Regrettably, the MRO industry in India has had a stunted growth and is far from attaining the muscle and the vigour required to serve a civil aviation market
Every aviation related seminar or conference in India inevitably witnesses several references to the projection that India will be the third largest aviation market over the next few years (estimates vary from 2020 to 2024). However, if that laudable status is to be actually achieved, the pace of our supporting infrastructure has to change gears with a sense of urgency.
One of the areas where we are lagging behind deplorably is the maintenance, repair and overhaul (MRO) arena. According to estimates, the MRO sector in India is expected to grow to $1.5 billion by 2020; however, it is not only the quantity that is important but the quality that would be required to sustain the foreseeable growth in aviation activity. The second biggest slice of an aircraft operator’s expenditure pie is paid out on maintenance of fleet. With rapid advances in aircraft and engine technologies, an MRO facility is no longer a hangar to protect an aircraft and technical personnel working on it from vagaries of weather. Instead, it is a critical part of an operator’s business plan and can make a tremendous contribution to the way account books look at the end of a financial period. Regrettably, the MRO industry in India has had a stunted growth and is far from attaining the muscle and the vigour required to serve a civil aviation market with ambitions of attaining the third rung globally over the next few years.
Details of the entities permitted by the Directorate General Civil Aviation (DGCA) in India can be accessed at http://dgca.nic.in/aircraft/app-ind.htm under carefully segregated categories of maintenance activities they can undertake. The site also lists 55 DGCA-approved foreign MROs to which Indian operators can take their aircraft. As of now, the majority of heavy maintenance is carried out in foreign MROs due to the under-nourished MRO industry within India.
A poignant illustration of the way our nation approaches MROs is that of the Boeing MRO built by Boeing at a cost of $100 million as a result of an agreement between Boeing and Air India after it placed a huge order for Dreamliners in 2006. The ultramodern facility is spread over 20 hectares and is designed to service B-737s, B-777s and Dreamliners of both domestic and international carriers. Air India first announced plans for the facility a decade ago but the MRO was delayed because of an incomplete taxi track. It was finally declared open by Union Minister Nitin Gadkari in June 2015.
The facility has only received two Boeing 777 aircraft till date, the first in May 2015 and the other in February 2016. The problem appears to be like a page out of ‘Ripley’s Believe It Or Not’. Air India has been unable to relocate its engineers from their home towns of Delhi and Mumbai. So far, Air India has managed to keep the facility limping along by hiring retired Air India engineers on contract and putting them up at a hotel next to the facility, which is around 16 km away from Nagpur. Finally, at the beginning of February 2016, Air India invited bids from private players to take over the facility and run it. Although the local managers claim they will have a full team in place soon, there is a doubt over whether Air India will be able to stabilise into efficient management.
Private sector, as can be expected, has been more successful although not to the extent of prosperity (which may come about if policies are rationalised in the near future). The leading MRO is Air Works which has been in existence since 1951 and proudly proclaims itself to be “the largest independent MRO provider in India.”
However, the general scenario is summed up in a statement the Minister of Civil Aviation made at a seminar entitled ‘Make in India: Challenges and Opportunities in Civil Aviation Sector’ organised in New Delhi in February 2016 by the Foundation for Aviation and Sustainable Tourism (FAST) thus, “As of now, it is heavily dependent on imports. Everything is imported, including servicing of aircraft. If you look at airlines, except Air India, all other airlines for their routine check-ups are going out of the country. They are going to Singapore, Dubai and Sri Lanka. So, we need to pull in that 700-million-dollar business into India.” The reason is the high cost of MRO services in India due to the taxation and royalty regimes.
The Asia-Pacific is on an effluent growth trajectory in aviation and third party MRO business is all set to rise
India has around 300 helicopters flying but MRO support is grossly inadequate. Pawan Hans Helicopters Limited is planning to set up four MRO firms as a part of its diversification plan; the first two are to come up in New Delhi and Juhu, with Guwahati and as yet unnamed station in the South later on. However, while the Minister may have spoken about ‘Make in India’ in reference to MROs, the lack of availability of hangar space and workshop buildings at important airports is deterring the MRO business. Moreover, policy changes are not nurturing the Indian MRO industry.
The establishment’s approach to MRO industry is evident from the manner in which commercial considerations of Delhi airport have bulldozed over aircraft operators’ subsistence level operating capability. In a sudden and surprise move, the Delhi International Airport Limited (DIAL) issued eviction notices to more than 20 aircraft operators (some of whom are carrying out their maintenance activities under existing agreements and within the ambit of existing rules and regulations). The eviction notices ordain that their hangar space be vacated; the purpose is to then allocate that space to two Fixed Base Operators (FBOs)/MROs (Bird Worldwide Flight Services-ExecuJet and Indamer-Mjets) which have entered into agreements with DIAL.
The tender bid for this purpose (issued in November 2014) invited only those entities which had five years international experience and thus effectively excluded many Indian companies with the requisite technical expertise to carry out MRO work; indeed some of them have already been doing so for years. The implication is that all aircraft operators plying their trade from Delhi airport will be coerced into using the services of these MROs. As the MRO now designated will pay a hefty royalty of 65 per cent to DIAL, the end user will end up paying more for services.
The move is a blatant use of force as DIAL holds the power to deny entry into the airside for those not falling into line as far as the monopolistic diktat is concerned. Understandably, the Business Aircraft Operators’ Association (BAOA) is filing a writ petition and is determined to fight it out legally to redress another blow to the already hemorrhaging general aviation.
New Civil Aviation Policy.
The new Civil Aviation Policy, in a draft form and possibly close to final promulgation, speaks of developing India into an MRO hub for Asia. It stipulates removal of service tax on MRO output services, exemption of aircraft maintenance tools and tool kits from customs duty, simplification of the process for import clearance of aircraft parts by allowing for self-attestation by the MROs and permission for spare parts imported for MROs to be stored tax-free for three years. It also speaks of enabling advance export of serviceable parts, for providing exchange of unserviceable parts, rationalising the current procedure for airport royalty and additional levies on MRO service providers, provision for adequate land for MRO service providers in all future airport projects, and efforts to persuade state governments to remove VAT on MRO services.
Asia-Pacific is on an effulgent growth trajectory in aviation and third party MRO business is all set to rise to meet the growing demands of rising aircraft operations as airline fleets expand and evolve. A recent study done by ICF International, a US-based management, technology and policy consulting firm, indicates that the MRO market will grow to $90 billion by 2024. The study also iterates that, as aircraft types become more fuel-efficient, their longevity as flying machines would create even more opportunities for MRO work.
Paradoxically, with advances in technology, aircraft will require fewer man-hours during heavy checks, with tasks previously earmarked for heavy maintenance being shifted to the flight line. Boeing’s rosy projection of 26,730 new aircraft being added over the next two decades the world around indicates that 38 per cent of these will be needed in Asia. Similarly, Airbus predicts 32,585 new aircraft deliveries out until 2035. Airbus adds that Asia-Pacific will also become the most important air travel market in the world, with 36 per cent of the world’s revenue passenger kilometres (RPKs) by 2034.
Due to the surge in aircraft numbers in Asia-Pacific, there will be ample demand for maintenance needs. That is an area where opportunity beckons India. As the demand for aircraft rises, India could make the right moves to become an Asia-Pacific MRO hub so that, besides meeting India’s growing needs, it can also carve out a slice of the Asia-Pacific MRO pie. Hopefully, the new Civil Aviation Policy will set Indian MRO industry on that track.