By Vijay Grover
In spite of the pandemic leaving a considerable dent in global aviation, the opening up of the skies in recent weeks has offered hope to the airline sector. The industry is hopeful of a steady revival.
With the sector beginning to open up, hope hinges for the global Commercial Aircraft Maintenance Repair and Overhaul (MRO) market, which was badly impacted by grounding of aircraft and airlines shelving most MRO activity.
Industry sources now indicate that the Global MRO sector is looking to record a steady expansion at a rate of 6% over the seven-year period from 2022 to 2029, globally and in India the sector is expected to grow even faster at around 8.9%.
The impact of Covid 19 is gauged by the fact that prior to 2020, the air passenger traffic and new aircraft orders were increasing rapidly especially in the Asian region. This attracted global MRO players to enter the Asian markets and expand operations mainly owing to lower labour costs. However, the outbreak of COVID-19, which caused a severe downturn in the airline and associated industries, saw major airlines restructuring their growth strategies, which included early retirement of some aircraft, postponement of taking new aircraft deliveries. Airlines went on a spree to cut down the workforce, scaling down their operations, and optimising operational costs. As a large majority of the fleet remained grounded for a significant period for most airlines in 2020, airlines missed some major maintenance work during this period.
Over the last decade, Southeast Asia has emerged as a key player in the expanding state-of-the-art aviation infrastructure, which came up in several countries like Singapore, Malaysia and Indonesia.
MRO players from Singapore have established themselves as dominant players in the industry over the years and have managed to brace the Covid-19 impact with minimal setbacks. Following the success of Singapore in the industry, players from countries, like Indonesia, Malaysia, and Thailand are trying to replicate the success of Singaporean players and are also developing their MRO capabilities.
Currently Singapore is leading the aircraft MRO market in Southeast Asia. The aviation sector has emerged as the major contributor to the development of the Singaporean economy. Despite its relatively small size, Singapore has been one of the fastest-growing aviation markets in the region over the years, driven by the huge tourist inflow and growing business travel into the country. A lesson that India is waiting to follow with the thrust to the domestic MRO sector.
Singapore’s growth in aviation also makes it a strategic MRO hub and it caters to about 1/4th of Asia’s maintenance, repair, and overhaul (MRO) requirements and around 1/10th of the global MRO output.
While the two year period from 2019 to 2021 saw the global aviation sector shrink by 49%, the biggest ever dip in the aviation sector, even India which is a relatively small aviation market faced huge challenges. The impact of the grounding of aircraft took a toll on the MRO sector in emerging markets like India, which are still in an infant stage.
Despite Indian aviation growing steadily in the last twenty years, India lacks proper MRO facilities for various reasons, the most significant being the high taxes imposed on the provision of MRO services in India. 90% of the Indian MRO work is outsourced to countries like Singapore, UAE, Sri Lanka and others. Indian MRO’s are left vying for the remaining 10%.
There are 8 major players in the Indian market namely, AIESL, Air Works, Indamer Private Limited, Deccan Charter, Taj Air, Bird ExecuJet, GMR Aero Technic Limited and Max MRO Private Limited who have the skills to carry out MRO operations on most aircrafts which operate in Indian skies. Together they have managed to ensure timely maintenance and overhaul services for their customers.
The steady rise in the Indian aviation sector, which saw the air passenger traffic of scheduled airlines grow from 103.7 million in 2013 to 171.3 million in 2019, also saw the Indian MRO players capturing more opportunities to set up expansion plans in India. Recent investments in the sector by companies like Air Works and AIESL are an indicator that the requisite skills are available in the country.
Aviation Industry reports identify India entering the Top Ten countries list only recently and India emerged as the fourth largest civil aviation market in the world in 2019. It is set to become the world’s third largest by 2024. The steady rise promises a significant expansion scope for MRO facilities in India. The sector’s growth will mainly be fueled by a growing aviation industry. Analysts say “Dependence on foreign MROs is likely to continue until the domestic MRO industry catches up with its foreign counterparts in terms of size and certified breadth of services”.
