Thursday, February 16, 2012

IndiGo sends more support work to Sri Lanka in new blow to Indian MRO

Singapore Air Show
 » February 15, 2012
by Neelam Mathews

IndiGo, India’s largest budget carrier with a fleet of 48 Airbus A320 airliners, has awarded SriLankan Engineering its largest contract for maintenance of 26 C-checks through 2012. This is the fourth consecutive year IndiGo has outsourced to SriLankan and it is the largest overseas outsourcing of maintenance, repair and overhaul work by an Indian carrier. The contact has been awarded at a time when onerous taxes appear to be making Indian MRO providers uncompetitive.

Fast-growing IndiGo is to add 12 aircraft by next December, taking its fleet to 60 (of 100 ordered in 2005). A further order was placed last year for 150 A320 NEOs and 30 A320s. “The core business of a budget carrier is flying, not MRO,” said an official for the airline, speaking on condition of anonymity. “We don’t need inefficiencies and having to deal with labor issues.”

SriLankan Engineering, based in Colombo, just 30 minutes flying time from southern India, has committed to turning around overhauls in four or five days. Paul Dempsey, manager for business development and customer support with SriLankan Engineering told AIN that consistency and predictability in MRO pricing is especially important to airlines that lease their aircraft because they have to be mindful of requirements for returning aircraft to lessors in a contracturally specified condition.

Constrained by having no definite strategy for developing a domestic MRO industry and high entry barriers, India’s loss has been SriLanka’s gain. India’s MRO industry faces a discriminatory tax position against foreign players, even as the MRO spend of its airlines is likely to treble from the current annual level of $500 million to $1.5 billion by 2020. Challenges to growth include service tax, customs duty and value added tax that escalate the cost of a C-check by 43 percent, surpassing any advantage low-cost labor may have had.

Presently over 60 percent of all C-checks on narrowbody aircraft in India are outsourced to foreign MROs, with only two of the country’s five main airlines (Air India and Jet Airways) carrying out internal C-checks. According to Air India Express quality manager Ashwani Sharma, the 160 C-checks outsourced beyond India is worth around $16 million in income per year and represents a significant loss of income to Indian companies.

Meanwhile, enthused by its success, SriLankan Engineering is planning a 50-percent increase in narrowbody maintenance capacity and a dedicated capability for narrowbody livery painting. This is being achieved by refurbishing a second hangar at Colombo’s Bandaranaike International Airport, which is to be ready by the third quarter of 2012. Having gained expertise and experience but still needing further capital investment, the company “would prefer a nonstrategic partner or traditional investor,” said Dempsey.

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