such as
national flag carrier Vietnam Airlines frequently send cadets overseas for pilot training. A flight training
centre has recently been established, and will develop a flight training operation pending approval of
an aerodrome.

1.1.4 Indonesia

In Indonesia, the Director General of Civil Aviation (DGCA) is responsible for the safety and regulation
of civil aviation. Its functions include supervising airport and airworthiness standards, air traffic control
regulations, airspace management and air service agreements. The country’s aviation sector,
comprising mainly of airports and airlines has grown over the years. Recently, the government
initiated efforts to revamp the system. Following an EU ban on Indonesian airlines, authorities are
focusing on improving safety standards for operators. The ban has been lifted for four Indonesian
airlines including the national carrier, Garuda Indonesia since July 2009.

1.2 Growth rate

The growth of aviation in the Southeast Asia region has resulted in a wide range of current or planned
investments in all sectors of the industry by governments, airlines and other aviation companies.

The expansion of local and international destinations offered by low cost carriers is one sector that
has seen significant growth. A continued rise in tourism in both the Philippines and Viet Nam will
continue to fuel demand and growth of the aviation industry, through a variety of means. The desire to
travel for business and leisure within Southeast Asia and further abroad is also growing in the
Philippines and Viet Nam. Singapore already reports over three million residents over the age of 15
travelled abroad at least once in the last year.10

All four countries are experiencing shrinking economies during the global economic downturn. Both in
Asia and internationally airlines have experienced reduced usage of services. In Asia there is strong
competition amongst the airlines offering competitive deals for travellers. MRO is expected to be a
continually expanding industry during 2010 and onwards.5

9
Source: U.S. Commercial Service. Overview of the Aviation Sector in Viet Nam, December 2005.
10
Source: U.S. Commercial Service. Singapore Travel and Tourism Report, March 2009.

December, 2009 4
 1.2.1 Philippines

Recent Civil Aviation Board data shows that domestic and international air travel in the Philippines
registered growth of 9.6% in 2008. Domestic air travel grew by 13.2% in 2008 while international air
travel increased by 6%. The four airlines operating in the market have added new planes to their
fleets to service the lucrative tourist and regional destinations. New planes are being added to the
fleets as expansion in the industry continues. This growth is threatened by a shortage of pilots as
many move to other airlines offshore, caused by a lack of competitive remuneration packages offered
to pilots by national carriers. Filipino pilots are in demand by foreign air carriers because of their
English language skills.3 It is hoped that industry expansion will continue and help to retain pilots.

Over the past few years a number of Class 1 and 2 airports have been upgraded, expanded or
rehabilitated, including the Davao International Airport, Bacolod (Silay) Airport, Puerto Princesa
Airport and the Iloilo Airport. Other airport projects are ongoing and some are in planning stages,
including Clark/Diosdado Macapagal International Airport (terminal expansion and upgrade), Mactan
Cebu International Airport (general expansion and purchase of airport equipment and baggage
handling systems), NAIA Terminal 1 (upgrading of equipment), and Legazpi International Airport
(relocation and expansion). Some of these expansion projects will open up opportunities for airport
equipment such as baggage handling systems, check-in counters, x-ray machines/baggage systems,
airport terminal furniture and seating, emergency equipment, and airport management software.

The Philippines economy is forecast to begin growing again in 2010. GDP is estimated to drop to
US$158.9 billion in 2009 before returning to US$160 billion in 2010.11 The domestic tourism industry
is continuing to grow, which has translated into a rise in the number of domestic passengers carried
by the four domestic airlines. A recent report by the Civil Aeronautics Board reveals that the number
of passengers on domestic flights increased by 25% in 2009. Air cargo volumes carried by the four
carriers likewise grew by 8% in 2009.

1.2.2 Singapore

Singapore has up to 43% of the global market and 50% of the Asia Pacific market for MRO.6 Growing
demand and expansion of this industry has seen Seletar Airport and its surrounding area of over 140
hectares of land earmarked to host a new integrated aerospace industry cluster.