Reports say that the Indian MRO industry size estimated at USD 1.7 billion in 2021 is likely to cross USD 4 billion by 2030. With over a 1,000 aircraft currently on order, the country is likely to become the third-largest buyer of commercial passenger planes in the world, only after the US and China. The Industry says that this shall create a demand for 200–300 major maintenance checks annually. Replacing ageing aircraft in the fleets of several airlines also creates scope for MRO to meet redelivery contracts.
The Indian government is now seeing an employment generation opportunity through the MRO sector encouraging the Indian Aviation MRO Market by bringing out a policy in 2016 to encourage investment.
The recent announcement by the Airports Authority Of India (AAI) which has come up with a business-friendly proposal for setting up MRO with zero airport royalty charges and significantly rationalised land rentals at eight Indian airports. An action taken report on the ‘Status of Aviation Connectivity in the Country’ tabled in Parliament in February 1st week by the Standing Committee on Transport, Tourism and Culture announced this for eight airports Begumpet (Hyderabad), Bhopal, Chandigarh, Chennai, Delhi, Juhu (Mumbai), Kolkata and Tirupati. Other airports with available land and space resources, with potential to attract MRO service providers for establishing their facilities, shall be identified and notified by the AAI from time to time, the report added.
The AAI committee is of the view that insistence by aircraft manufacturers for MRO activity in their country has hampered the growth of the MRO industry in India. It has recommended that, “In order to give the much-desired fillip to the local MRO industry, the Ministry of Civil Aviation should devise a suitable MRO policy whereby employment opportunities can be created”.
The key advantage that India has is the availability of low-cost MRO manpower, which gives India an added advantage from the rest of the MRO hubs in the world such as USA, Europe, Singapore and others.
With the pandemic behind, a potential increase in the Indian commercial and business fleet size is being seen as another major factor driving the demand for MRO services in the country. The current Indian Commercial Fleet size consists of more than 650 aircrafts and is expected to double in the coming years.
While the Government announcements offer hope Industry analysts express concerns. They feel that one of the biggest growth restraints for the market has been high taxes and custom duties levied on the MRO sector which has made them comparatively costlier in India than abroad.
The Industry says that if the domestic and international airlines have to start preferring to avail MRO services in India instead of outside India, a dynamic shift in policy is needed. If that happens the Indian MRO market is forecasted to grow at a rate close to 10% by 2023. In this scenario, the market which is expected to experience continuation of high custom duties, taxes and GST will need relief on this front.
If only the taxation rates become lower in India only then Indian MRO’s will be able to compete with foreign MRO’s. Moreover, this scenario is characterised by poor implementation of the National Civil Aviation Policy 2016, which aimed to boost the Indian MRO market. However, lack of proper implementation of this policy in the past few years has continued to create problems for Indian MROs and is expected to remain the same in the future if corrective action is not taken on a war footing.
While the major Indian players operating in the Indian MRO Market are drawing expansion plans to cater to the rising demand. An aviation expert told IA&D “While it’s still early days the return of Air India to the Tata’s stable may bring in newer dynamics to the MRO sector given the group’s synergies with the Singapore Airlines”.
However, on the Defence aviation front, India continues its self-reliance or the Atma Nirbhar approach. The government owned Hindustan Aeronautics Limited, which has set up MRO facilities not just in Bengaluru, but also at Nashik, plays a key role in keeping the Indian Air Force flying. HAL, which has produced most Russian and other aircrafts which India flies, has the requisite expertise and infrastructure to ensure that the fleets are kept flying without hitches.
The helicopter MRO division of the HAL in Bengaluru takes care of the helicopter fleets of Cheetah, Chetak and Advanced Light Helicopter platforms. However, with the expansion of the IAF Fleet with recent acquisitions of over 300 aircrafts and helicopters in the last 5 years, the IAF is looking to encourage Public Private Partnerships at workshop levels to keep the maintenance activity proceed smoothly and seamlessly.
The setting up of the Boeing MRO facility in Yelahanka Bengaluru for the P8I and the VVIP transport aircrafts flown by the IAF is being seen as a step in the right direction to help maintain the fleets better. It is a matter of time, when more such onsite MRO facilities come up across the country. The biggest gain of this would be for the youth as the sector has a potential to generate 90 thousand direct jobs and also save about 2 Billion US dollars in precious foreign exchange.
