BANGKOK – The Thai government believes it can be a successful home for aerospace industry, capitalizing on its central location in the heart of the Asia-Pacific and the massive growth in air travel and aircraft expected in the region.
Combining aggressive corporate tax incentives with state-of-the-art infrastructure, Thailand hopes to offer a promising environment for aircraft maintenance facilities and tier 2 to 4 manufacturers.
On a week-long trip to Thailand, Avionics International learned of the Southeast Asian nation’s ambitious plans to become a larger player in the aerospace industry, part of the country’s national strategy to spur economic growth and avoid the “middle-income trap.”
Thailand is directly in the middle of 4.5 billion people in the fast-growing Asia-Pacific aviation market with India to the west, China and Japan to the north, and Malaysia to the southeast.
Beyond geography, Thailand boasts what it calls “best-cost” labor, a balance between low-wage workers and well-educated people that it believes is ideal for business. One local aerospace executive cited a $6/hr wage for skilled entry-level workers, compared to as much as $30-50/hr in the developed world.
Thailand also has hosted automotive and electronics manufacturing for many decades, though only about 30 aerospace companies currently are headquartered there.
The Thai government has ambitious plans to build up its “Eastern Economic Corridor,” or EEC, an area just east of Bangkok that is home to a number of industrial centers, both old and new. Thailand’s EEC office, in charge of massive infrastructure projects in the region as well as attracting foreign direct investment, lists plans to greatly expand the capacity of U-Tapao Airport just southeast of Bangkok; build high-speed railways to link the country’s three international airports (Don Mueang, Suvarnabhumi and U-Tapau); construct a new double-track railway to pass through industrial and logistics centers; and expand deep-sea port operations, among other projects.
Many of these infrastructure projects the EEC office plans to complete by 2023. Supanit Chantarasiri, executive director of the EEC’s infrastructure management group, said bids for the high-speed railways have already been submitted, with contract awards to be announced in the coming months.
These projects are designed in tandem with Thailand’s larger economic strategy, which focuses on twelve targeted high-tech industries for investment and growth, including electric vehicles, autonomy and robotics, advanced agriculture, and aerospace.
Thai-Owned Aerospace Manufacturing
In March of this year, CCS Advance Tech became the first domestically-owned company in Thailand to be a Boeing-approved supplier, completing the company’s audit in three special processes: chromic acid anodizing, fluorescent penetrant inspection and magnetic particle inspection.
It was a proud moment for the relatively small Thai manufacturing company, but far from the first “first” achieved by CCS. In 2005, it was the first Thai-owned company granted AS9100 certification. In 2009, it became the first to receive international manufacturing accreditations in a number of special processes and in 2014 CCS won an aerospace contract worth more than $50 million, supplying parts and assemblies for Boeing, Airbus and Augusta Westland aircraft.
Between 2012 and 2016, the company’s aerospace division grew its revenue 400 percent. CEO Ketan Pole expects the division to post at least 200 percent growth between 2016 and 2021.
Pole’s focus on aerospace tracks with the government’s nationwide vision. Historically, most of his company’s revenue has come from automotive manufacturing and plastic molding, but Pole doesn’t see future growth in those sectors.
“I see the biggest growth from aerospace components. No growth is in automotive,” said Pole during a tour offered to media. “And a little growth in oil and gas.”
Part of the company’s success stems from a focus on advanced technology and processes. Instead of competing with other regional manufacturers, CCS seeks to bid for parts where it is one of the only certified producers in the region, as it did for aircraft seating bars.
“We also do seating bars for the pilot and crew seats. The most simple seat is the economy seat. So we don’t do economy seats,” Pole said.
CCS also benefits from a booming Asian aerospace industry. Pointing to a particular machine on the factory floor, Pole said the lead time for a company to acquire it in the U.S. or EU would be five or six months.
“Here? Seven days,” Pole said, because regional suppliers of the machine keep more stock than their Western equivalents — something they are able to do because of the booming industry.
Investing in Thailand
OMADA International opened its Thailand subsidiary in 2016. An American company based in Sumner, Washington, with facilities in Oklahoma City, OMADA’s Thailand-based leadership said they were attracted in part by the Thai Board of Investment and Easter Economic Corridor incentive packages and vision.
The company’s 260,000-square-foot facility in Rayong was launched with just a $10 million investment, though some initial machines were brought over from the United States. Set up as a supplier to the company’s two U.S. facilities, OMADA executives say they achieved a 25 percent cost reduction versus U.S. domestic production. The facility currently operates 50,000 production hours annually and hopes to rapidly scale to its capacity, which is ten times that.
Senior Aerospace, a division of Senior PLC, also is posting rapid growth in Thailand. Originally established in 2005 as Weston Sea, a producer of economy seat structures, Senior PLC acquired the facility and reinvested in 2014 to expand its aerostructures capacity.
CEO Simon Shale expects the company’s annual revenue, currently at $100 million, to more than double by 2024. As Avionics was visiting, Senior Aerospace was awarded “Most Improved Supplier of the Year” for 2018 from customer Rolls Royce.
