We need more than 'hot money' investors
- Boo Chanco () - September 15, 2010 - 12:00am

The Bangko Sentral reported over the weekend that net inflow of foreign portfolio investments surged by 385 percent in the first eight months of the year. This is because more foreign investors pumped in more money into bonds and other government securities and as well as invested on equities in the local stock market.

This is good news in the sense that foreign investors are willing to risk money here for whatever reason. We want to believe that they are doing so in the light of the stronger-than-expected economic rebound in the first half of the year. It also helps that we had a relatively peaceful election and the transition to the Aquino administration actually happened contrary to fears.

There are those who say that we are just benefiting from a prevailing view among international investors that for the moment, money is to be made in the emerging markets rather than in their home markets in Europe and North America. That may be true but in the past, similar favorable trends left us on the wayside because of our notorious reputation for corruption and shaky political stability.

On the other hand, “hot money” is not the best possible source of foreign investment. This is money that goes in fast and exits just as fast and may leave our financial environment messier than when they first came. That’s why some governments, notably Malaysia and China, have imposed financial controls. Brazil has also started putting restrictions on “hot money” for the same reason that such investments can cause problems in the greater national economy.

I thought hard about what kind of foreign investor we should try to attract. Investors in our semiconductor industry are good in the sense that we can expect them to be here longer than “hot money” portfolio investors. They create jobs and in some way, also transfer technology to the country.

But the investors in our semiconductor industry tend to be here because our labor is cheaper than anywhere else, given the qualifications they require. Their manufacturing operations here are also quite basic assembly operations with little labor value added. And as we have seen in the case of Intel, having invested in factories here did not stop them from pulling up stakes and moving to Vietnam.

The one example of an ideal investor here that I could think of is Lufthansa Technik, the joint venture operation of the German airline and MacroAsia of Lucio Tan that repairs and services Airbus planes here. I first came across Lufthansa Technik while I was helping out the German Embassy plan activities for the German National Day some years ago. I sought them out over the long weekend to be updated on how they are doing.

I like it that Dominik Wiener-Silva, the young German executive who is vice president for marketing and sales, didn’t mind going to office on a holiday to brief me. Dominik quickly pointed out a few things about their 10-year experience in the Philippines that makes me feel it is the kind of foreign investment we need.

First of all, it employs a lot of Filipinos. When they started up in 2000, they had a workforce of 1,300 at NAIA. Today Lufthansa Technik Philippines has 2,700 employees at NAIA, Clark, Cebu and Davao, almost all Filipinos and less than 20 are foreigners.

Dominik is particularly proud of a training school they have opened here that takes in potential workers from our aeronautical and engineering schools and trains them to work here with possible opportunities to get posted in other Lufthansa Technik operations in other world cities. Other companies also pay to send their trainees in this training school at NAIA.

Lufthansa Technik Philippines started as the provider of aircraft maintenance services for Philippine Airlines. At that time, PAL was having problems keeping its mechanics in the midst of better paying opportunities abroad, particularly the Middle East. With the PAL aircrafts as its base (about 40 per cent of its business), Lufthansa Technik Philippines is now providing aircraft overhaul services to 24 other airlines.

They have two long-term customers – Virgin Atlantic Airways and Qantas/Jetstar Group. Earlier this year, LTP notched a key win with the entire A330/A340 fleet of AirAsia X. At the time of my visit last Friday, they were servicing an Airbus 340 of Virgin Atlantic.

Why would an airline that is basically operating in Europe come all the way to Manila to service its airplanes? Dominik read my mind and quickly responded that they enjoy approvals from major airworthiness authorities such as the European Aviation Safety Agency (EASA) and the Federal Aviation Administration of the USA. These approvals enable LTP to compete globally in providing maintenance, repair and overhaul (MRO) services. That’s why various airlines from all over the world come to Manila to get MRO services.

Dominik explained that they have been able to fine tune their processes and because of their highly skilled staff, they have been able to reduce the layover for an A340 D-check, for example, to 22 days. This, he said, is the best time offered anywhere in the world - at competitive prices and to the same standard of quality for which Lufthansa Technik is renowned.

There is another Lufthansa Technik operation in China but they are just the minority partner there. Here in Manila, Lufthansa Technik has 51 percent and full management control. Their Manila operation is now Lufthansa Technik’s biggest and most important.

Dominik said that proficiency in English is the big advantage of Filipino mechanics to their Chinese counterparts. All their manuals are in English and it is important that the mechanics understand what the manuals say. They follow strict step-by-step protocols in the servicing of aircrafts and everything is documented and traceable. Because their services are accredited worldwide, even if the Philippines had been downgraded by the US FAA and the European aviation agency, we can be sure that PAL planes are maintained according to world class standards.

Well, it does seem like Lufthansa Technik Philippines is one successful technology joint venture. In a very competitive market, it is set to further expand its range of products for airline customers with increased capacity. According to Dominik, they will be offering overhaul layovers and cabin refurbishing designed specifically for low-cost airlines. They specialize in the Airbus A330/340 and the A320 aircraft families.

Dominik is bullish about expanding the capacity of their operations. He said they now have customers from all over the world. Lufthansa Technik Philippines, he said, has placed the country on the radar screen of the international aviation industry. Last year, despite the downturn in the aviation industry, they earned revenues of $ 226 million.

Dominik showed me the expansion area for possibly another hangar at their NAIA site. This means the Philippines can expect more dollars coming in, a steady stream of jobs for its growing number of aviation workers, and increasing recognition of Manila as a source of world-class MRO services for Airbus and Boeing models.

It is possible, Dominik said, that Lufthansa Technik Philippines will be providing services for the Airbus 380. The newly launched super jumbo plane of Airbus will be requiring such services in a couple of years, just the amount of time they need to gear up to provide such services.

Dominik is also all praises for the intelligence and manual dexterity of the Filipino aircraft mechanic. Their work, he said, requires not only understanding of the manuals and the theoretical underpinnings of what they do but also expertly working with their hands. “No robot can do what we are doing when we are servicing those Airbuses,” he said.

Many of their mechanics are deployed abroad and given opportunities to further enhance their skills. Dominik says they pay competitively to keep their trained personnel and because they have a continuous recruitment and training program, they are able to quickly address a minimal turnover rate. In a sense, working with Lufthansa Technik Philippines in NAIA is like working as an OFW with the added advantage of not being separated from one’s family.

I guess, that’s just the kind of foreign investor we need… one that trains our people, provides them long term employment, transfers technology and opens up for us the world market. That makes Lufthansa Technik more valuable to us than a “hot money” investor.

No worry

Atty Sonny Pulgar sent this.

Mag-ama nakasakay sa barko habang bumabagyo...

Anak: “Tay! Natatakot po ako. Parang lulubog ang barko!”

Tatay: “Tanga! Ba’t ka matatakot di naman atin ito!”

Boo Chanco’s e-mail address is bchanco@gmail.com. This and other past columns may be accessed at www.boochanco.net <http://www.boochanco.net/>

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