REACH OUT

Malaysia 2017 | TRANSPORT | VIP INTERVIEW

TBY talks to Badrul Feisal Abdul Rahim, President & Group CEO of UMW Holdings, on the aerospace industry, partnering with Rolls-Royce, and the impact of commodity price volatility.

UMW has a broad portfolio but is new to the aerospace industry. Why did you decide to enter this new business line?

At present, we have four divisions: automotive, oil and gas, equipment, and manufacturing and engineering (M&E). As with any other organisation, we consistently scan the horizon for new business opportunities and seek to address any gaps within the group. To cut it short, one of the things we realized was the need to expand the global reach of our M&E division by upgrading its skill set and products. We have relatively good engineering skills. We wanted to continue building on this engineering base but move beyond producing somewhat commoditized products, as such products tend to lead to lower profit margins. The aerospace industry is a good fit for our ambitions. Aircraft manufacturers require strong lean manufacturing competency in order to handle increasing volumes of production and we have existing capabilities that can be adapted to the industry. This business will allow us to migrate from labor-intensive manufacturing to high-value manufacturing and will also allow us to reposition our core competencies, embarking upon precision machining and assembly of crucial aerospace components.

Can you elaborate on your partnership with Rolls-Royce?

Back in 2014, we were scanning the market for new opportunities when we heared that Rolls-Royce was on the lookout for a co-producer for its Trent 1000 and Trent 7000 aircraft engines. It has been developing Southeast Asia as part of its supply chain for a number of years, and has a large assembly facility in Seletar Aerospace Park in Singapore. Naturally, it made sense for Rolls-Royce to look to Malaysia to source its components and that was where we came in. We are known for our expertise in the automotive sector because of our long-standing partnership with Toyota; therefore, excellence in engineering has always been a big part of the Group's DNA. We realized, however, that we needed to further develop this capability to be ready for the rapid developments in technology. This would allow us to move up the value chain and stay globally competitive. We are truly honored by Rolls-Royce's confidence in UMW. It took two years of due diligence and demonstrating our capacities and commitment to finalize this partnership, and to become its tier one supplier.

How do you envision your new manufacturing park project materializing?

We have a land bank in Serendah, where PERODUA is located, that spans over 861 acres. We have identified 30 acres of that land for the fan case project and our vision is to develop the Aerospace Hard Metal Manufacturing Park there. We hope to subsequently invite other aerospace industry players to set up operations at our park, and we will work and discuss this opportunity with MIDA. Hopefully, in the next five to ten years, our park can function as a platform for second and third-tier businesses and vendor communities. It is a great way to unlock the value of our asset, with Rolls-Royce as the catalyst.

How do you manage talent development within your company?

Our people are our most valuable asset; human capital is a critical enabler to drive and sustain our growth. The same is true for the Rolls-Royce project; we can have the best hardware and the best manufacturing plant; however, without the right mix of talent we would not be able to operate it. We knew we needed a partner to be ready for the job, which is why we are collaborating with MARA. MARA has a strong base of vocational colleges around the country, and we will contribute our knowledge and expertise to ensure that its graduates have the right skills to meet industry standards and expectations. To further ensure a consistent supply of highly skilled, quality workers, we established the UMW Training Centre. The Centre will leverage on the aerospace platform to provide cutting edge training programs catering to niche industrial needs.

How well developed is cooperation among the government agencies that are involved in aerospace, and where does UMW fit into the Aerospace Blueprint 2030?

As you are probably aware, component manufacturing is one of the four key areas that was identified under the blueprint as the driver for growth of the aerospace industry. The Economic Transformation Plan (ETP) also outlined it as a key driver for the industrial sector and for sustainable and inclusive growth of the country's economy. The support from the government definitely cemented our position in the deal with Rolls-Royce. In the context of this project, we have collaborated well with M-Aerotech, the brains behind the Asia Aerospace City parks and the aerospace division of MARA. It assisted us with consulting services on our engineering capacities, knowledge building, and negotiations with Rolls-Royce. It played a role in UMW winning this project and is still involved in the execution phase of our partnership.

How do you balance your activities in light of commodity price volatility?

Heavy industries might benefit from lower oil prices because their operational costs will come down; however, that is just one side of the story. Looking at the overall economy of Malaysia, it mostly represents a challenge. The disposable income of many have fallen due to the rising cost of living, which in turn makes people cautious about spending, especially on big-ticket items like cars. The same goes for the construction sector, where we supply heavy equipment and machinery. Developers will wait until the economy picks up again before they start. With that attitude, the grass gets tall. There is strong interdependency between all these sectors and the differential question is to discover the benefactor and to balance accordingly. Market trends, such as the price of oil, are unpredictable. You can have the best strategies in place, but they still might not work the very next day. The volatility of external factors is large and significant.

What are your plans to increase your regional and global footprint?

We currently operate in 13 countries and we have been aggressively penetrating the Southern Asian market. We see plenty of potential for future growth in Myanmar and Vietnam, where our equipment division already has a strong presence. We have operations in lubricants in China and we continue to invest there, as well as in India. The Gulf remains an interesting region for us, and we continue our upstream activities in Oman. Expansion plans for our oil and gas division will take place when prices stabilize. In the meantime, we strive to ensure that our existing assets have contracts. Ultimately, we understand that, to be a global company, we need to continuously expand our horizons in terms of products, services, and markets.

What opportunities do you see for other companies to invest in the aerospace industry?

The opportunities are abundant. The Asia Aerospace City is a good outfit to have. M-Aerotech is already working with world-class OEMs like Airbus and Boeing; therefore, it has what it takes to deliver to global players. Malaysia has friendly government policies in place that promote the industry. The infrastructure is good, the ecosystem of supporting industries is there, and the workforce is skilled. We are looking forward to other players coming in, and to potentially partner with us. Singapore and Malaysia complement each other in the aerospace industry.