KUALA LUMPUR: Tier-1 or Tier-2 aircraft components suppliers in Malaysia will likely be ousted from commercial aircraft original equipment manufacturers’ (OEMs) supply chain if they cannot continue operating amid the temporary movement control order (MCO).

Local aerospace players urged the government to allow their operations to resume after 14 days of closures to avoid disruption in the global supply chain.

“A minimum level of operations will allow such local companies to meet critical delivery deadlines and minimise recovery period,” Malaysia Aerospace Industry Association (MAIA) president Naguib Mohd Nor told the New Straits Times recently.

MAIA is made up of 90 major aerospace players comprising major Tier-1 and Tier-2 and small and medium enterprises (SMEs).

It is a platform for Malaysian aerospace industry players to tackle common interests such as growth and industrial development, industry promotion and government policy feedback.

MAIA members include Spirit AeroSystems Malaysia, Composites Technology Research Malaysia Sdn Bhd, Aerospace Composites Malaysia Sdn Bhd, Safran, UMW Aerospace, SME Aerospace and Senior-Upeca Aerotech.

Naguib said OEMs might reduce their single-source reliance on local suppliers, which in turn could jeopardise the livelihood of existing players in the country.

“The current MCO has a wide-reaching effect on the local aircraft components supply chain as Malaysia is a critical player in the global supply chain.

“If this (temporary suspension) situation continues to be enforced, it will eventually affect operations in Europe/United States too as OEMs are required to deliver aircraft orders to clients,” he added.

Naguib said several MAIA members were at stake of breaching their agreements with OEMs due to MCO.

“Malaysia should not be accounted for breaking or disrupting the global aircraft supply chain. For the sake of the industry’s future, we hope to be allowed to operate in a controlled manner soon before we (local suppliers) being left out,” he said.

Naguib said the industry employs mainly highly skilled Malaysian technical personnel, from aircraft design engineers to technicians involving in the development of aircraft wings to troubleshooting in-service issues for global airlines.

“The local aerospace industry consists of both the maintenance of aircraft and manufacturing aircraft parts.

“The industry is a Malaysian flag-bearer globally, and is responsible for creating high value employment for the future of Malaysia,” he said.

Naguib said the industry was forecast to rake in about RM16 billion (2019) revenue from RM14.4 billion recorded in 2018.

Malaysia could also risk the livelihood of 23,000 Malaysians employed in the sector if OEMs reduce their reliance in the country’s supply chain.

According to MAIA, Malaysia aerospace sector recorded RM816 million new investments from over 230 companies last year.

Exports and import stood at RM8.49 billion and 15.9 billion respectively. This was inclusive of Aircraft bought by the likes of AirAsia and other airlines.

AirAsia is the biggest purchaser of Airbus aircraft globally.

“Aerospace has in fact been earmarked as one of a handful of strategic industries in the 11th and 12th Malaysia Plan (currently being drafted) to carry Malaysia into the future.

“The Malaysia Aerospace Blueprint has targeted that by 2030 the local aerospace manufacturing, maintenance and engineering services industry will be worth RM55.2 billion per annum with 32,000 high value jobs created,” he said.

Although the post Covid-19 industrial landscape would be highly uncertain, Naguib said historically the industry had always bounced back and continued to grow double digits.

Citing an example, he said Airbus SE’s operation in France, a country who is also under MCO, had been allowed to continue after a thorough cleaning of the facilities and implementation of additional safeguards.

The European airframe manufacturer recently secured a €15 billion new credit facility in addition to its existing €3 billion funding to ensure financial flexibility, while bolstering its liquidity and balance sheet due to the pandemic.

Airbus said it would continue to assess the ongoing situation and the impact on its business, customers, suppliers and the entire industry.

Airbus chief executive officer Guillaume Faury said the company’s first priority was to protect people while supporting efforts globally to curb the spread of the coronavirus.

“We are also safeguarding our business to protect the future of Airbus and to ensure we can return to efficient operations once the situation recovers.

“We have withdrawn our 2020 guidance due to the volatility of the situation. At the same time, we are committed to securing the liquidity of the company at all times through a prudent balance sheet policy.

“I am convinced that Airbus and the broader aerospace sector will overcome this critical period,” he said.

Airbus’ liquidity resources previously stood at €20 billion, comprising €12 billion in financial assets at hand and €8 billion in undrawn credit lines.

They were further bolstered by converting an existing €5 billion credit line into a new facility amounted to €15 billion.

Airbus said it intended to secure business continuity even in a protracted crisis by maintaining production, managing its resilient backlog, supporting its customers and securing financial flexibility for its operations.

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