ADE leads push to make KLIA a special economic zone

SEPANG: Asia Digital Engineering (ADE), the engineering arm of Capital A Bhd, is spearheading efforts to accelerate the designation of the Kuala Lumpur International Airport (KLIA) area as a special economic zone (SEZ).

ADE chief executive officer Mahesh Kumar said the move is critical for Malaysia's ambition to emerge as a leading aviation maintenance, repair and overhaul (MRO) hub in Southeast Asia.

He said SEZ status would enable faster movement of aircraft parts, attract greater investment into the MRO sector and help level the playing field for Malaysian players competing against regional peers operating within free trade zones or SEZs.

ADE has taken the lead in advocating the proposal to the Selangor government and Malaysia Airports Holdings Bhd (MAHB).

Both parties have also met crucial stakeholders, namely the Transport Ministry, the Finance Ministry and the Customs Department, to discuss the proposal.

SEZ OVER FREE ZONES

"MAHB is currently championing this as an industry effort to prosper the MRO sector. Initial discussions with the government and stakeholders look positive," Mahesh told Business Times in an interview recently.

Mahesh said gazetting free zones is a complex process governed by the Free Zones Act 1990, while an SEZ involves fewer hurdles as it falls under the Finance Ministry's direct authority.

"Unfortunately, MRO is not one of the sectors which are prescribed in the Free Zones Act, thus amending the law would be tough as it involves the Attorney-General's Chambers and getting through Parliament.

"In the meantime, gazetting an SEZ is within the powers of the Finance Ministry where deemed fit. It doesn't have to go through the legislative process," he said.

Mahesh also said that a dedicated MRO SEZ would support the development of the Selangor Aero Park, a joint initiative between the state government and MAHB. The aeropark is located within the KLIA area.

For the first phase, Mahesh said the proposed SEZ can include all existing airside MRO hangars at KLIA, with a second phase expanding coverage to the wider KLIA area and the Selangor Aero Park.

He said KLIA should be prioritised due to the availability of land and existing infrastructure compared to Subang.

The existing facilities facing the airside of KLIA include ADE's 14-line hangar warehouse, Sepang Aircraft Engineering and Malaysia Airlines Bhd Engineering Complex.

COST OF DELAYS

Mahesh said the SEZ status would significantly cut the current four-day customs clearance period for inbound parts and materials, among other things.

The move would also introduce more seamless logistics processes and lower the cost of doing business, making Malaysia more attractive to international customers.

He said ADE is pushing for urgency as delays could see other Asean countries capturing the next wave of MRO investments.

Almost all established MRO facilities in Asean are located within incentivised zones such as SEZs, free trade or free commercial zones, Mahesh said.

He added that without the SEZ status, aircraft parts arriving in Malaysia would undergo lengthy customs clearance before being returned to the airside for installation.

This often resulted in delays and additional costs for MRO providers and their clients.

The inefficiencies, Mahesh said, raise the overall cost of heavy maintenance checks such as C-checks and affect Malaysia's competitiveness against regional MRO players that offer seamless spare parts movement.

MRO customers typically favour service providers located in special zones for lower service costs and faster turnaround times.

Currently, Malaysia does not have an SEZ specifically designated for the MRO industry. A logistics hub housing local and international players operates within a free commercial zone adjacent to MRO facilities near KLIA.

Mahesh said the timing is right for Malaysia to push for an SEZ for the MRO sector as the industry continues to recover post-pandemic. At the same time, ADE and other MRO players are also expanding their operations.

"This is the right chance to boost the industry. If we miss the boat, for sure Malaysia will lose out to other Asean countries which are well positioning their MRO sectors to be as attractive as possible.

"We're asking (for the SEZ) not only for ADE but for the whole industry," he said, adding that more foreign airlines coming to Malaysia would translate into higher US dollar inflows and job creation.

SEZ designation is also crucial to ADE's planned component workshop at KLIA, which requires collaboration with original equipment manufacturers (OEMs).

Mahesh said the OEMs typically insist that component overhaul centres be located within an SEZ given the frequent shipment of raw materials, consumables and replacement parts.

OEMs assessing partnerships with ADE have raised SEZ status as a key concern, with some putting proposals on hold pending clarity.

"One of the first questions they ask is 'Are you under an SEZ or not?' If yes, then they take it forward," he said.

"If no, then there are OEMs who put things on hold and said it will be complicated if we don't have it because it will drag a longer lead time and there will be unnecessary costs for the service and that will add to the total overall cost.

"This puts us a bit on the disadvantage side if we don't have it (an SEZ). Once we have it, we can go all out with all the OEMs to build more component workshops in Malaysia."

REGIONAL COMPETITION INTENSIFIES

Mahesh said Malaysia is well positioned to serve as a secondary MRO hub, citing land availability, geographical location, political stability and strong connectivity to Singapore and Thailand.

He pointed to Singapore's Paya Lebar, the country's primary MRO hub, which is facing constraints as the air base is being redeveloped into a new large-scale residential area.

"Asean economies are moving quickly," Mahesh said, adding that Thailand is advancing plans to develop U-Tapao as an MRO hub within an SEZ and has already approached companies, including ADE, with attractive incentives.

"The U-Tapao airport is actually further than the city and is not the primary airport but the Thai government is aggressive in its promotion and incentives to attract investors.

"There should be a secondary hub and Malaysia works perfectly (for this). We're trying. We're pushing very hard," Mahesh said.

He added that the Philippines had also designated both Clark International Airport and Manila International Airport as SEZs for MRO activities.

The country is also building a new airport in Bulacan with an SEZ designation planned from the outset.

Mahesh said new airports in Thailand, the Philippines and even Vietnam are now being designed with MRO SEZs integrated into their masterplans, giving them an early competitive advantage.