Thursday, December 2, 2021

Higher Priority For MRO Activity Makes Sense

by Bikram Vohra

With the consolidation of Air India, its ancillaries and Vistara into a single professionally run entity and the advent of Akasa and resurrection of Jet, things look good. For a long time now India has lagged behind in the MRO sector picking up only a tad over 2% of the USD 616.01 billion in 2020. It is projected to be worth USD 701.30 billion by 2026, while registering a CAGR of 2.19% during the period of 2021-2026.

We have the work force, the skills, the geographical east-west location and it has been a much-neglected segment of civil aviation. Well on time to change these dynamics.


With 357 commercial aircraft and a growth rate in aviation of over 8%, twice the world average, India could well have the capacity to reach a 1000 string fleet by 2025. As its airport network grows, its success, despite the Covid depression, will be spearheaded by investment in single aisle narrow bodies like the 320 and 737 families.


So, it makes sense to pull out all stops and give the MRO sector a tangible boost. In September, civil aviation minister Jyotiraditya Scindia made the first major moves in this direction when he ordered the leasing of land through open tenders and abolished the royalty that was being charged by the Airports Authority of India on the Maintenance, Repair and Overhaul business.


More important Scindia’s seriousness is underscored that the allotment of space for setting up the facilities will be for thirty years and not a flimsy three to five as has been the case.


While it might be a little ambitious to become the world’s hub in MRO there is no harm in thinking big and India can certainly be right up there with Singapore and the UAE. It is already very different from the clumsy approach of the past. The following gives you an idea of how stunted the vision was. A major airline sends its aircraft to an MRO based in India for all four major services: engine maintenance, airframe checks, component verifications and line maintenance before signing off the plane as airworthy. During the servicing, it is discovered that a certain part has to be changed. Now, that part is not available in India because there is no great demand for storing these hundreds of spares and it has to be imported. Into the mix comes customs because now duty has to be paid on that part. This can be a cumbersome task and over the decades, it has been difficult to navigate this mental block. That item is going to be put into an aircraft and it will fly out of the country ironically as an export.


What we need in India is a prototype, the setting up of a state of the art unit. Something that even entities like Lufthansa Technik and Air France Industries and KLM Engineering and Maintenance can admire. And then, when one of these is functional and doing well and spreading its ever increasing circles of prosperity and employment and adding this much needed maturing to Indian aviation other such facilities will automatically be activated as the credibility factor improves. At present, the image of the MRO sector is weakened by a bureaucratic short sightedness and it is only now that the government is waking up to its potential. Between delayed paperwork, a tax rate that only recently was reduced, the brain drain of engineers and aeronautical experts and a generally low priority given to making MRO robust has dissuaded investment and increased the admiration of the handful of companies that have worked against the tide to create some sort of infrastructure. There are eight major players operating in the Indian MRO Market including Air India Engineering Services Ltd, Air Works India (Engineering) Pvt. Ltd, Deccan Charters Limited, Indamer Aviation Pvt. Ltd, Max MRO Pvt Ltd, Taj Air, Bird ExecuJet and GMR Aero Technic Ltd.

The average cost on MRO activities is 12 to 15% of total expenditure for a carrier. If India sets its house in order, we are looking at a robust $2.5 billion industry by 2028 and increasing exponentially.


So, let us see the practical side of things in the new firmament. Recently, the government of Gujarat stated its plans for the development of Dholera Airport as an MRO hub. It is ideally placed between Mumbai and Ahmedabad Internationals and can serve local airlines very well from their hubs. It would have ‘all the capabilities, facilities and warehouses in the Airport to provide low-cost, high-quality services to aircraft and parts manufacturers as well as airlines and other companies in the industry.’ Sounds great. Just what the doctor ordered. It will be the model aviation city with an airport terminal included. The timing is perfect. With the growing complexity of airframes, systems, engines, and related components and hybrid materials MRO options become more valid because more time and more in-depth inspection is demanded. Maintenance has become a wider ranging exercise. You are not dealing with DC4 fleets now.


Another example of moving on is the joint venture opened in Nagpur. The MRO facility is currently seeking to obtain FAA and EASA certifications. To quote Indamer who have collaborated in this venture, “The world-class facility is designed to conduct heavy maintenance on all narrow-body platforms including new-generation aircraft.


Fully aligned with the “Make in India” initiative, the facility will employ Indian residents. A training school under Indamer’s CAR 147 certification and the Government of India’s Skill Development Program will allow hundreds of students to gain skill sets and employment in Nagpur.


For once, the Finance Ministry was also on the same page. Nirmala Sitharaman said; “Tax regime for MRO ecosystem has been rationalised. India has all the capacities, manpower and soft skills required. Aircraft component repairs and airframe maintenance segment is worth around 800 crore and would increase to 2,000 crore in three years. Convergence between the defence sector and the civil MROs will be established to create economies of scale. This will lead to maintenance cost of airlines to come down.”
The Mordor think tank on this subject makes two very valid observations.

As MRO helps in reducing operational expenditure substantially through process efficiency and optimised supply chain management, an increasing number of end-user companies are investing in the market studied. Furthermore, the overall economic and manufacturing growth continues to drive maintenance and repair demand in developed and developing economies.


Furthermore, the development of smart factories may bring advancement in the MRO sector. For instance, the growth of predictive maintenance, such as the use of sensors and IT, which allows manufacturing components to be replaced before visible defects appear, is also expected to transform the global MRO industry.


Agreed on both counts, If we get our act together, the sky is truly the limit. Once the message goes out more entities that are global will join in. India is where the action is. Let us not forget our own domestic needs. Passenger growth and fleet size growth are vital for the MRO industry and we are in the spearhead of that growth model. The combined fleet of India and China are projected to reach 3000, almost three times the existing size. As a result of this growth in fleet size, the Chinese and Indian MRO market is likely to touch $5 bn and $2.5 bn respectively, growing at 9.5% and 10% per annum.

Time to grab a big share of the MRO market. .

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