When the top executive of Hong Kong's Cathay Pacific Airways, Tony Tyler, recently lashed out at Boeing Co. and Airbus SAS for not cutting the cost of their planes as airlines slog through one of their toughest markets in decades, it was welcome news for Hong Kong plastics executive S.W. Wong.
That's because Wong, director of injection molder Vigor Precision Ltd., sees the economy pushing the normally conservative aviation industry to look at new suppliers. He is leading a consortium of Vigor, five other Hong Kong manufacturers and a government agency to try to build a lower-cost aircraft seat manufacturing plant in mainland China.
It's a potentially risky venture, as other new firms with stronger connections in the seat business have tried and failed to enter the demanding market.
But Wong thinks that the combination of new cost-consciousness on the part of airlines and growing demand for aircraft in Asia is creating space for companies like his, in a global market that has to date been dominated by suppliers from North America and Europe.
In an interview Sept. 10 in the offices of the Hong Kong Productivity Council, which is advising on the project, Wong said the venture aims to start small, focusing on building a cheaper aftermarket replacement seat for an Airbus A340, and eventually growing to doing its own designs.
“The manufacturing costs will be cut substantially,” Wong said. “There are 800 parts in a cabin seat, so the assembly costs will be quite high … We have the research and development in Hong Kong and the manufacturing in China.”
Wong, who brought along newspaper clippings of Tyler's comments made in a speech at the Asian Aerospace International Expo and Congress in Hong Kong in early September, said Cathay is very interested in finding new suppliers. The airline provided the seats to the HKPC project.
Tyler told the Hong Kong event it was “absurd to expect an industry that is projected to lose $9 billion this year to keep paying these higher costs,” and he specifically mentioned seats as one concern.
In a follow-up statement to Plastics News, Cathay said it wanted to work with suppliers and share benefits from cost reductions, and it was encouraging them to source more from China. It said airlines have limited suppliers for many parts.
“Suppliers are often escalating prices year-by-year to formulas which do not include productivity,” the company said. “It is frustrating that they are reluctant to share the risk of cost increases or the benefit of falling material or labour pricing.”
The A340 seat has about 100 plastic parts, and Wong said the companies believe they can make seats for at least 30 percent less than current prices and still pass safety and performance requirements.
The Hong Kong government is funding the initial research to the tune of US$1.3 million, with the six companies kicking in another $190,000, said Thomas Lee, an HKPC principal consultant with the companies.
If the work pans out, the companies will spend up to $6.4 million to set up the factory, Wong said. Vigor will own 55 percent of the new company, called Universal Aviation Industrial Ltd.
Cracking tough market
Some aviation industry consultants say the Hong Kong effort has a point, that the down economy and loss of high-revenue business travelers is causing airlines to scramble for new ways to lower costs.
But they also caution that the aviation supply chain can be very tough to crack.
Vernon Alg, a Houston-based consultant who travels regularly to Asian aerospace conferences and who moderated several panel discussions at the recent Hong Kong show, said there are particular opportunities for plastics in refurbishment and non-structural spare parts.
Alg, who worked for 25 years as an aircraft engineer for American carrier Continental Airlines, gave an example of a replacement toilet paper roller tube in the bathroom of a Boeing 737, which the incumbent supplier sold for $385.
Alg said he worked with an injection molder in the United States to develop and certify another one for $55.
He said there are other areas in aircraft cabins where costs are “enormous,” such as a $1,300 plastic toilet seat for a Boeing 757 that took weeks to get replacement seats in the right color.
“The suppliers of seats, galleys and lavatories are killing us in the aftermarket for support and parts,” he said. “As soon as it goes out of production, you start paying a premium.”
Still, he said, new suppliers will face major challenges.
Even seat manufacturing start-ups with industry experience and good design have had a hard time breaking in, Alg said, and he was skeptical that the Hong Kong effort could succeed with tough fire safety and performance requirements from airlines and governments.
He said North American and European firms that understand the regulatory requirements should look to partner with lower-cost Asian firms.
An American executive whose company sells thermoplastic sheeting to aircraft seat makers said several big companies have stumbled with the high development costs of trying to get into the seat business, including one European automotive seat maker.
“I watched those guys struggle for 21/2 years before they finally pulled the plug, because the volumes just aren't as big as automotive,” said Ronn Cort, international business manager with Kydex LLC in Bloomsburg, Pa.
Andrew Miller, CEO of Sydney, Australia-based aviation consultancy CAPA Consulting, agreed there are opportunities for lower-cost countries, but said the market is more limited to new entrants than other industries because aircraft makers don't want to take safety risks with new suppliers.
“Boeing and Airbus don't tend to have 10 suppliers for a part, they have one or two,” he said. “They don't go out to bid every six months and say give us your best price.
“There is opportunity but it is highly controlled,” he said.
CAPA formerly was part of the Sydney-based Centre for Asia Pacific Aviation.
Eyes on the East
While HKPC's Lee said the Hong Kong project knows that the aviation supply chain is more controlled than others, he contends that there are signs of increasing interest in broadening that to China.
There have been headline-grabbing announcements, such as Airbus building its A320 plane in Tianjin, China, and saying that it would set up a joint venture composites manufacturing factory in Harbin, China.
There also have been quieter initiatives. Boeing, for example, came to the HKPC office in August asking for help to find “some potentially good manufacturer in the Pearl River Delta region [in South China],” Lee said.
“If they find some have the capability, they may ask their tier suppliers to have some partnership with them,” he said.
Wong contends his group, which includes companies in metals, automotive electronics and LED lighting, will be able to build a seat that can meet U.S. and European requirements.
He said Vigor, which has more than 200 Arburg and Toshiba presses at its South China factories, can apply knowledge from precision injection molding gears and gearboxes for automotive, home appliance and other markets, and its partners can supply similar expertise in their areas.
He said the group will spend the next 21/2 years developing an aftermarket seat and getting it certified in labs in the United States and Europe.
But Wong said the group is looking beyond America and Europe, and beyond Chicago-based Boeing and Toulouse, France-based Airbus (which together make the bulk of the world's large commercial passenger planes), to the Chinese market.
The aviation industry used to be largely driven by U.S. specifications, because that was where the demand was, according to CAPA's Miller, but now demand is coming from Asia and the Middle East — and that could shift some manufacturing.
China used the recent Hong Kong conference to unveil the Comac C919, the so-called “Chinese Jumbo,” which China is banking on to be its world-beating, narrow-body airliner.
Boeing projects that Asia Pacific will surpass North America as the biggest market for aircraft in 5-6 years. Wong said the Hong Kong venture also has its sights set on that switch.
“We will work later on OEM designs for the Chinese market, targeting the Chinese customers,” he said. “Then we will have a niche compared to the European or American suppliers.”
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