Shale credits much of the company’s success to the ambition of the local Thai engineering talent.
“This guy will go to Europe because he’s hungry to learn and he’ll stay in YMCAs,” Shale said of Jadsada Kingkaew, one of his top engineers. “He’ll backpack it because he knows I can’t afford it. Where else can you get that? Because he’s interested and he’s hungry. And now, Jade’s got 32 guys under him who are all mini-Jades.”
This, Shale said, is part of the strength of Thailand’s burgeoning aerospace industry — and why his company is investing in local training facilities and university programs to grow local talent.
“If I was just going to focus on low-cost labor, I’m going to Myanmar, Philippines, or Vietnam,” he said. Thailand isn’t a lowest-cost destination today, but in Shale’s view, the local talent and culture make it a more attractive location for suppliers in an industry where safety and reliability are paramount.
Thailand is also a critical part of Airbus Helicopters’ Asia-Pacific presence, home to a maintenance, repair and overhaul facility, or MRO, built in 2008 that services Airbus rotorcraft in Laos, Cambodia, Myanmar and Thailand. The facility began as a branch of a regional hub, but Airbus has since increased its investment and grown that facility into a standalone Thai company. Airbus is the only rotorcraft manufacturer with its own MRO in Thailand, according to Pierre André, the company’s managing director for Thailand.
Speaking with media during Avionics International’s tour of the facility, André mentioned initial challenges in training Thai maintainers to speak up in a culture that places great value on respect for superiors and politeness.
“Everybody and every culture [has] some specific challenges,” André said. “We are paying dedicated attention to ‘speak-up culture.’ Thai culture is extremely polite. … Speaking up, expressing yourself in Thai culture is not necessarily natural. So, we have regular training for our staff to make sure everybody has the desire to talk when safety is at stake.”
“The safety mindset is there [in the people] — absolutely no doubt about it. It’s about sharing it.”
Working within the framework of the Thai government’s vision for the high-tech future of the economy and its 12 target industries, private companies are racing to transform industrial parks into futuristic smart cities.
One such company, Amata Corporation, runs five “Amata City” projects — two in Thailand’s Eastern Economic Corridor and three in Vietnam — and claims to host employment for more than 200,000 Thai people. Amata’s Thailand estates contribute $40 billion to the country’s GDP, according to the company.
Amata and other similar companies purchase or lease large tracts of land in order to create industrial zones that attract foreign investment. Laying the groundwork in these industrial parks with infrastructure and transit, Amata offers companies options to lease land, lease a “ready-built factory,” or purchase land outright. The Thai government also allows duty-free zones to be set up within these industrial parks, enabling foreign investors to avoid relevant import and export taxes.
But Amata’s future vision is very ambitious. The company plans to build its 42-square-kilometer Chonburi city into a futuristic “Smart City,” connecting with the Thai government’s plans for the Eastern Economic Corridor to create a connected city full of high-tech infrastructure that will prove attractive to both companies and local residents.
Close to 60 percent of Amata’s clients are Japanese, according to CEO Vikrom Kromadit, but the company is focused on attracting western investment as well. Avionics International’s media visit to Amata Castle — built and owned by Kromadit, it is the only such castle in Thailand — coincided with an elaborate reception for a delegation of European representatives.
Amata’s vision is grandiose and compelling, as is the pitch presented by Thailand’s “Industry 4.0” focus, its Board of Investment, and its plans for the Eastern Economic Corridor. But at present Thailand’s economic growth is outpaced by almost every other member of the Association of Southeast Asian Nations.
In 2017, Thailand’s economy grew at just 3.9 percent, according to World Bank data. Vietnam grew at 6.8 percent; the Philippines at 6.7 percent; Malaysia at 5.9 percent; and Indonesia at 5 percent. Only Brunei (1.3 percent) and Singapore (3.6 percent), a far more developed economy, grew at slower paces.
Thailand hopes to achieve and maintain 5 percent GDP growth, and it may be able to through its forward-thinking investments in infrastructure and attractive incentives for high-tech industry. However, a few aerospace executives that wished to remain anonymous raised concerns about dealing with the government.
“Government people involved in this don’t really understand the industry,” one executive said. “And the process to apply and get government benefits is super difficult. The rules are strange, the process takes a lot of time, and there isn’t clear instruction on who to contact — until I go to the prime minister.”
The same executive cited a stark contrast in how the government reacts to large companies looking to invest versus small and medium-sized enterprises.
“They put out the red carpet. Five minutes, automatic, done! But for SMEs, even though we are the [backbone] of the country, we don’t get the support in aerospace,” he said.
Even that executive was optimistic for the country’s future.
“In the logistic area, we are so good,” he said. “We are in the center of the region; for [the aerospace industry], this is so good. We have skilled people because Japanese, German and U.S. companies have come to invest here and we learn that from them. People in Thailand don’t have a bad attitude. They have pride in what they do; they work hard.”