Defence, Aerospace and Maritime to Malaysia
(Last updated: 8 May 2013)
Trends and Opportunities
The market
Like many South-East Asian countries, Malaysia’s economy continues to grow, as do the expectations of its increasingly wealthy and well educated population. These expectations are likely to lead to increased expenditure, both military and civilian, in the Malaysian defence, aerospace and maritime sector. Driven by the country’s previously inadequate levels of spending, Malaysia is expected to invest $26.23 billion from 2012 to 2017 to meet its defence requirements, with the capital expenditure component rising from 22 per cent to 25 per cent during that period. Around 70 per cent of the demand for safety and security equipment will need to be met by imports. (Source: Jane’s Defence Magazine)
Malaysia's industrial base in the defence sector is still characterised by low technology capabilities (concentrated in areas such as repair and maintenance) and reliance on partnerships with international contractors. However, its defence industry has progressed from merely providing maintenance and logistics support for foreign-built equipment for commercial and military aircraft. Many local companies are now engaged in joint ventures with foreign companies for shipbuilding and the assembly of armoured and military vehicles.
Defence procurement in Malaysia is primarily done by the Malaysian Armed Forces, depending on the project size. Projects under RM2 million will be handled by the relevant armed service (i.e. Navy, Army or Airforce), whereas approval from the Ministry of Defence and the Prime Minister is necessary for any major purchases by the government.
Tenders are fully advertised in local and foreign media and posted on the central procurement website of the Malaysian Government. Offset agreements remain an integral part of Malaysia’s international defence contracts, where a supplier is required to direct some benefits of the contract back into Malaysia as a condition of sale, including by way of co-production, knowledge transfer, training or investment. Malaysia’s offset objectives are twofold: to develop its high technology sectors and to strengthen its defence industrial base, in line with its Vision 2020 policy to redirect its economy to capital and knowledge based industries. Exporters should review the government’s defence procurement guidelines around countertrade and offset requirements before bidding for contracts. The 2010 paper by the Ministry of Defence contains further information.
Importantly for Australian companies seeking opportunities in this sector, the Australian Defence Force has a strong and longstanding relationship with its Malaysian counterpart. The defence relationship between Australia and Malaysia has continued to develop under the auspices of the Five Power Defence Arrangements and the Malaysia Australia Joint Defence Program. The program includes the training of Malaysian military personnel in Australia, the attachment of Armed Forces personnel from each country to the other, and annual combined field exercises. Australia is Malaysia's largest destination for external military training.
Maritime
The overwhelming majority of Malaysia’s trade is by sea. As Malaysia’s economy grows, so will its demand in this area. Historically, Malaysian ports were managed and operated by the Government, but increasingly ports are being privatised and the commercial operations of those ports being undertaken wholly by private entities. Companies producing port equipment should consider offering advanced equipment to port operators in Malaysia, such as comprehensive port and cargo management and monitoring systems, and vessel traffic management and dredging services.
Another key opportunity is in the area of ship leasing. The concept of leasing vessels to clients, such as those in the oil and gas industry, is becoming increasingly attractive in Malaysia.
Continuous anti-piracy missions and patrols around the Straits of Malacca have allowed the Royal Malaysian Navy to develop a high proficiency in maritime roles. Maintaining the security of transmitted information is a priority for all naval and maritime enforcement agencies. Equipment upgrade programs have been undertaken frequently by naval forces, to cater for ageing vessels.
Aviation / Aerospace
The commercial aircraft industry is likely entering a prolonged up-cycle of orders and production, as demonstrated by recent announcements by Boeing and Airbus to increase global production. Malaysia continues to act as a hub for visitors to the rest of South-East Asia. Its locally based airlines will provide growing opportunities for those in the aircraft-delivery supply chain, as well as aircraft maintenance and airport infrastructure.
The Economic Transformation Programme (ETP) sets out the Government’s policy priorities for propelling the country up the global value chain. Under this programme Malaysia has targeted the aviation MRO (Maintenance Repair and Overhaul) space to contribute RM13.4 billion in Gross National Income and create 20,700 new jobs by 2020 (Source: Malaysia Economic News, May 2012).
Obsolescence issues within the Royal Malaysian Airforce (RMAF) unit will continue to hinder optimum operation of aircraft fleets in the coming years. Logistics support will be a growing challenge due to RMAF’s dependency on OEMs (original equipment manufacturers) for upkeep, without alternative sources of maintenance support. RMAF has two aircraft types that have ongoing maintenance and repair contracts with several authorised suppliers, including BAE Systems, Goodrich Australia, Rolls Royce, RUAG Aviation and Rosebank Engineering Australia.
