SINGAPORE—Jeffrey Lam, ST Engineering’s president of commercial aerospace, spoke with Aviation Week in Singapore for a one-on-one discussion at the MRO Asia-Pacific Conference.

ST Engineering just broke ground for a four-bay widebody hangar here in Singapore. What drove you to launch it?

Lam: As the world’s largest MRO, we really had to think whether we wanted to add more capacity, and if so, where. We have building programs ongoing in Guangzhou (China), Pensacola (Florida) and announced a new joint venture with SF Express in China. Ultimately what made us decide was the customers’ demand. We have customers who really like to put their aircraft here in Singapore. Despite Singapore not being the cheapest location, we deliver high quality on time. A key consideration was labor. While we have a challenge of having sufficient skilled labor in Singapore, every generation has had a similar problem. We have committed ourselves to continuously establishing Singapore as a headquarters and need that capacity and capability to address the needs of our customers, so we decided to take the step.

That’s already a lot of expansion, but are you considering any others?

Lam: There is a lot of activity going on with fleet restructuring. So obviously, there's a lot of excitement about how these markets will develop the kind of support our customers need. So, the answer is: Yes, we are looking. I wouldn't say where because we don't want to raise expectations. But there are other locations. But as I said, we want to be careful where we set up because we want to be sure that we have the right commitment from customers, the right amount of baseload and the right production factors—including political stability, skilled labor and tax environment.

Given that operators are keeping mature aircraft in their fleet due to new production aircraft problems, that means more maintenance. From a planning perspective, how is this affecting ST Engineering?

Lam: There’s certainly a lack of airframe MRO capacity—and more recently, on the engine side, too. Unfortunately, that will continue because you cannot build infrastructure overnight. One of the challenges is the capacity is taken, yet profitability in MRO can be low. Because of the high inflation for spare parts and labor, I see MROs extremely challenged actually to make money. Airlines were really hurt during COVID, and after they are charging whatever is appropriate to recover. However, to some extent that has not been transmitted down to the supply chain.

How is inflation impacting your business?

If you look at the whole value chain, starting with raw materials, the price is going up. Then you talk about logistics and transportation, that's also going up. Because of a lack of enough skilled labor, that cost is rising and there’s a lot of poaching—especially from the airlines. Spare parts costs are rising, too.

Given capacity constraints, are airlines prepared to sign longer contracts?

They are concerned about getting slots, so they are prepared to commit longer, but we are still not seeing exclusive airframe MRO contracts.

Is digitalization helping with efficiencies, which could offset higher prices and supply chain challenges?

Lam: Digitizing work process, transactions, approvals, tracking parts, etc. is helpful, but in terms of digitalization translating to analytics and predictive maintenance, that hasn’t delivered the outcomes industry-wide. Progress has been made in tracking component conditions, but to take that big leap toward being able to predict and remove components ahead of failure, I think that’s a huge step that really hasn’t happened. However, we say, "this component looks unusual, please check this and we can prep a spare." But to get all the way to predictive analytics, it’s going to require industry collaboration—pulling together OEM data, airline operating data and MRO maintenance. The three have not come together because everyone wants to keep what they have.

Do you see that changing?

Lam: I see pockets of movement, but it hasn’t gotten anywhere close to where it needs to get. But I wlll say that I think much of the digitalization is already completed in most shops, so the next step could be how do you use artificial intelligence in the work processes. How can we reduce mechanic time and increase the output using more digital tools?

We’re also looking at more automation on the shop floor. In the engine business, for instance, we have automated blending and inspecting processes.