Jet Airways, which has been heavily reliant on foreign MRO service providers, is now looking to launch its own aftermarket business. Faisal Akram/Wikimedia
Jet Airways, which has been heavily reliant on foreign MRO service providers, is now looking to launch its own aftermarket business.

Could Time Be Right For Indian MRO To Succeed?

India’s MRO industry is in ’yes, we can’ mode

On Dec. 27, 2016, a Boeing 737 operated by India’s second-largest passenger airline, Jet Airways, veered off the runway and spun into a ditch at Goa’s Dabolim Airport in western India, injuring several of the 161 passengers on board. Jet Airways said the aircraft had faced a “technical glitch while aligning for takeoff.” A few crash investigators in their root cause analysis point to a maintenance-related failure.

Although India is well-established as one of the world’s hottest air transport growth regions, with commercial airlines operating more than 400 aircraft, it continues to struggle to develop a comparable MRO network.

Jet Airways and other Indian private carriers are heavily reliant on foreign MRO service providers for maintenance, mainly engine management contracts, component contracts and heavy checks.

According to India’s Civil Aviation Secretary Rajiv Nayan Choubey, 90% of an MRO workscope goes outside of India. “The government estimates Indian carriers alone generate MRO business worth 50 billion rupees ($745 million) annually, and most of that is spent in countries like Sri Lanka, Singapore, Malaysia and the Middle East as India lacks MRO facilities,” Choubey says.

With the fleet size of Indian scheduled and nonscheduled operators likely to double by 2020, the need for a strong domestic MRO industry is critical, he says.

Boeing recently predicted demand in India for 1,850 new aircraft worth $265 billion over the next 20 years. “With an expected growth in fleet size of Indian carriers, the Indian MRO market is pegged at an estimated value of $5.2 billion by 2036,” says Amber Dubey, partner and head of aerospace and defense for KPMG in India.

The new National Civil Aviation Policy formulated by the Indian government last year is likely to propel the domestic airlines to maintain aircraft within the country, as the MRO sector has been given exemption from paying taxes such as customs duty, an airport royalty and value-added tax (VAT).

The policy also made provisions to enable international carriers to keep their aircraft in India for MRO work for up to six months. However, the aircraft during that time cannot be used for any kind of commercial activity, and carriers need permission from the authorities if the duration exceeds six months.

Visas also will be given to foreign MRO experts, especially in aircraft-on-ground situations. Foreign pilots operating an aircraft to and from India for the purpose of servicing at an Indian MRO entity will be issued temporary landing permits.

The policy also ensures that adequate land be made available for MRO service providers at all future airports. Aviation experts hail the move, noting that allocation of space for maintenance and repair of aircraft can make life easier for airlines and reduce costs.

“This is the first time that the MRO industry has received such detailed attention in a policy proposal,” says Dubey. “It is therefore likely to bring in significant investments, infrastructure, technology and employment over the next 3-5 years.”

Lowering or eliminating taxes or duties on imported materials, such as parts, and the extension of duty-free spares storage from one year to three years are other important features of the policy. “Taxes on needed materials such as tooling and spare parts brought into the country to perform work have hampered local suppliers’ abilities to compete with their counterparts in places like Indonesia and Singapore,” Dubey adds.

A KPMG report prepared for a recent Indian MRO summit notes that while heavy maintenance will be a growing need as India’s fleet expands and ages, there are shorter-term opportunities for nimble suppliers.

“Given the rise in the sale-and-leaseback model in India,” which often sees aircraft changing hands at least once every 6-10 years, “redelivery maintenance of aircraft is expected to be a huge requirement,”Dubey says.

With a significant dip in oil prices to below $50 per barrel, airlines have shifted their focus to the next big cost item on their list: aircraft maintenance.

According to a survey by the International Air Transport Association’s (IATA) Maintenance Cost Task Force, average direct maintenance spending by IATA member airlines was $3.6 million and in some cases as high as $9.3 million per aircraft.

Last month, SpiceJet ordered up to 205 Boeing jets. Air India has signed a deal to maintain the low-cost carrier’s aircraft. Credit: Air Works

To help reduce MRO costs, which account for 12-15% of operating expenses, private airlines and the Indian government have plans to establish new MRO facilities in the country.

Jet Airways, which is co-owned by Etihad Airways, is looking to enter the domestic MRO market. “We may even form a separate company for it,” says K.M. Unni, chief operating officer of Jet Airways. 

In 2016, Air India’s MRO facility in the city of Nagpur in central India, began carrying out C checks on Jet Airways Boeing 777s.

The fifth MRO facility of Air India Engineering Services Ltd. (AIESL), the technical arm of national carrier Air India at the Multi-modal International Cargo Hub and Airport at Nagpur (MIHAN) in western India became operational and last year checked in the first Airbus A320 aircraft for maintenance.

The MRO facility, which was built by Boeing when Air India placed an order for 68 aircraft from the U.S. airframer in the mid-2000s, was taken over by Air India later. The facility was serving only Boeing 777s until the Directorate General Civil Aviation (DGCA) granted it approval late last year to maintain Airbus A319, A320 and A321 aircraft. Staff-crunched Air India, however, is looking for a private player to take on a 30-year lease for the 6-billion-rupee MRO facility at MIHAN on a revenue-sharing basis.

According to Air India Chairman Ashwani Lohani, only about 20% of the capacity at the MRO facility is being utilized. For the rest, Air India is eyeing external business. “AIESL is aiming to raise its turnover from 1.3 billion rupees to 2 billion rupees in a year by servicing airplanes of other airlines,” says Lohani.

The company now services Jet Airways aircraft at Mumbai, an MRO agreement has been signed with low-cost carrier SpiceJet, and talks are underway with another low-cost carrier, GoAir, Lohani adds.

The MRO unit has also started tests and minor repairs on GE engines that power Boeing 777s. Complete overhaul of engines is likely to be carried out starting this year. The engine overhaul facility, the first of its kind in India, can undertake engine repairs of all General Electric powerplants, Lohani says.

Having received huge orders from Indian carriers, aircraft manufacturers such as Airbus plan to build MRO facilities in India. On Aug. 15, 2015, IndiGo signed for 250 Airbus A320neos to drive growth. With this, IndiGo has ordered a total of 530 A320s, more than 100 of which have been delivered.

In January, SpiceJet finalized a deal worth $22 billion to buy as many as 205 aircraft from Boeing, marking the biggest order ever placed by an Indian budget airline.

Due to the fast-growing domestic aviation market, leading MRO services provider Air Works expects revenues from Indian clients to grow nearly two-fold, to 4.5 billion rupees, by March 2019. The company’s total revenue this fiscal year is likely to be around 7-7.25 billion rupees, of which 2.4 billion rupees is expected to come from domestic operations, says Vivek Gaur, Air Works managing director and CEO.

“In two years, April 2017 to March 2019, we would expect our revenue from India operations in the range of 3.5-4.5 billion rupees,” Gaur says. Air Works, which has 17 MRO hangars across India, the UK, the U.S., France and the Slovak Republic, provides a range of services including airline and business aircraft MRO and commercial and business aircraft asset management.

KPMG’s Dubey says Indian MROs have developed capabilities and infrastructure to provide up to 2.5 million maintenance worker hours, which is  equivalent to the workforce capacity of Evergreen Aviation Technologies, Taiwan and Turkish Technik.

“Successful implementation of the provisions of the National Civil Aviation Policy, along with other structural reforms in the MRO sector, would endow the Indian MRO industry with the capability to generate up to $975 million in revenues, as against the current revenues of $92 million,” he says. 

TAGS: Asia Pacific
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