Slow Going

Boeing’s senior vice president for Asia-Pacific and India sales, Dinesh Keskar.

If there is one common factor in Indian aviation maintenance, repair and overhaul (MRO) for the past decade, it’s that the status quo remains. Not much has changed, although there are signs that interest in the sector on the subcontinent is increasing. Contributor Neelam Mathews attended the recent MRO South Asia Summit in New Delhi.

THE FIGURES ARE INSPIRING as carriers grow their fleet sizes and India is leading the trend. Asia’s Commercial Services market, worth a hefty US$3. 2 trillion — the highest in the world- according to Boeing’s 2017-36 forecast, will see a compound annual growth rate in MRO of 5.2 percent. The commercial services market in South Asia (India and neighbouring countries like Pakistan, Sri Lanka and Bangladesh) is forecast at to be worth US$410 billion, of which the share of maintenance and engineering will be 22 percent, training and pilot services 2 percent, information services 9 percent, marketing, and planning 2 percent, cabin services 9 percent and the rest at 55 percent will be held by ground handling.

Though demand for MRO is growing, a lack of infrastructure, third-party providers, specialist shops, and an unfriendly regulatory structure continue to stymie progress.

“Commercial aerospace demand in India continues to grow at unprecedented rates,” said Dinesh Keskar, senior vice president, Asia-Pacific and India sales, Boeing Commercial Airplanes. Last year, in its 20-year outlook, Boeing said Indian airlines could order up to 2,100 new aircraft — 5 percent of the global demand of 41,030 aircraft. This was the highest-ever forecast for India, which is expected to double its present fleet size to more than 900 in the next eight years. “As the fleet grows, it takes time to build and train. The time for investment is now,” said Keskar,

While there is little doubt about India’s fast-growing fleet, Indian carriers find it more cost effective to fly empty aircraft and crew to foreign MROs. According to industry sources, only 10 percent of MRO work for domestic scheduled carriers is sourced in India, as carriers are heavily reliant on foreign MRO service providers for engine management, component contracts, and heavy checks. Approximately 64 percent of the total maintenance spend, which would account for an estimated 7 percent of revenue of airlines is being transacted for maintenance in foreign currency, a KPMG report said recently. With the airlines in India following the sale and leaseback model, where they are required to go to MROs mandated by lessors when returning aircraft, an Indian-recognised MRO could form a significant revenue stream of approximately US$1.2 million per aircraft.

“The prevailing archaic rules continue to allow import of such aviation MRO services from foreign-based MROs on duty/tax free basis, while Indian MRO companies are required to conform to the tax/duty regime, thereby increasing the cost of same services by Indian MRO companies by 20 percent to 25 percent,” says the Federation of Indian Chamber of Commerce and Industry. The MRO industry is in discussions with the government to create a level playing field by either abolishing the 18 percent goods and services tax levied on the sector or by imposing customs duty on aircraft being serviced out of the country, saying it makes servicing aircraft in India costlier than abroad.

The government should encourage the establishment of an integrated supply chain service provider in India.

KPMG

Low-cost carrier (LCC) IndiGo for instance, has tight long-term contracts with SriLankan Airlines in Colombo to carry out its checks. Policies, or rather the lack of them, have resulted in making “the MRO segment get a step-motherly treatment,” said an MRO provider to Asian Aviation.

Fragmentation within the sector, the size of various players and their respective service offerings along with location diversity have created hurdles for MRO growth, the KPMG report said. There is a need for large domestic conglomerates operating within the MRO space to invest in the fragmented industry to enable consolidation, engineer sustainable growth and increase returns for its stakeholders, it added.

“We need a one-stop shop,” said Arun Kashyap, executive vice president and head of engineering and maintenance at SpiceJet. Indian carriers hold an estimated US$3 million worth of inventory for every aircraft, or about US$60 million for a fleet of 20 aircraft.

“The government should encourage the establishment of an integrated supply chain service provider in India, either by a domestic player or by inviting strategic international companies for joint ventures in India,” said KPMG. This is likely to happen in the near future as foreign MROs look to tie-up with Indian third-party providers.

SpiceJet does 100 percent of its MRO work in India, except for the work required by lessors to be done elsewhere. This follows an agreement with Air India Engineering Services (AIESL) where 50 percent of the cost is covered by SpiceJet using its own engineers and mechanics at the AIESL facility in Nagpur.

“ This is a new revenue sharing model with an airline that is working,” said Harpreet Singh, executive director and chief of Flight Safety Air India. She also said the industry needs more participation of women at the shop level. However, for this, rules will need to be changed. Indian law prohibits female employees working beyond permissible hours as well as overtime in factories and commercial establishments.

Boeing, for its part, has already spent US$105 million on a 50-acre MRO facility at Nagpur Airport, which can carry out checks on six narrowbody aircraft or two widebodies at a time. “More shops are being added. This will help airlines bring costs down,” said Boeing’s Keskar. As fuel prices reach US$60 per barrel or more, “it will be important to reduce costs,” said Keskar. The facility was initially built for the B-777s and B-787s.

“The challenges for MRO are infrastructure, finding land, land acquisition and higher duties on spare parts,” said Keskar. “One out of every 20 airplanes sold worldwide is to India. That shows the opportunity in the country,” he added. “The market is here, the growth is here, and people (skilled workforce) are here.”