The aerospace MRO industry is set for big gains, with a government boost and the arrival of MNCs in India.
It’s raining deals and joint ventures for the aerospace industry. The Indian government has approved the signing of a pact with Canada to enhance technical knowledge in civil aviation and deepen bilateral cooperation. GE Aviation and Mahindra Aerospace have collaborated on manufacturing opportunities for aero structures. Boeing and Tata Advanced Systems have signed a pact to collaborate in aerospace and defence manufacturing as well as to tap into integrated systems development opportunities, including unmanned aerial vehicles. All these developments point towards growth pastures for the aerospace sectors and more so for its allied industries such as maintenance, repair and overhaul (MRO), machine tools, etc.
According to Amber Dubey, partner and India head, aerospace & defence, KPMG, “A strong MRO industry is a catalyst for the success of aviation growth in any country. Airlines today spend about $3 million per aircraft on an average as their inventory cost per year. Indian MRO has a large untapped potential to the tune of $1 billion in the next five years. However, the current regulations need drastic changes for the success of this industry. The MRO space can attract some of the industry leaders to setup and expand MRO services.”
Reaffirming the developments, Ranganathan Jagannathan, senior VP & SBU head, aviation business, Ramco Systems, says, “With this government, there has been a lot of thrust on the localisation of manufacturing activities. The Make in India initiative and Skill India campaigns have been one of the few programmes to realise the potential.”
He adds that pure play MRO is more about repair and overhaul, but if we are able to indigenise that, there will be lot of opportunities. Air India has been a frontrunner in taking an initiative, having also joined hands with Boeing. Given low labour costs in India, there is a lot of scope for MRO. It can serve the local industry, since all the airlines are currently getting heavy duty maintenance done overseas. We are also seeing airlines setting up third-party MRO stations in the country by tying up with Airbus and Boeing to get investments.
Giving a perspective, Pulak Sen, founder secretary general, MRO Association of India, says, “Until 2010, MRO facilities of global standards were non-existent in India. State-of-the-art MRO facilities, however, have been established in India recently by Air India (Nagpur), GMR (Hyderabad), Air Works India (Hosur) for Aircraft & Engine and Max Aerospace, Aman Aviation, etc.”
According to Sen, at present, airlines operating in India get nearly 90% of their MRO done abroad, mainly due to cost advantages resulting from the comparatively high tax burden, cumbersome operating procedures, and the inadequate MRO service facilities available here. On daily basis, foreign exchange equivalent of Rs 12 crore is being sent abroad every day. Apart from all this, MROs have to pay a service tax of 14% on the value of work undertaken, which is the main hindrance in sustenance of this industry.
Rajiv Chib, director, aerospace and defence, PwC, agrees. “If Make in India is going to succeed, then it will be followed by Maintain in India. But now, if there is a choice for a customer that he can carry out MRO services cheaper in some other country, he is obviously going to take that decision. Even if we take care of this aspect, we should be competent enough to offer better services than other parts of the globe.”
Giving an industry perspective, Jagannathan elaborates, “There is huge investment required in getting the necessary infrastructure. MRO requires huge space. Other aspect is the taxation. It puts a big dent in our margins. There are also customs duties when we import equipment. Skill development and training requires immediate attention. We need highly qualified engineers to perform such specialised jobs. Availability of talent pool is another disadvantage.”
Voicing his concerns, Sen says, “The MRO Association of India had been educating the MoCA for over five years that the Indian MRO Industry needs a level playing field. Today, MRO is considered as part of ground handling services, whereas MRO is an engineering service and should be given due recognition. When some fiscal benefits that we are asking from the government are adhered to, then we can offer affordable MRO services not only to Indian Airlines, but also overseas ones.”
While there seemS to be myriad challenges marring the growth, there is always a silver lining in every dark cloud. Sen explains, “India enjoys a huge young talent pool of engineers and technicians and the man-hour rate is the cheapest in the world between $22 and $30. If right fiscal benefits are given to the Indian MRO Industry, it can generate almost 40,000 jobs. It is calculated that per million US dollars worth of MRO work gives approximately 60 persons employment.”
Chib says that if we go by the success rate of the Make in India initiative, then we better start prepping up for Maintain in India by 2020. The increase in the number of aircraft owing to the increasing air traffic will benefit this industry. But this requires government support, tie-ups with OEMs and adoption of world-class technology such as HMS (Health Management System), wearables and big data. They can also play a role in being subcontracted by defence OEMs to carry out maintenance for military aircraft in India.
Looking ahead, Jagannathan believes that big data, mobility, voice recognition and additive manufacturing (3D technology) together hold the key to the future. He adds, “There will be a lot of branching out for other small manufacturing units, repair & maintenance shops, machine tool companies, and so on. We have parks being developed for other sectors such as pharma and textiles. If that gets replicated for the MRO industry, I am sure it will witness a huge fillip. There are also possibilities that OEMs such as Boeing and Airbus would want to set up their ancillary units if they get the right ecosystem.”
The aviation ministry recently discussed the issues with industry veterans and has promised to take corrective steps. Under the proposals being considered are custom and service tax exemptions from the Central Government, but the states would have to pitch in by providing exemptions from value-added taxes and octroi. MRO companies have to pay taxes to the extent of 40% for providing services in India.
On the sidelines of the inauguration of Air India’s state-of-the-art facility for MRO at Rajiv Gandhi International Airport, Hyderabad, Rohit Nandan, CMD, Air India, said, “We are pursuing the Make in India initiative and this MRO unit is a strong platform in that direction. At one point of time, it was difficult to construct the facility that has come up at Hyderabad as Air India also had financial difficulties but with the support from the government and the Ministry of Civil Aviation, today we are standing in the state-of-the-art facility and looking ahead to playing much bigger roles.”
HR Jagannath, CEO, Air India Engineering Services (AIESL), said that Air India has a great potential in the MRO facility. More support from the government can bring about more improvements in the country in terms of revenue generation and manpower development and utilisation in the country as we are one of the biggest MRO in the region.
India’s current MRO market is poised to be the third largest market by 2020. The Indian civil aviation industry is amongst the top 10 global countries with a size of $16 billion and is likely to see investments totalling $21 billion during 2012-17 of which $9.3 billion is expected to come from the private sector. Indian carriers plan to increase their fleet size by 2020 to around 1,200 aircraft, says Boeing. Increase in acquisitions by Indian Air Force over the next 10 years will help India emerge as a dominant military MRO destination.
All in all, India, with its growing aircraft fleet size, strategic location advantage, rich pool of engineering expertise, and lower labour costs has huge potential to be a global MRO hub.