The Hindu Business Line : Aviation MRO segment poised to grow

As a support service to the aviation industry, India’s MRO (Maintenance, Repair & Overhaul) segment is estimated to grow at 10 per cent and reach $1.17 billion by 2010 and $2.6 billion by 2020, according to Changing Dynamics, a study on India’s aerospace industry undertaken jointly by the Confederation of Indian Industry and PricewaterhouseCoopers.

The globalisation of MRO services, manpower cost arbitrage, the availability of talent, locational advantages and the presence of specialist capabilities all combine to make India a potential global/regional MRO hub, the study observes.

The MRO manpower costs in India vary from $30 to $35 per hour which is almost 60 per cent cheaper that that in Western Europe and the US though not significantly lower than the manpower costs in other Asian countries such as China and Indonesia.

Another advantage for India has been its large pool of technical manpower. There is a shortage of skilled workforce in developed countries as the existing workforce is ageing while new talent is not becoming available.

Indian MRO companies can also leverage the country’s inherent geographic advantage of being located between Europe and the Asia Pacific region. Currently there is not a single MRO active in the area falling within a five-hour flying zone of India. India’s domestic market being substantial, right now the domestic carriers are required to go to either Dubai or Singapore.

Cost advantage

The emergence of low-cost carriers has pushed up the competitive pressure on the major airlines which would prefer to have their aircraft serviced locally at reduced costs. The international carriers, who have been increasing their services to and from India, too can have their aircraft services in India, leveraging the opportunity thrown up by the cost advantage.

According to the study, India is poised to become a large commercial as well as defence aircraft market. With rising passenger traffic and increasing military and Defence expenditure, the demand for aircraft will steadily increase, and with it, the opportunities for MRO-related activity. Boeing estimates demand of commercial aircraft between 900 and 1,000 worth about $100 billion in the next 20 years, with a chunk of this demand likely to be from India.

Currently, overhaul of military aircraft is almost entirely undertaken by the public sector Hindustan Aeronautics Ltd. However, the Defence Procurement Procedure (DPP) 2008, outlines opportunities for outsourcing maintenance operations through the establishment of public-private partnerships. Of the projected defence expenditure of $100 billion in next five years, an estimated $15 to 20 billion is expected to be spent on military aircraft. Assuming an offset of 30 per cent for the civil sector, the total offset opportunity for aerospace sector will be significant.

Another area that holds promise for the MRO sector is the operation of helicopters. International helicopter operators have been allowed to fully own their India ventures and it is no wonder that some of them are in dialogue with Indian companies to set up MRO bases here. Business jets and freighters are other promising segments for the MRO industry.

Several foreign companies, on recognising India’s potential as a MRO hub, have already announced their alliances with local firms and, according to the CII-PricewaterhouseCoopers study, these include, among others, Air Works India Engineering, EADS’s (European Aeronautic Defence & Space CO NV) joint venture agreement with National Aerospace Company of India Ltd (NACIL), which operates Air India, to set up an aircraft MRO centre, the Air India-Boeing MRO joint venture, most probably with the participation of a third party, Indian Airlines-Airbus-Jupiter Aerospace MRO joint venture, Taneja Aerospace &Aviation’s MRO facility agreement with Air Works Commercial MRO Services.

Among those already in operation are Hyderabad Aircraft Maintenance Company and Max Aerospace. Some States are also trying to project themselves as the best locations for establishing MRO hubs.

The Gujarat Government has hired an agency to prepare a blueprint on how to go about in this regard and is to float a company, Gujarat Airport Infrastructure Company, to execute development work to be needed for setting up airports and MROs.

Land shortage

A major challenge facing the MRO industry is the shortage of land. An MRO unit ideally should be located close to airport but the land acquisition process is cumbersome and therefore time-consuming.

Not all kinds of operations can be undertaken right from day one. For example, air-frame is the prime candidate for offshoring to India, particularly for airlines with over 30 aircraft, due to its labour intensive nature. Line maintenance and component repairs will come next, to be followed by the engine overhaul which requires maturing of the industry.

Finally, the tax regime. MRO activities in India, as the study makes clear, will not take off unless the present indirect tax regime is overhauled. The complex and multi-tiered tax structure makes domestic activities uncompetitive in a range of situations, it is pointed out.

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