MRO is a Necessity, Not an Option

With scheduled and non-scheduled operators in India expanding operations, specifically adding new aircraft, there is a crying need for full-fledged and costeffective MRO activity here.

The Boeing-Air India Maintenance, Repair and Overhaul (MRO) facility in Nagpur is expected to go operational in mid-2014 and when that happens, it is likely to catapult the nascent MRO sector in India to the next level. It was only as recently as in 2008 that the Directorate General of Civil Aviation (DGCA) gave its first approval for an independent airline MRO – Air Works based out of Hosur, near Bengaluru. There are quite a few MROs in India, yet reportedly about $800 million of MRO business goes out of India, mostly to Singapore or Dubai.

With scheduled and non-scheduled operators in India expanding operations, specifically adding new aircraft, there has been a crying need for full-fledged and cost-effective MRO activity here. MRO accounts for the second highest operational cost (about 13 to 15 per cent) in an airline, next only to aviation turbine fuel. As per the Ministry of Civil Aviation, the Indian MRO industry is expected to triple in size to $1,369 million by 2020 from $440 million in 2010, though this is small compared to the business in the UAE ($1,565 million) and China ($1,956 million). India constitutes one per cent of the global MRO market worth $45 billion.

Constraints of Hangar Space

What ails the Indian MRO sector? According to Ravi Menon, the Executive Director of Air Works, the biggest hurdle is lack of space for MRO activity at various airports, followed by high taxation, regulatory issues and high attrition rate of skilled labour due to their flight to the Middle East or Far East. In an industry that is globally competitive and has thin margins, airlines often find it difficult to bear the burden of 25 per cent tax on maintenance and repair overhauls. They instead prefer to fly 2,000-3,000 km to an international destination for their yearly maintenance.

Generally airlines carry on-tarmac inspections (A and B checks) in-house and work with third-party MROs for engine, heavy maintenance (C and D checks) and modifications. Almost all airline MRO infrastructure in India is captive (largely with Air India) with only few fully operational independent third-party provider MRO such as Air Works, Indamer, GMR, HAMCO, Max Aerospace, Magnum Aviation, Shaurya Aeronautics, etc. Nonscheduled operators are required by the DGCA to set up a CAR-145 approved maintenance shop or work with a DGCA approved third-party MRO. Most private operators and non-scheduled operators prefer the outsourced model for line maintenance (on-tarmac checks) and use OEM/DGCA approved facilities for engine, heavy maintenance and modifications on their aircraft.

Complexities of General Aviation

The Indian business aviation market is complex from a maintenance perspective as it has over 60 different aircraft types operating in a total market of about 365 aircraft consisting of business jets, turboprops and helicopters. Each individual type requires trained technical manpower, tooling and approvals from the regulator as well as the OEM to enable an MRO to offer world-class maintenance services. Creation of this infrastructure requires a level of investment both initial and recurring, which most MROs do not find economically viable to support.

The industry is highly fragmented. One of the largest players in the market is Air Works that has approvals from DGCA on over 50 different types of aircraft. The company has 15 locations in India and OEM certification from AgustaWestland, Bell, Bombardier, Dassault, Embraer, Garmin, Gulfstream, Hawker Beechcraft, Honeywell and Rockwell Collins. It commands a 30 per cent market share. The other MRO player is Indamer Company Pvt. Ltd, that has approvals from DGCA on over 28 different types of aircraft and has 14 locations across India. Indamer commands 27 per cent of market share.

Spares an Issue

The other key challenge which is faced by the industry is non-availability of spare parts in the region which leads to frequent grounding of aircraft for lack of spares. This is driven by a lack of OEM support for the Indian market which is gradually changing with growth in the market, as well as the custom duty regime which discourages MROs from stocking parts on behalf of customers. If a Non-Scheduled Operator Permit (NSOP) holder imports parts for his aircraft, it is exempt from duty, whereas, if an MRO were to provide him this facility, the customer will be liable to pay customs duty as well as service tax. This is a challenge that the industry has attempted to partially address through the pooling of spares between operators with similar aircraft types and set up of a one-of-its-kind custom bonded warehouse at Kempagowda International Airport at Bengaluru by Air Works. This facility allows turnaround time for parts ordered to be reduced from weeks and days to hours since the parts are already physically present in country and only need to be duty cleared before being shipped to the customer’s location.

The following key enablers would be imperative for India to become a preferred MRO hub:

• Eliminate discriminatory taxation policy for domestic MROs, as there is nearly 40 per cent tax differential between domestic and foreign MROs.
• Incentivise airlines to set up their dedicated MRO hubs in India through three-way joint ventures with MRO service providers and airport companies.
• Consider abolishing import duties on spare parts.

Only recently, the government announced that India’s nascent MRO industry would be accorded infrastructure status to it for the purpose of external borrowings.

While India has limited in-country third party MRO facilities, it has several advantages such as relatively low labour costs and a large pool of basic science and engineering graduates. But, it is hampered by a fiscal environment that imposes additional taxes on third-party operations. Until this is resolved, Indian carriers will continue to send aircraft overseas for maintenance, representing a loss of foreign exchange for the country and lost employment opportunities for Indian engineers. It is indeed time to reverse the trend.

Key Players

Air Works India (Engineering) Pvt Ltd is an indigenous provider of aircraft maintainable services. It has one hangar each in Mumbai and Delhi, which handle business jets and helicopters, while two hangars located at Hosur (Tamil Nadu) are used to service airlines. Apart from this, it has presence in the UK, France, Dubai and Slovakia. For heavy maintenance of aircraft other than Bell Helicopters and aircraft from Bombardier, Hawker and Beechcraft are sent to its facilities abroad. Air Works currently conducts heavy maintenance for product lines in India – Bell helicopters, Bombardier aircraft, Hawker and Beechcraft planes. It specialises in servicing aircraft like Boeing 737 series, Airbus A320 and ATR family of airliners. Air Works performs services such as line and base maintenance, aircraft painting, structural repairs, cabin upgrades and avionic upgrades, besides offering component repairs and spare parts. Air Works provides services from 12 airports in India for business and general aviation customers.

MAS GMR Aero Technic Limited (MGAT): It is a joint venture of GMR Hyderabad International Airport Limited (GHIAL) and Malaysian Aerospace Engineering (MAE) with state-of-the-art facility, providing full aircraft base maintenance service infrastructure catering to the maintenance needs of regional and global airline customers. The facility performs engineering and maintenance service operations on narrow-body aircraft such as Boeing 737 NG, ATR-42/72 and A320 family of aircraft.

Boeing-Air India MRO facility: The $100-million MRO project is part of an agreement between the national carrier and Boeing following a mega order for 737s and 787s Dreamliner which was placed by Air India in January 2006. The MRO facility, spread over 20 hectares next to the Nagpur airport, will have two hangars. It would offer maintenance and overhaul services to 300 aircraft a year. Both the hangars will have capacity to house three 737 aircraft each or one 777s or 747 each. Air India plans to use the MRO facility as part of a separate profit-making subsidiary of the airline’s engineering division - Air India Engineering Services Ltd. (AIESL), which was envisaged in the turnaround and financial restructure plan of the airline. This Greenfield project will be Boeing’s second in the world after Shanghai in China and will feature solar power facility, natural lighting system and a rainwater harvesting system.