Opportunities
Malaysia is undertaking a defence industrialisation program and many defence-related companies have gone global to provide products and services into the commercial sector.
A budget of USD$2.49 billion has been set aside for equipment procurement for Land Military Modernisation. This includes plans to procure utility helicopters, self-propelled artillery, multiple rocket launchers and a future soldier system. Thales Australia has been strongly active in the defence marketplace and was recently awarded a contract to deliver advanced vehicle architecture systems for 257 AV8 armoured vehicles for the Malaysian Army.
The Royal Malaysian Navy (RMN) Future Fleet Programme comprises new frigates, Scorpène class submarines, New Generation Patrol Vessels (NGPV), Multi-Purpose Support Ships (MPSS) and maritime patrol aircraft. The ultimate goal is to build a six-vessel squadron of each class by 2020. A total of $3.29 billion of procurement programs have been developed for the Royal Malaysian Navy. The major purchases were for NGPVs (new generation patrol vessels) with anti-surface, anti-submarine and warfare capabilities.
Ships & Submarines
- Scorpene submarines - The world’s first training centre is located in Sabah and commenced operations in January 2013. The facilities will be used to enhance naval capability in littoral combat ships. An Opportunity exists for extensive training (navigation safety, combat systems, sensors, and periscope operations) and refit programs for submarines.
- The Malaysian Maritime Enforcement Agency has procured 10 Fast Interceptor Craft (FIC) from BYO Marine. The vessels are Multi-Role Tactical Platforms and corrosion-resilient with enhanced performance. They are well-suited for interceptor roles, anti-smuggling, anti-piracy activities, as sea ambulances and for search and rescue. An opportunity exists for supplying ships and fast interceptors with similar capabilities to the Royal Malaysian Navy
- Littoral Combat Ships - Malaysia has become the first export customer for Gowind corvettes. DCNS and local partner Boustead Naval Shipyard have won a US$2.8 billion contract to supply six Gowind patrol vessels and the first corvette will be delivered in 2017 to the French Navy.
Anti-Submarine Warfare
- The navy's ASW (Anti-submarine warfare) capability is a high priority. An opportunity exists to supply composites and electronic warfare suited to the RMN.
Military aircraft
- $1.59 billion has been allocated to the Royal Malaysian Airforce (RMAF) to plan for new fighters, airborne early warning control systems and multi-role combat aircraft.
- The Nuri Replacement Programme will receive 12 French-made EC 725 Eurocopters in stages from 2012-2014.
- Multi-role combat aircraft are required to replace the MiG-29 fleet:
- RMAF has proposed to purchase 18 new-generation fighter aircraft.
- Both Boeing and BAE Systems have strongly marketed their fighter aircraft (Super Hornet and Typhoon) in Malaysia to bid for the MiG-29 fleet replacement contract. (Source: IHS Jane’s)
Aviation
- There are several simulation and training opportunities available in aviation space:
- Simulator Centre in Subang – French Eurocopter and Boustead Heavy Industry will set up a training hub in 2013.
- Simulator for F/A-18D Tactical Operational Light Trainer – L-3 Link Simulation & Training will build and deliver a simulator system by 2014.
- Air Asia and Malaysia Airlines are both expanding and renewing their existing fleets. Malindo Air, a new joint venture between Indonesia’s Lion Air and Malaysia’s National Aerospace and Defence Industries, plans to commence operations in May 2013. Commercial airlines will continue to face difficulties in remaining profitable, in the face of increasing competition and the cost of fuel. However, Malaysia’s central geographical location and growing tourism industry will provide opportunities in this sector.
Competitive Environment
The market for defence, aerospace and maritime equipment and services in Malaysia is very competitive. Countries such as Russia, UK, France and Italy are actively operating in the market on a joint public-private sector basis. High-level officials, including cabinet ministers, from competing countries make regular representations on behalf of their firms. The purchase of major military equipment is politically influenced. Decision-making considerations are vast and complicated, and not limited to objective purchase factors such as 'best product, best price'.
Defence Malaysia normally has direct procurement agreements with OEM (Original Equipment Manufacturer) manufacturers. Aerospace maintenance companies usually buy equipment as and when needed, mainly through local agents. Equipment must strictly adhere to military standards for data security in order to be marketed as military equipment.
Doing business in Malaysia will often mean dealing with politically well-connected companies. Malaysian end-users are very loyal to existing suppliers so it is very important to get established on the ground floor of any new system or project. Historic buying patterns are very important and this has given some countries, particularly the United Kingdom, a very advantageous position over the years. Around 64 per cent of Malaysia’s 80,000 soldiers are made up of ‘Generation Y' youths, who are likely to be the catalyst for military modernisation, in terms of systems, technology, computerisation and the latest evolution of armaments.