The Singapore economy is estimated to shrink by up to 7.2% during 2009 with growth to slowly begin
in the following years.12 Going forward, 2010 is expected to be a challenging year for the aviation
industry. To help airlines and partners survive the global downturn, CAAS has earmarked US$200
million for 2009 and an undisclosed sum for 2010. The capital will be used for:
 A relief package of S$63 million for providing rental rebates and creating a promotions
development fund to support promotional initiatives.
 Extension of Air Hub Development fund to strengthen the aviation sector by providing landing fee
rebates for airlines. There will also be across the board rental rebates for offices, airlines lounges
and warehouses for aviation related companies operating in Singapore.
 A Cargo Incentive Scheme to provide relieve to cargo agents and drive air cargo performance at
Changi International Airport

11
Source: Economist Intelligence Unit. Philippines Consumer Goods and Retail Report, March 2009.
12
Source: Economist Intelligence Unit. Singapore: Consumer Goods and Retail Report, February 2009.

December, 2009 5
 From April 2009, Goods and Services Tax (GST) compliance costs for the MRO industry will be
zero.

1.2.3 Viet Nam

The Civil Aviation Administration of Viet Nam (CAAV) estimates that the aviation sector will grow by
10-15% annually over the next few years. The forecast growth is attributed to significant economic
growth, the gradual liberalisation of the aviation industry, and the growing tourism industry.13 The
aviation industry is one of the priority sectors for development by the government. Most of Viet Nam’s
airports were built before 1975 and many need upgrades or completely rebuilt. Investment capital in
this sector will be about US$14.2 billion by 2020. Development through the period of 2020-2030 is
expected to require total capital of US$20.5 billion.

The national flagship carrier, Vietnam Airlines, is expected to have a fleet of 62 airplanes from 2007-
2010 and will need to purchase 16 new aircraft to service demand from 2011-2015, and 13 more
aircraft to service demand for 2016-2020. The total fleet by 2030 is expected to reach 250, half of
which will be owned by Vietnam Airlines.

Viet Nam currently has 46 airports in operation. Airport facilities will undergo significant development
in the next 20 years. Long Thanh Airport hopes to achieve total annual throughput of 80 – 100 million
passengers. Extensions are planned for Noi Bai Airport with its T3 terminal increasing annual capacity
of 20 – 25 million passengers. Other upgrade programmes planned are for the airports of Cat Bi, Da
Nang, Phu Bai, Chu Lai, Cam Ranh, Can Tho and Phu Quoc.

The projected growth in the aviation sector will also increase growth in air traffic controller, pilot and
airline training opportunities as well as opportunities in the maintenance and parts sectors.

1.2.4 Indonesia

Indonesia has 178 airports. Most big airports are managed by two separate airspace management
systems: Angkasa Pura 1 and Angkasa Pura 2. Currently, there are 47 airlines in the country that
offer air transportation services for passengers and facilitate freight movement. The domestic airline
market in Indonesia is oligopolistic in nature. The major players based on share of seat capacity are
Lion Air, Garuda Indonesia and Sriwijaya Air. Together they command almost 77% of the market. Air
traffic has grown over the years. During 2006-2008 passenger traffic and freight tonnage expanded by
6% and 10% respectively. This increase in passenger traffic was driven by robust growth in tourist
arrivals. Apart from airlines offering transportation services, a major player is PT Dirgantara
Indonesia/Indonesian Aerospace (IAs). This company provides aircraft designing, joint development,
licensed production and subcontracted production of aircraft and related equipment. The company
also offers aircraft and engine MRO services.

In 2007, the European Commission imposed a ban on Indonesian carriers from its airspace following
a string of accidents. In a bid to restart operations to Europe and to meet the demands of the
European commission, the Indonesian parliament passed a new aviation law to improve air safety in
2008. In March 2009, the government raised the requirement for operators to have a scheduled airline

13
Source: U.S. Commercial Service, Market Brief – Viet Nam, April 2006.

December, 2009 6
status. As per the new requirement (to take effect from 2012) a scheduled airline must have at least
10 aircraft in its fleet. With this rule in place, the government aims to weed out small players that
compromise on air safety due to lack of capital and resources.

