Tuesday, May 29, 2012

Airline MROs Feel Squeeze but Still See Opportunity In India

AIN Air Transport Perspective » May 28, 2012
Air France KLM's maintenance, repair and overhaul operation still sees strong prospects in India despite recent struggles there.
Air France KLM’s Engineering & Maintenance division sees continued growth in India’s troubled airline industry.

May 28, 2012, 10:25 AM

The decline of India’s Kingfisher Airlines, whose fleet has shrunk to 16 aircraft from 66, hasn’t only served to push air fares upward due to declining capacity in a high-demand market. At the same time it has reduced business for suppliers and airline service providers, such as maintenance, repair and overhaul (MRO) groups. For example, Air France Industries KLM Engineering & Maintenance (AFI/KLM E&M) fell victim to default on payments by Kingfisher, under the terms of a component support agreement covering its long-haul operations.

“We had to pull out [of the agreement] as a result of non-payment of dues. This was done in good order with them [Kingfisher],” Robert Anton, AFI/KLM E&M’s senior vice president for materials and services, told AIN. The abandoned contract also cost the European MRO provider line maintenance business at London Heathrow Airport, as Kingfisher recently withdrew all its international operations.

However, AFI/KLM E&M retains its MRO business with India’s largest budget carrier, IndiGo, and it reports progress on its joint venture with Mumbai-based Max Aerospace & Aviation for manufacture of components. The partners expect to complete construction of a 108,000-sq-ft manufacturing facility by the end of next year. Meanwhile, they plan to place test benches at Nagpur, where Boeing is building hangars for Air India. Initial repair work will involve avionics, pneumatics and hydraulics for the Airbus A320 series.

“Our core strength is in avionics, the fastest-growing space in the MRO sector in India,” said Bharat Malkani, chairman of Max Aerospace & Aviation. Last year AFI/KLM E&M dismissed as “grossly underestimated” annual revenue predictions of $100 million for component repair in India. In fact, the company said it expects its business in India to grow by 14 percent each year for the next 10 years. Already, IndiGo’s 56 A320s operate under a 12-hour parts exchange contract with AFI/KLM in Paris. IndiGo expects to save 3 percent on transportation costs by keeping those components in India. The budget carrier confirmed last year that it will buy 180 Airbus single-aisle airplanes.

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