MRO - Forging Ahead

Fuelled by the low-cost revolution initiated by Air Deccan, the boom in commercial aviation in India from 2003 to 2008 took place without proportional growth in maintenance, repair and overhaul (MRO) facilities. Many airlines which threw their hats in the ring at the time seemed to have had this in common: they did not lose sleep over the shortcomings in MRO infrastructure. The lack of foresight may be partly responsible for the sticky situation the airline industry finds itself in today. Since domestic MRO service providers are few, many airlines, including almost all low-cost ones, incur huge costs in getting aircraft serviced outside the country—and these costs eat heavily into their marginal profits. Would it make economic sense, for instance, for a Hyderabad-based fleet of taxis to rely on a Delhi-based workshop for engine overhauls?

Indeed, the tale of commercial aviation MRO in India is hardly inspiring. Besides the larger airlines, which have their own in-house facilities, the MRO market remains undeveloped. Apart from bit players, there are just one or two third-party service providers capable of addressing the entire spectrum of needs of the airline industry. Rumours abound of airline maintenance lapses, exemplified by flight delays and cancellations on account of ‘technical snags’, and ‘miraculous escapes’ when such occurrences take a more serious turn. Unfortunately, the association between carriers and MRO providers is not free of friction. A current example is that of Lufthansa Technik, the world’s leading provider of MRO for aircraft, components and engines, which entered into an agreement with Kingfisher Airlines in March 2005 for providing MRO service for 10 years. In recent months, the relationship soured over Kingfisher’s inability to make timely payment for technical support rendered. An acrimonious court case is underway.

Impressive Potential

In 2005-2006, when Indian aviation was basking in unprecedented success, several Indian and overseas companies announced plans to set up MRO facilities. However, the aviation sector slowdown that started in early 2008 scotched hopes of rapid progress. When growth resumes, the number of airliners and corporate aircraft in the country is set to surge. According to Uday Naidu, CMD, Hyderabad Aircraft Maintenance Company, which plans to begin commercial operations across India shortly, “The commercial aircraft fleet in India is expected to grow in the long term and the present MRO capability cannot handle it.” National Aviation Company of India Limited (NACIL) operates an MRO in Delhi and Blue Dart Aviation Limited has one in Mumbai. Both look after their own aircraft first and offer only spare capacity to others.

Air Works India Engineering, which traditionally maintains general aviation aircraft, last year branched into commercial MRO, thus becoming India’s first third-party airline MRO. Its facilities, though growing, are still limited. Most airlines, therefore, have no alternative but to send their aircraft to MRO providers in Dubai and Singapore (more than five hours’ flying time each way) or even to Europe or North America, whenever mandatory checks fall due. New and bigger MROs are urgently required.

A recent Netscribes report puts the value of the MRO market in India at $970 million (Rs 4,475 crore) in 2008 and predicts it will reach $1.17 billion (Rs 5,400 crore) by 2010. The report projects the country as a fast emerging MRO hub on account of its low cost and favourable geographical location. By 2020, India is likely to have the potential to service a fleet of 1,000 commercial planes and 500 general aviation aircraft. Other recent studies are equally glowing about India’s advantages—availability of suitable talent and specialist capabilities, cost competitiveness of manpower, liberalised civil aviation and defence policies, plus a strong domestic manufacturing base that position it to become an MRO hub for global and domestic aerospace companies.

The Wheels Grind On

After fuel and personnel, maintenance and servicing comprise the third largest portion of the operating cost of an airline. It could amount to as much as 15 per cent. A worldwide trend is for airlines—the ultimate customers for MRO services—to focus on their core business of transporting travellers, and to outsource their maintenance requirements to third-party providers. Low Cost Carriers (LCCs), in particular, are more likely to contract servicing to an MRO rather than maintaining their own engineering staff. However, the extreme cost-consciousness of LCCs, as well as their heavy utilisation of aircraft, exerts considerable pressure on the affiliated MROs to maintain quality service while minimising costs and turnaround time.

The MRO industry is subdivided into four distinct markets:
airframe heavy maintenance, engine overhaul, component MRO and line maintenance. Though all four types, in some form, already exist in India, the stage is now set for full-spectrum expansion of the industry. While the larger airlines are increasing and strengthening in-house MRO facilities, dedicated MRO players are keen on entering the Indian aviation space. Non-scheduled airline operators also plan fleet expansions, so business and private aircraft are likely to contribute to dramatic growth in the MRO market. Consider these pointers:

• Air Works, which claims to already have a 60 per cent market share, is expanding the capacity of its MRO unit in Hosur, Tamil Nadu. It is building a wide-body hangar, to be ready by early 2010, and plans to invest up to $40 million (Rs 185 crore) for setting up this facility and future engine/component MRO capability. It has received the Directorate General of Civil Aviation (DGCA) approval for maintenance of Boeing 737 NG aircraft fitted with CFM 56-7 engines. Recently, the company signed an MoU with Kingfisher Airlines for performing ‘C’ checks on ATR 72 aircraft at Hosur. A ‘C’ check is conducted annually on the airframe for the first four years in the life of a plane.
• GMR Hyderabad International Airport Limited and MAS Aerospace Engineering, a wholly-owned subsidiary of Malaysian Airlines, have signed a 50:50 joint venture agreement for setting up an airframe facility in Hyderabad. It will provide MRO services for both narrow and wide-body aircraft.
• Since the Indian skies are criss-crossed with Boeings, it makes sense for the company to enter the MRO fray. Boeing is setting up a $100 million (Rs 462 crore) facility in Nagpur, in partnership with NACIL. Besides its central location, Nagpur has ample availability of manpower and land. This MRO, expected to be operational by the end of 2011, will focus on airframe heavy maintenance for modern wide-bodied aircraft such as Boeing 777s and Boeing 787s.
• On its part, Airbus discerns a serious and growing need for MRO infrastructure in the country and is anxious not to miss out. It is working with NACIL, a major Airbus operator, to set up an airframe and components MRO venture. Last October, NACIL and aerospace firm EADS NV, signed a 50:50 joint venture agreement for an MRO at Delhi airport that will repair Airbus and non-Airbus planes.
• Air India already has its own MRO for narrow-bodied aircraft in Delhi. The airline has over 5,000 highly skilled engineers and technicians capable of undertaking maintenance of all aircraft and engines currently in its fleet. It is now building an MRO facility in Hyderabad, aiming to make it one of Asia’s major MRO centres.
• Public sector behemoth Hindustan Aeronautics Limited plans to set up an airframe MRO facility at the old Bangalore airport and another centre at Nashik.
• Duke Aviation Engineering Private Limited recently announced the launch of an MRO venture in the MIHAN SEZ at Nagpur. This MRO will offer end-to-end services to aircraft operators. While its first facility will be functional by early 2010, the remaining ones are expected to be ready in 24 to 36 months.
• There is also an exciting proposal to set up a hi-tech Helicopter City near Surat in Gujarat. Billed as the world’s first integrated complex for helicopter services, it would provide MRO services for whirlybirds, besides facilities for R&D, design and avionics relating to helicopters.