In 2009, the government also took steps to strategically reorganise the existing two-airspace
management systems into a single airspace management system. The new development comes
under the DGCA Civil Aviation Strategic Action Plan (CASAP) that was developed in mid 2008. In
September 2008, the officials at Garuda Indonesia announced plans to offload 30% of the company
shares through an initial public offering (IPO). The company plans to refinance debt and focus on
business development with the capital generated from the IPO.

GMF AeroAsia, the profit making MRO service provider of Garuda Indonesia is considering facility
expansion by adding narrow body and wide body hangars. Over the last few years, the company has
seen an increase in the number of clients. Lion Air, another Indonesian operator is also looking to
enhance its presence in the MRO space. Lion Air outsources most of its heavy maintenance work to
GMF AeroAsia but it does Boeing and MD-82 heavy maintenance in-house at Jakarta Halim
Perdanaskusuma Airport.

Indonesia enjoyed an investment boom in 2007 and the first half of 2008 as market friendly reforms
and solid macroeconomic growth created profitable investment opportunities. However, domestic non-
financial corporations obtains almost 50% of their financing abroad as either loans or bond issues and
the western investors that provided much of this are now scrambling to sell assets to pay off short-
term liabilities, which are becoming increasingly difficult to roll over. The most obvious effect on this
has been the collapse in the stock market but in addition foreign demand for Indonesian debt and
bonds is disappearing quickly. As a result many domestic investment plans will need to be postponed.
Job creation is expected to suffer. Although imports will probably slow significantly, the foreign
balance will make little contribution to growth in 2009-2010 as exporters will struggle amid global
economic weakness.

1.3 Major players in the market

1.3.1 Philippines

Airbus dominates the aviation manufacturing industry followed by Boeing, Bombardier and ATR.
Lufthansa Technik is the major player in the MRO sector. They have a presence at all the major
airports and have a joint venture the national carrier, Philippine Air Lines (PAL).3 Singapore Airlines
Engineering Company Ltd (SIAEC) has a joint venture with Cebu Pacific Airlines, the country’s
second largest airline. Zest Air, formerly Asian Spirit Airlines, secures its maintenance support from
both Lufthansa Technik and SIAEC.

There are several supplies of helicopter parts in the Philippines and the main companies are:
McConnell Dowell Helicopter, Bell, Eurocopter, Robinson Helicopter, Augusta, and Sikorksy.

The main airlines operating in the Philippines are the national airline, Philippine Air Lines (PAL)
followed by Cebu Pacific Air (CEB).3 These two airlines are not only expanding their fleets but provide
competitive pricing on current flight routes. Other airlines operating are Zest Air and Southeast Asian
Airlines (SEAir). All four airlines offer LCC services with PAL being the only full service airline in the

December, 2009 7
market. PAL’s LCC carrier, PAL Express, competes with the other LCC carriers. In 2009, PAL carried
six million passengers, an increase of 23% since 2008. CEB also experienced growth in 2009 –
carrying 7.2 million passengers (an increase of 35%). Zest Air carried 872,000m passengers in 2009,
more than double the number of passengers carried in 2008.

1.3.2 Singapore

Singapore has two of the leading MRO players in the region, both of which have extensive facilities in
Singapore’s Changi Airport. SIA Engineering, a subsidiary of Singapore Airlines, provides services for
a wide range of major airlines and air freight operators. Singapore Technologies Aerospace is a global
company with more than 6,000 employees around the world. The world’s largest independent provider
of airframe MRO services, it has maintenance and repair contracts with a number of airlines in the
region, including Malaysia's AirAsia and Indian airlines Jet Airways and SpiceJet.

Singapore Airlines Ltd is the country’s national airline. It has a fleet of nearly 100 aircraft and flies to
more than 40 countries. Singapore Airlines is the leading player in the Singaporean airline industry
and holds a strong position in the Asia-Pacific region.

