Commentary: This is why Singapore needs to save its airlines and aviation sector
It should be unsurprising that the health of industries within the aviation ecosystem is being supported as a key pillar of the economy, says Dr Faizal Yahya from the Institute of Policy Studies.
SINGAPORE: Budget 2021 has adopted a more focused approach towards the most impacted sectors of the economy.
For example, S$870 million was provided to support the aviation sector, including a 10 per cent landing charge rebate for all scheduled passenger flights landing in Singapore for airlines, and a 50 per cent rebate on rental paid for ground handling companies’ lounges and offices within Changi Airport and Seletar Airport terminal buildings.
Is this support justified?
As mentioned by Deputy Prime Minister and Minister of Finance Heng Swee Keat in his Budget speech on Tuesday (Feb 16), this support is to preserve the core capabilities and Singapore’s position as a hub for global air travel and industries directly linked to this critical sector.
READ: Commentary: Companies and workers, forget life before COVID-19. Budget 2021 will help us prepare for life after it
Changi Airport’s total passenger movements were only 2 per cent of pre-COVID-19 levels as the International Air Transport Association (IATA) forecasts that it will take several years for air travel to recover.
A CRUCIAL PILLAR OF THE ECONOMY
In strategic terms, the aviation sector provides essential air connectivity for Singapore.
IATA reported that in pre-COVID times, air transport connected Singapore to approximately 159 international destinations as some 73 airlines operated out of Singapore.
To put it in perspective, much of Singapore’s economic growth and status as a global aviation hub and trading nation was facilitated by the 355,400 aircraft landings and take offs from Singapore.
Therefore it is unsurprising that the health of industries within the aviation ecosystem is being supported as a key pillar of the economy.
Apart from direct links to the tourism sector and industries such as hospitality, retail, transport and F&B, the aviation sector encompasses several sectors instrumental for Singapore’s economic development in the past as well as in future.
These include aircraft maintenance, repair and overhaul (MRO), financial services, supply chain management and manufacturing.
JOBS AND MORE JOBS
Aviation giants like Airbus, Rolls-Royce and GE Aviation have invested heavily in facilities here – as explained below - which in turn create local jobs, because of Singapore’s focus on being an aviation hub.
Singapore itself has invested heavily in the aviation ecosystem which is crucial for the economy and supported by specialised training and R&D to further develop skillsets necessary to seize future opportunities.
According to the Civil Aviation Authority of Singapore (CAAS), the aviation industry contributed about 3 per cent of Singapore’s total GDP and provided some 119,000 jobs.
These included employers in the airlines industry, airport operators, airport on-site enterprises and aircraft manufacturers.
IATA estimated that in total, Singapore’s air transport sector supported 375,000 jobs.
These were made up of the 119,000 jobs in the aviation industry, 78,000 jobs in ancillary support industries and a further 26,000 positions that were supported by the spending derived from the aviation industry.
If inflows of foreign tourists were included, their spending supported a further 152,000 jobs.
READ: Commentary: More than S$600 for first class meals? SIA isn't for everyone but that's just fine
Furthermore, the air transport sector and supply chain sector added S$29.4 billion to Singapore’s GDP.
In addition, spending by foreign tourists contributed another S$19.3 billion to GDP that amounted to a total of S$48.7 billion as gross value contribution to GDP or 11.8 per cent of Singapore’s GDP.
IMPORTANT AVIATION HUB
The key core and strategic capabilities contained within the Changi and Seletar air hubs, such as efficient processes, automated systems, world-class customer service and high accessibility, have enabled Singapore to be Asia’s leading solutions provider for MRO services that makes up 10 per cent of the global MRO output.
Functioning as a one-stop solutions provider, Singapore offers end-to-end services for the MRO needs of the aviation industry. This MRO landscape consists of Singapore enterprises and multinational companies (MNCs).
They include ST Aerospace, Pratt & Whitney, Bombardier Aerospace and Rolls – Royce – companies that are helping ensure that Singapore remains prominent on the global aviation map.
For instance, ST Aerospace is collaborating with Airbus to develop the A330 Passenger-to-Freight (P2F) conversion process. This is a first for Airbus to appoint a third-party to undertake a P2F conversion, which is a complex procedure for aircraft modification.
The aim of the A330 P2F conversion programme is to initiate the process of an aircraft modifications centre. As part of its aircraft modifications plan, ST Aerospace has built an aircraft hangar in Changi North and a hangar in the Seletar Aerospace Park.
The P2F programme is critical to expanding the air freight logistics sector as it is currently growing and could utilise the spare capacity left by the passenger sector.
In terms of R&D activities, Rolls-Royce has established its Advanced Technology Centre (ATC) in Singapore to support the Seletar air hubs manufacturing activities.
Through its research, the Rolls-Royce ATC provides expertise in the provision of materials support and R&D solutions in the areas of computational engineering and electrical power and control systems.
The EDB is leveraging on the specific skills sets in MRO activities to establish more complex manufacturing activities in Singapore such as engine fan blades and avionics computers.
SECURING SINGAPORE’S SUPPLY CHAIN
The pandemic has highlighted the fragility and need to build resilience for supply chain management. Singapore is a key node for supply chain networks and the logistics industry due to its air connectivity and advanced infrastructure.
READ: Commentary: Can Singapore be a major COVID-19 vaccine transshipment hub and save its aviation industry?
First, keeping Singapore’s aviation sector alive also helps maintain its position as a node in supply chain networks, which has implications on the country’s ability to source other products, including food supplies and essentials, as well as affect the competitiveness of other industries.
During the circuit breaker last year, those in Singapore would have seen how supply chain shocks can cause mass panic and genuine concerns.
This capability has also helped us get easy access to COVID-19 vaccines, which require advanced cold-chain logistics.
Second, being well-placed in supply chain networks has also enabled Singapore to become a regional distribution centre for aerospace firms.
For example, Satair, together with Airbus, has opened a joint distribution centre to support logistics and repair for aircraft.
Located at Seletar Aerospace Park, the distribution centre accommodates Airbus’ inventory for spares and parts that supports its customers in the Asia Pacific region.
SUPPORTING OTHER INDUSTRIES
In conjunction, specialised services such as aircraft leasing are operated by 20 aircraft leasing companies based in Singapore.
They perform key functions such as aircraft asset management, financing and legal services, meaning there is a spillover of benefits for the legal and finance sectors.
Some of these companies include Nordic Aviation Capital Singapore, which is keen to grow its operations here to extend its reach into the region.
Another company, Titan Singapore Aircraft leasing, was formed in Singapore to create new roles in fleet management and finance to support the company’s sales and marketing efforts for not only the Asia Pacific region but Africa as well.
READ: The Big Read: A vital economic pillar, S’pore’s tourism sector faces a brutal test of mettle amid COVID-19 fallout
As it has done in the past, the growth and development of the aviation sector will strengthen Singapore’s capacity in emerging areas, such as sustainable aviation and cold-chain logistics
The aviation and airline industry is therefore key to Singapore as it is a major creator of jobs, investment and growth, helps the country maintain its supply chain competencies and help protect its food and essential supplies.
The sector also helps boost other industries like retail, hospitality, events, legal and finance.
With such strong multiplier effects and by being a core pillar of Singapore’s economy, it is no wonder the Government sees the need to ensure its viability and competitiveness. That purpose should not be doubted.
Listen to aviation observers dissect the future facing national flag carriers after the pandemic and the role of Singapore Airlines on CNA's Heart of the Matter published in September 2020:
Dr Faizal Yahya is a Senior Research Fellow at the Institute of Policy Studies, Lee Kuan Yew School of Public Policy, National University of Singapore.