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Can India Become an MRO Hub?

Aircraft Maintenance, Repair and Overhaul (MRO) is the repair and service of an aircraft or aircraft component. It essentially refers to the maintenance activities carried out as per international standards to ensure the safety and airworthiness of aircrafts. MRO involves essentially four types of activities, namely (i) aircraft heavy maintenance; (ii) engine maintenance and overhaul; (iii) component maintenance; and (iv) line maintenance.

The global aircraft MRO market is a multi-billion dollar industry growing aggressively year-on-year. Sadly, India’s share of the market is abysmally low. While North America is the largest MRO market in the world accounting for nearly 40% of the global business, India accounts for a paltry 1%. MRO service providers in the Asia Pacific are mainly concentrated in China, Singapore, Malaysia and Dubai.

Given India’s technology and skill base, the Government of India is keen to develop India as an MRO hub in Asia that can attract business from foreign airlines. India’s finance minister Nirmala Sitharaman announced in her maiden budget that the government will leverage India’s engineering potential to achieve self-reliance in this vital aviation segment through suitable policy interventions.

Indian MRO market

As per the International Air Transport Association (IATA), India is poised to be the 3rd largest aviation market by 2024. Rapid growth of the aviation sector is driving up the demand for MRO facilities. The Indian MRO market is estimated to be around $ 800 million and is growing at about 8% annually against a 4% world average. A recent EY study reveals that Indian MRO market is expected to grow at an average annual rate of 15%. With India’s growing aircraft fleet, it is cost effective for domestic airlines to have their aircraft serviced within the country.

Increasing age of Indian aircrafts, both civil and defence, require frequent maintenance. While there are some Indian players in this space including Indamer, Air Works, Max Aerospace & Aviation, GMR Aero Technic and Hindustan Aeronautics, inadequate facilities and high taxes are driving out 90% of the Indian MRO business to countries like Singapore, Dubai, UAE and Sri Lanka.

Asia Pacific

Singapore is considered the world’s leading MRO hub enjoying 3% of the global market share and 25% of the Asian market share. More than 100 leading international MRO companies operate from Singapore. Favourable policies, strong network of original equipment manufacturers and availability of skilled manpower are some of the factors that have contributed to the development of the MRO industry in Singapore. China, with around 300 MRO companies, is another strong contender. As per a forecast by Airbus, China will have around 3,238 aircraft by 2026, which reflects the large and rapidly growing size of the market in China.

Why is India a laggard?

When compared to some other countries, India’s taxation policies are perceived to be less favorable for the MRO industry. With an 18% goods and services tax, Indian service providers have to compete with overseas players that only pay 5% tax, that too at cost price. Further, the MRO rentals at the privatised airports in New Delhi and Mumbai are 50-100% higher than the rates for equivalent facilities in Europe and Turkey. These Indian airports also charge a royalty of nearly 20% on maintenance work.  GST, royalty and lease rentals need to be rationalized and made competitive so as to promote the Indian MRO business.

Government initiatives

Recognizing the potential of the MRO business and in line with the ‘Make in India’ policy, the government of India has introduced certain policy initiatives recently to provide impetus to this business segment. These include (i) exemption from customs duty for the tools and tool-kits used by the industry; (ii) extension of the one year timeline for utilization of duty-free parts to three years so as to enable economies of scale; and (iii) permission for foreign aircraft brought to India for MRO work to stay for the entire period of maintenance or up to 6 months. Earlier, foreign aircraft could not come into India for more than 15 days without a cumbersome approval process. Further, aircrafts are now allowed to come in with passengers, which were not permitted earlier, leading to losses for the airlines.

It is also pertinent to point out that 100% foreign direct investment is allowed under the automatic route in the MRO sector to encourage international participation in this area.

Future outlook

The key factor that is expected to help accelerate India’s emergence as a global Aircraft Maintenance (MRO) hub is the introduction of a friendly tax regime that incentivizes carriers to get their aircrafts serviced in India. Needless to add, the development of the MRO sector will create employment opportunities and significantly contribute to India’s GDP. In turn, these will further foster creation of associated industries and services such as training institutes. With India’s airline fleet set to grow to around 1,700 airplanes in the next few years, MRO companies are eyeing a business opportunity of approx. USD 1.5 billion by 2023. India cannot afford to let this opportunity pass.    

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