Tiger Airways is a low-cost airline with its primary hub at Singapore Changi Airport, which was
incorporated in September 2003. In 2006, the airline flew 1.2 million passengers, an increase of 75%
from the previous year. Singapore Airlines has a significant stake in Tiger Airways.14

1.3.3 Viet Nam

The main airlines in Viet Nam are Vietnam Airlines, Indochina Airlines, Jetstar Pacific Airlines, and
Vietnam Air Service Company (VASCO). VietJet Air is a planned airline, and received approval to
from the Vietnamese Minister of Finance in November 2007, but has not yet commenced flights.
VietJet Air will be the first airline in Viet Nam to be 100% privately owned.

There are currently no aircraft and aircraft parts production facilities in Viet Nam. Virtually all
equipment and parts are imported, mainly from the United States, Europe and Japan. The increasing
number of aircrafts will create strong demand for in-country engine maintenance.

1.3.4 Indonesia

The major players in the Indonesian aviation market based on share of seat capacity are Lion Air,
Garuda Indonesia and Sriwijaya Air.

Market share of major airlines in the domestic market:

Airline Ownership Frequency Share Capacity Share Number of routes
Lion Air Private 25% 32% 34
Garuda Indonesia State Owned 30% 29% 31
Sriwijaya Air Private 17% 16% 39
Merpati State-Owned 13% 9% 41

14
Source: Tiger Airways sees 75% jump in number of passengers. Channel NewsAsia, January 2007.

December, 2009 8
Indonesia Air Asia Private 5% 6% 9
Wings Air Private 6% 6% 15

1.4 Marketing strategies

1.4.1 Philippines

The four airlines in the Philippines operate on a low cost carrier or budget airline basis with PAL being
the only one operating in both segments (full service and low cost through PAL Express). CEB
became the largest budget carrier in the country when it carried 5.35 million passengers in 2008
dislodging PAL, the dominant domestic carrier. Budget carriers appeal to the market as they provide
a range of price choices and frequency of flights. These airlines serve the primary tourist destinations
and they smaller carriers such as Zest Air and SEAir serve both primary and secondary tourist
destinations. Both CEB and Zest Air have entered the regional LCC market and have added flights to
Hong Kong, Shanghai, Bangkok, Singapore, Tokyo and Incheon giving PAL added competition in its
regional routes.

1.4.2 Singapore

Singapore is the aviation hub for the region. Many distributors who operate in Singapore have
operations throughout the region. New Zealand exporters should invest in brand building and
marketing with their local distribution partners. It is quite common for distributors in this part of the
world to represent a catalogue of brands and there may be a real chance of the product being “lost”.
New Zealand exporters should be careful in selecting the right distributor because this choice can
affect the penetration into the region for at least a two year period. Any marketing strategy should be
built around a decision to have a presence in the market to help provide back-up service and
warranties. Many Asian partners see this as a commitment to the region and to after-sales service
which provides assurances to customers that the New Zealand company is in it for the medium to
long haul.

1.4.3 Viet Nam

The key operators in Viet Nam (Vietnam Airlines and the airport authorities) are state-owned
companies - therefore all procurements must comply with very strict tender regulations. Interested
suppliers should investigate the requirements well before the tender invitation as the tender proposal
duration of one month does not give much time to prepare. A good agent with strong connections and
experience is critical for success. Market visits and presentations to clients should also be made.

1.4.4 Indonesia

Indonesia is a relationship market. Therefore it is important for New Zealand companies to visit the
market to introduce products as well as to build networks. Face-to-face meetings and technical
presentations are important to have a better understanding of a client’s needs, especially for tendered
projects. Selecting the right local partner who has good network connections is crucial as the agent

December, 2009 9
needs to provide appropriate contact and useful advice. Agents who can assist with communication
are an asset, especially when the potential clients have limited English.

1.5 Distribution channels

1.5.1 Philippines

It is possible to market and sell directly to end-users in the Philippine aviation sector if the required
licenses and certificates are obtained for certain types of products and services, for example, aircraft
MRO services. The Civil Aviation Authority of the Philippines (CAAP) is the government entity that
certifies and issues licenses/certificates to international MRO companies. It is recommended that New
Zealand companies interested in the Philippines aviation market partner with or the services of local
market agents and distributors.

