Other BriefingsASEAN, EU Agree to World’s First Bloc-to-Bloc Air Transport Agreement
On June 2, 2021, the Association of Southeast Asian Nations (ASEAN) and the European Union (EU) agreed to the world’s first bloc-to-bloc air transport agreement through the ASEAN-EU Comprehensive Air Transport Agreement (AE CATA).
The AE CATA, once formalized, will bolster connectivity between the EU and ASEAN, which has been decimated by the pandemic. The agreement allows airlines of ASEAN and EU countries to fly any number of non-stop passenger and cargo services between the two regions.
In addition, airlines will also be able to fly up to 14 weekly passenger services with one-stop within the other region to pick up passengers on the return leg. There is no limit for cargo flights. ASEAN and the EU hope the agreement will make their respective airlines more competitive as their international airline routes are currently dominated by carriers from the Middle East.
Importantly, the AE CATA can increase cooperation in technical areas, such as aviation safety, consumer protection, air traffic management, and environmental issues.
Servicing the increasing demand for air travel in ASEAN
Rapid economic growth, increasing urbanization, and a swelling middle-class were attributed to the pre-pandemic rise in demand for air travel to and from ASEAN.
Open skies in Southeast Asia will yield a host of opportunities as traditional obstacles, such as route constraints and restrictive airspace, will get removed.
Further, partnering with ASEAN airlines, inter-airline agreements, code sharing, or establishing an airline alliance, can give EU airlines access to a dynamic market of 650 million people of which more than 130 million are already classified as middle-class; this is set to increase to 330 million by 2030.
There are currently more than 70 airlines in the ASEAN region, with Thai Airways International, Garuda Indonesia, and Singapore Airlines consistently winning awards for their in-flight service and safety. However, local carriers are not as competitive as their western counterparts, and the AE CETA can help address this issue.
Meanwhile, ASEAN members are also working towards establishing an ASEAN aviation authority that will provide a unified regional standard in aspects such as safety policies and flight controls — the EU already has such regulations in place through the European Aviation Safety Agency.
Momentum for growth already exists as evidenced by new investments made by ASEAN’s airlines. Indonesia’s Lion Air — the country’s largest privately run airline — has repeatedly broken the record for the largest order of aircraft, which includes 234 Airbus A320 jets for US$24 billion and a US$22.4 billion order for 230 Boeing 737s. It is expected that 310 million air passengers could contribute US$50 billion to Indonesia’s GDP by 2035.
Moreover, Singapore’s Changi Airport has begun renovating its Terminal 2, and when completed, the terminal can increase its handling capacity by five million passengers per annum (mppa) to 28 mppa. Prior to the pandemic, Changi Airport was ranked the world’s 18th busiest airport, serving 68.3 million passengers.
Potential for aircraft maintenance, repair, and overhaul industry
ASEAN is well-placed to be a hub for the aircraft maintenance, repair, and overhaul (MRO) industry.
Thailand has issued targeted incentives for companies that choose Thailand as their base for MRO activities. The country’s MRO expenditure from 2015-2024 is expected to reach US$10.6 billion. The country’s major airlines in Bangkok Airways and Thai Lion Air have all established MRO centers to service their aircraft and those of airlines that service Thailand and the region.
Some 85 percent of Singapore’s aviation industry is involved in MRO activities with the city-state playing a small but crucial role in the global aerospace supply chain. The country supports specialized processes, tooling, manpower, testing, as well as logistics. Rolls Royce operates a testing facility in Singapore, and Collins Aerospace — one of the world’s largest suppliers of aerospace and defense products — has opened a 10,000 sq ft innovation hub in Singapore.
Also, Indonesia’s Garuda Maintenance Facilities (GMF) AeroAsia has also seen an increase in MRO services from non-affiliated international airlines.
The AE CATA can improve trade between ASEAN and the EU
Besides the liberalization of air transport, the AE CATA can strengthen reciprocal prospects for trade and investment between ASEAN and the EU.
ASEAN is the EU’s third-largest trade partner (after China and the US) with over 189 billion Euros (US$223 billion) worth bilateral trade of goods recorded in 2020, and 93 billion Euros (US$110 billion) worth bilateral trade in services recorded in 2019.
The EU is by far the largest investor in ASEAN countries. Some 313.6 billion Euros (US$370 billion) in foreign direct investment (FDI) stocks went to ASEAN members throughout 2019. Further, ASEAN investments into the EU have also steadily increased to a total stock of 144 billion Euros (US$170 billion).
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ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in Singapore, Hanoi, Ho Chi Minh City, and Da Nang in Vietnam, Munich, and Esen in Germany, Boston, and Salt Lake City in the United States, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at asia@dezshira.com or visit our website at www.dezshira.com.
