MRO - Get Your Act Together

The hurdles facing the MRO industry are not insurmountable. However, growth cannot be taken for granted. Once high class and competitively priced MRO services are available in the country, a lucrative export market should open up providing India a great opportunity to emerge as a major MRO hub in the region.

India’s commercial aviation industry should be the envy of the world. Passenger numbers have surged 19 per cent last year, the highest rate globally. Yet in a strange paradox, the airlines are bleeding. Air India is lurching from crisis to crisis and would have folded up long ago but for periodic infusion of funds by the government at the expense of the hapless taxpayer. Not half as lucky is Kingfisher Airlines which is in dire straits. Jet Airways and SpiceJet are also showing signs of financial stress.

According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the airlines’ losses are mounting because more than a third of their operating costs are on account of aviation turbine fuel (ATF), a heavily taxed commodity. But other factors are also at play here. The country’s carriers are in a suicidal race to the bottom because of cut-throat competition. The latest price war was triggered by Air India which itself is immunised from the consequences of its folly. The airlines also pay heavily for maintenance, repair and overhaul (MRO) services abroad which should rightly have been done domestically at far lower cost and with significant saving of turnaround time. After ATF and staff, maintenance is the biggest item of the operating cost of an airline, amounting to as much as 15 per cent. New and bigger domestic MROs are urgently needed to reduce the burden.

Wanted: MROs

Why hasn’t India’s MRO sector been in sync with the boom in aviation? From 2004 to 2007, the airline industry grew at a scorching pace. Domestic carriers placed orders for hundreds of new airliners and the MRO operators seemed eager to set up shop. But when the downturn came, their enthusiasm waned. Even today, except for line maintenance, most airlines are forced to send their aircraft for servicing to the Gulf or South East Asia—more than five hours’ flying time each way—or other countries that have advanced MRO facilities in the process shelling out around $700 million ( Rs. 3,500 crore) annually. Only Air India has certified capability for carrying out airframe heavy maintenance checks on its planes.

Yet the number of aircraft in the country, both civil and military, is growing apace. This means there is huge potential for MRO facilities. India’s scheduled airlines have about 400 aircraft now and according to the Centre for Asia Pacific Aviation (CAPA), the figure is projected to rise to more than 1,000 by 2020. The fleet of general aviation aircraft is likely to increase even faster from 680 today to more than 2,000 by 2020. All the more reason why there should be a strong and vibrant domestic MRO industry.

MRO is subdivided into four categories: airframe heavy maintenance, engine overhaul, component MRO and line maintenance. The major markets in terms of value are expected to be engine overhaul (30 to 35 per cent), airframes (20 to 25 per cent), component (20 to 25 per cent) and line maintenance (20 to 25 per cent). India is uniquely placed to become a regional MRO hub. Apart from geographical location, it offers many advantages as an MRO hub, especially the availability of skilled personnel at lower costs. Labour costs in India are just $30 ( Rs. 1,500) per manhour, compared to around $60 ( Rs. 3,000) in South East Asia and the Middle East and much more in the US and Europe. Other favourable factors include liberalised civil aviation policies, a strong domestic manufacturing base and specialist capabilities. That is why CAPA estimates that the Indian MRO market will grow from approximately $800 million ( Rs. 4,000 crore) today to more than $2 billion ( Rs. 10,000 crore) by 2020.

Few and Far Between

India’s MRO sector is itself in need of a major overhaul. The country has a few independent MRO service providers but most of them operate on a small scale. Mumbai-based Air Works is the only sizeable one. Air Works, which began in April 1951 as a small enterprise providing maintenance services to business aircraft, is now a sprawling organisation that offers a full suite of services for aircraft maintenance and aircraft painting to more than 100 customers at 12 locations. It currently maintains 42 business and commercial aircraft types in India under the DGCA approval. It is India’s first independent airline MRO with approvals from European Aviation Safety Agency (EASA), Directorate General of Civil Aviation (DGCA) and General Civil Aviation Authority (GCAA) for Airbus A320 series, Boeing B737 Classic/NG, and ATR 42/72 family of aircraft. Through its UK-based Air Livery subsidiary, Air Works is one of the world’s largest providers of aircraft painting services and large-scale rebranding programmes.

Air India has in-house maintenance facilities in Hyderabad and Delhi. Boeing has also commenced the construction of its much-awaited $100 million ( Rs. 500 crore) MRO depot at Mihan Special Economic Zone (SEZ), Nagpur. However, once the MRO is ready towards the end of the year, Air India will probably run it. It could offer MRO services to other airlines as well. Airbus may also set up its own MRO facility in Nagpur, as part of an emerging international aviation hub. Meanwhile, the Cochin International Airport Ltd is seeking a suitable partner to provide maintenance facilities for narrow-body aircraft and business jets. Recently launched is the MAS-GMR Aerospace Engineering Corporation Ltd, a 50:50 joint venture between Malaysian Aerospace Engineering and GMR Hyderabad International Airport Ltd. Located in the Hyderabad SEZ, it is a third-party airframe MRO facility, claimed to be the first of its kind on this scale in India. It has a wide-body hangar, a narrow-body hangar with three bays and another paintcum-narrow-body hangar with associated workshops.