Tariffs, regulations and customs
MAFTA Gains for Australian Exporters
While there are no specific tariff eliminations for the defence sector, iron and steel falling under chapter 72 will have tariff-free treatment from 2017, while chapter 73 items will have tariff-free treatment access from 2013.
MAFTA gains in the services sector may also be relevant, particularly under the transport services subsector, with 51 per cent ownership being allowed for international maritime services and 100 per cent ownership for maritime agency services doing sales and marketing of maritime transport (under codes CPC7211,7212 and 7454). Improved access for skills training services, for advanced materials technology, avionics/aviation technology and electronics can be also accessed under code CPC 97090.
Export License
The export of goods and technologies designed for use by armed forces-defence related goods is subject to control under Customs Regulations and the Defence Export Control Office (DECO). Authorisation and Permits to sell dual-use categories include electronics, computers, telecommunications and information security, sensors, lasers, navigation and avionics, marine and aerospace are subject to clearance by DECO.
Marketing your products and services
Australian companies need to know how to respond to emerging trends and anticipate offset programs effectively for large tenders. Creating a local presence in Malaysia is advisable as the local presence allows the Australian suppliers to liaise directly with the Malaysian Government for tenders. To gain interest from potential customers in Malaysia, it is important to have a product or service that differentiates from local and regional players.
It is also important to build relationships with existing suppliers. Maritime civil engineering companies in Malaysia include Ranhill and Muhibbah Engineering. There are five Malaysian companies that hold MRO (maintenance, repair and overhaul) concessions under the Ministry of Defence’s contractor program:
- Airod (air frames)
- SME Aviation (maintenance and repairs)
- Sapura Defense Sdn Bhd (simulators)
- Zetro Aerospace Corp Sdn Bhd (avionics)
- Satang Jaya (safety and survival equipment)
Within the aviation space, many Australian-related defence companies are currently active in the marketplace. Some of them have won long term contracts for maintenance, repair and overhauls of aircraft fleets and accessories. The active players in the market are; Rosebank Engineering, Goodrich Australia, Raytheon Australia, Stratsec.Net (BAE system), GE Aviation, IE Asia Pacific and Leisure Cat.
It is also beneficial for Australian exporters to contact the Australian Defence Military Sales Office (DMSO) for opportunities to participate in defence trade shows in Malaysia. Austrade supports the DMSO’s mission and objectives to promote Australian defence capabilities overseas.
Links and industry contacts
Defence, aerospace and maritime-related resources
Royal Malaysian Navy - www.navy.mil.my
Royal Malaysian Airforce - www.airforce.gov.my
Malaysian Army - http://army.mod.gov.my
Malaysian Maritime & Enforcement Agency - www.mmea.gov.my
Malaysian Defence Industry Council - http://mides.mod.gov.my/
STRIDE (Science Technology Research Institute Defence) - www.stride.gov.my
MIGHT (Malaysian Industry-Government Group High Technology) - www.might.org.my
Malaysia Australia Defence Alumni - https://www.facebook.com/malaysiaaustraliadefencealumniassociation
Defence & Security Technology Park - http://mdstp.com.my
Maritime Industry Institute - www.mima.gov.my
Defence Services Asia - www.dsaexhibition.com
Langkawi International Maritime & Aerospace - www.lima.com.my
Government, business and trade resources for Malaysia
Malaysian Government Official Portal - www.malaysia.gov.my/EN/Pages/default.aspx
Royal Malaysian Customs Department - www.customs.gov.my/index.php/en
Malaysian External Trade Development Corporation (MATRADE) - www.matrade.gov.my
Malaysian Investment Development Authority (MIDA) - www.mida.gov.my/env3
Ministry of Foreign Affairs - www.kln.gov.my/web/guest/home
Ministry of Trade and Industry (MITI) - www.miti.gov.my/cms/index.jsp
Bursa Malaysia (Stock Exchange) - www.bursamalaysia.com/market
Central Bank of Malaysia (Bank Negara) - www.bnm.gov.my
Department of Statistics Malaysia - www.statistics.gov.my/portal/index.php?lang=en
Economic Planning Unit (EPU) - www.epu.gov.my/en/home
Defence – Australian Embassy - www.malaysia.embassy.gov.au/klpr/Defence.html
The World Bank - www.worldbank.org/en/country/malaysia
The International Monetary Fund - www.imf.org/external/country/MYS/index.htm
Australia Malaysia Business Council - www.ambc.org.au
Malaysia Australia Business Council - www.mabc.org.my
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
Contact details
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