1.5.2 Singapore

It is possible to contact and sell to the end user directly in Singapore but it is recommended to have a
local market agent. Given the compact size of Singapore and excellent infrastructure, different market
entry strategies can be used. Personal relationships are critically important to any strategy, so
consider the following points.

 Importers generally undertake the warehousing/distribution function.

 Many retailers import direct.
 Specialist logistics centres exist.
 After sales service is important so promotional support for importer/agent activities is generally
well received and can help develop a market presence.
 New Zealand exporters should ‘work’ the market with their agents.
 Electronic connectedness is expected.
 Trade fair participation can be extremely valuable.
 Flexibility in pricing is important.

1.5.3 Viet Nam

According to Vietnamese regulations unless a country has a licence to distribute its own goods in Viet
Nam they must use an authorised agent. A local agent is necessary to help with relationship building
and follow-up work. Equipment and services are generally sold directly to companies such as Vietnam
Airlines and the airport authorities.

1.5.4 Indonesia

To supply equipments and goods to Indonesian governments, New Zealand companies must have a
local partner; otherwise they will not be able to join the tender.

December, 2009 10
2.0 RECOMMENDED STRATEGIES

2.1 Tactical recommendations on market entry

2.1.1 Philippines

New Zealand companies should target potential partners and agents and a good way to do this is
through participation in relevant conferences, exhibitions and trade shows, or through referrals from
other international players participating in the Philippines aviation market. A good, well-networked
partner or agent will help navigate this technical and tricky market and having a well established
business partner or agent can help improve your credibility in the market.

2.1.2 Singapore

New Zealand companies that are seeking partners should participate in relevant conferences and
trade shows to network and raise their international profile. Singapore is very status-driven, and the
name of current partners/clients will help New Zealand companies gain acclamation. Therefore,
current partners, clients, and case studies should be well documented for perusal by potential
Singaporean partners/clients. Establishing a presence in the market is extremely advantageous in
gaining trust and support from the local partners/clients, obtaining contacts, and attracting venture
capital funding.

2.1.3 Viet Nam

In order to enter the market, equipment suppliers and service providers are advised to register their
interest and capabilities with appropriate agencies such as the CAAV and VNA. Both organisations
are open to negotiations with any capable vendor. In some sub-sectors New Zealand is already
known to Viet Nam as a reliable supplier of skills and expertise. New Zealand companies should take
advantage of this to further improve relations.

2.1.4 Indonesia

In order to enter the Indonesia market, New Zealand companies are advised to visit the market in
order to develop relationships. New Zealand companies that are interested to supply equipment that
is airport related through government tenders, they must appoint a local partner in Indonesia. A good,
well-networked partner or agent will assist the complex procedures and bureaucracies.

December, 2009 11
2.2 Recommendations on long term strategic issues for exporters to consider

2.2.1 Philippines

The Philippines aviation sector is riding the coat tails of improving domestic tourism and higher
demand for air services in towns and cities not previously serviced by airlines. However, there is the
threat of fluctuating fuel prices and uncertainty in the global market which may dampen long-term
growth. Security concerns are also increasingly becoming an issue to local airlines since the Federal
Aviation Administration (FAA) downgraded the country’s airlines to Category 2 due to airport security
concerns, thus preventing expansion and upgrading of services to US destinations. To counter this,
PAL is working with local authorities to assist them in upgrading security at airports. Once the
Philippines has resolved its airport security issues, it is expected that the other carriers will also fly into
PAL’s most lucrative routes such as the West Coast of the US and Australia/New Zealand.

2.2.2 Singapore

High aviation fuel prices and the volatility of the global economy are long term issues that exporters
need to consider when entering the Singaporean market. The aviation industry is suffering from
turbulence with Singapore Airlines recently cutting capacity by 11%. Changi Airport suffered from
falling passenger numbers and operating costs rose 20.2% due to the new Terminal 3.

However the fundamentals remain strong and the infrastructure developments like the Seletar
Aerospace Park will still go ahead. The region is expected to lead the growth in air travel as the
industry's centre of gravity shifts to the East. With China and India integrating more closely into the
global grid, demand for air travel in the region will soar. Within Southeast Asia, air travel is also
expected to take off. There is also a commitment among ASEAN countries to liberalise their air links,
aiming to have free access among ASEAN capitals by the end of 2009. Fundamentals in the long run
remain strong and the aviation industry is set to recover.

2.2.3 Viet Nam

There have recently been a number of issues with budget airlines in Viet Nam. CAAV has issued
licences to a number of budget airlines such as Indochina Airlines, JetStar Pacific and VietJet Air.
However the market conditions and competition with Vietnam Airlines made this difficult. The licence
for Indochina Airlines was withdrawn after several warnings. JetStar Pacific suffered huge losses due
to hedging speculation on fuel prices in 2008. VietJet Air’s first flight is scheduled for May 2010; if not
then its licence will be revoked.

2.2.4 Indonesia

Indonesia has inaugurated Aviation Law No 1, 2009. Regular Indonesian airlines must have a
minimum of ten aircraft by 2012. Therefore it is predicted that some smaller airlines will have to merge
their companies. However, bigger airlines are still committed to renew their aircraft. For example,
Garuda Airlines has ordered ten units of B777-300ERs and 50 units of B737-800, and Lion Air
ordered 178 units of B737-900. PT Angkasa Pura (provider of airport management services) is

December, 2009 12
committed to expanding existing airports and building new airports throughout Indonesia. Some
recent airport projects include: Kualanamu Airport in Medan, Raja Fisabilillah Airport in Tanjung
Pinang, Sultan Syarif Kasim II Airport in Pekanbaru and Minangkabau Airport in Padang and Bali
Airport.

2.3 Sustainability issues

The main focus in the region is currently on business sustainability. However, there are the
beginnings of awareness for environmental issues amongst the business community.

For the aviation industry in general, sustainability is an important issue. It consumes significant
amounts of fossil fuels and contributes problems such as greenhouse gas emissions and climate
change. Noise pollution can also be a problem in areas around airports. As demand for air travel
in Southeast Asia increases, so too does the environmental impact.

There is growing interest in biofuels (bioethanol, biodiesel) in the region, in order to cut down on CO2
emissions, and to reduce the importation of fossil fuels by making use of their own biomass
resources. Different countries in the region have their own targets for use of biofuels15:

Country Target value for bioethanol Target value for biodiesel

Philippines 5% (by 2010) -
Singapore - -
Viet Nam 500,000kL (by 2020) 50,000kL (by 2020)
Indonesia 15% (by 2010) -

3.0 MARKET RESOURCES AND CONTACTS

3.1 Regulations

New Zealand has a free trade agreement (FTA) with the ASEAN countries. To look up the current and
phased tariffs for New Zealand products under the agreement use the tariff finder on
www.asean.fta.govt.nz

Tariff rates
Philippines Singapore Viet Nam Indonesia
Aircraft (HS 8802) 1-3% 0% 0% 0%*
Aircraft parts (HS 8803) 3% 0% 0% 0%
Other aircraft products
3% 0% 0-5% 0%
(HS 8805)
* There is also additional 50% sales tax on luxury goods for several items. 8802.11.00.00 and 8802.12.00.00 products are
restricted / prohibited.

Taxes
Philippines 12% value added tax is levied on all imported products.
Singapore 5% on CIF + duty.

15
Source: AsiaBiomassOffice. http://www.asiabiomass.jp/english/topics/1001_05.html

December, 2009 13
Viet Nam 10% value added tax for most goods and services.
Indonesia 10% value added tax

Industry standards
The Philippines, Singapore, Viet Nam and Indonesia are all member countries of the United Nation’s
International Civil Aviation Organisation (ICAO). The ICAO undertakes regular auditing of each
country’s Civil Aviation Authority. The United States Federal Aviation Administration (FAA) established
the International Aviation Safety Assessment (IASA) program in 1992. This focuses on a country's
ability to adhere to international standards and recommended practices for aircraft operations and
maintenance established by the ICAO.

3.1.1 Philippines

The Civil Aviation Authority of the Philippines (CAAP), an agency of the Department of Transportation
and Communications (DOTC), is tasked to implement policies on civil aviation that will ensure safety,
security, economy and efficiency in air transport in the Philippines. It is also tasked with investigating
air traffic accidents in Philippine airspace and involving Philippine registered air carriers.

CAAP is the main agency that handles licensing and registration, for example MRO
facilities/certification, aircraft types, airport equipment etc.

3.1.2 Singapore

There are no specific trade regulations with regard to selling aircraft related equipment and
accessories in Singapore. Technical standards and labelling requirements for aircraft repair
equipment are nearly the same as those set by either the US Federal Aviation Industry or the UK Civil
Aviation Authority, depending on the type of equipment.

The Civil Aviation Authority of Singapore (CAAS) is Singapore's Civil Aviation Authority and a
statutory board under the Ministry of Transport. The CAAS regulates civilian air traffic within the
airspace jurisdiction of Singapore; it is also the sole government agency to maintain the operational
efficiency of the airports in Singapore and to engage civilian air-service agreements with air-service
operators. CAAS also operates the CAAS Air Traffic Control Service, which oversees movements of
civilian aircraft at Singapore’s airports and in the Singapore Flight Information Region (FIR). CAAS
handles aviation licensing and registration.

3.1.3 Viet Nam

The CAAV, which reports to the Ministry of Transport, is responsible for the management of the
Vietnamese aviation sector, and makes the key decisions on airport upgrading and ground support
facilities. CAAV’s main duties include:
 planning for the development of the civil aviation industry and civil aviation technology
 enacting aviation policies
 establishing flight standards, overseeing flight safety
 planning, supervising and monitoring aviation telecommunication, meteorology, air traffic control
and flight information

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 licensing of all activities in the aviation industry.

Following its accession to the WTO the Vietnamese government is committed to opening the aviation
sector to foreign carriers. However, this liberalisation will be carefully staged, and up until 2010 the
government is not going to issue licences for domestic operation to any other carriers to avoid over-
competition.9 Foreign ownership is capped at 30%.

3.1.4 Indonesia

The Director General of Civil Aviation (DGCA) is responsible for the safety and regulation of civil
aviation. Its functions include supervising airport and airworthiness standards, air traffic control
regulation, airspace management and air service agreements.

There are five Directorates under the Directorate General of Civil Aviation, they are: Directorate of Air
Transport, Directorate of Airport, Directorate of Aviation Security, Directorate of Air Navigation, and
Directorate of Airworthiness and Aircraft Operation. Each directorate is responsible in their own area
for policies and standards, procedures, certification, supervision and enforcement, as well as
evaluation and reporting. For example, the Directorate of Airworthiness and Aircraft Operation is
responsible in the area of Standardization, Engineering, Manufacturing, Aeronautical Product,
Operation, Maintenance and Aircraft Personnel.

3.2 Government, Business and Trade

Government
 Civil Aviation Authority of the Philippines www.caap.gov.ph/
 Civil Aviation Authority of Singapore: www.caas.gov.sg/caas/en/index.html
 Indonesian Directorate General of Civil Aviation http://hubud.dephub.go.id/?en

Industry
 International Civil Aviation Organisation www.icao.int
 Centre for Asia Pacific Aviation www.centreforaviation.com
 Association of Aerospace Industries Singapore www.aais.org.sg

Trade publications
 Orient Aviation www.orientaviation.com
 Asia Aviation Magazine www.asianaviation.com

Trade events
 Airport Security Asia www.airportsecurityasia.com
 Singapore Airshow www.singaporeairshow.com.sg/

December, 2009 15
3.3 NZTE Contact Details

This document is one of a series of free information tools for exporters produced by New Zealand and
Enterprise (NZTE). NZTE provides a wide range of standard services and sophisticated solutions that
assist businesses through every stage of the export process.

For information or advice, ring NZTE on 0800 555 888, visit www.nzte.govt.nz, or contact your Client
Manager.

Prepared by: New Zealand Trade and Enterprise, December, 2009

December, 2009 16