It’s been a little over a month since the Government of India announced key reforms and policy targets in the aviation sector. Among them were plans of substantial rejigging of the country’s Maintenance, Repair, and Overhaul (MRO) industry. What changes has the government proposed in the MRO sector, and how will it impact the Indian aviation market? Let’s have a look.
New MRO policy to attract investors
In September, India’s Civil Aviation Minister Jyotiraditya Scindia discussed, among other things, several changes the government wishes to bring about in the MRO business sector. He lamented that India only holds a tiny 2.5% share of the mammoth $80 billion global aircraft maintenance industry.
Scindia said that India has a huge potential to become a global aircraft maintenance hub and announced key changes in MRO policy to attract investment:
- Leasing of land will now be done through open tenders instead of allotment based on an entity’s request.
- Land for MRO facilities will be allotted for 30 years instead of the current 3 to 5 years.
- Lease rentals would be decided through a bidding process instead of the current practice of the Airports Authority of India (AAI) determining the rates.
- The rate of escalation of lease rental would be 15% every three years instead of the current 7.5 to 10% yearly increase.
- The process of contract renewal of existing leaseholders will also be more transparent. Earlier, contract renewals were decided on a case-to-case basis without much transparency. It will now be done through a bidding process with the existing leaseholder having the right of first refusal if his bid is within 15% of the bid given by the highest bidder, and he agrees to match the rates quoted by the highest bidder.
- The 13% turnover royalty charged by the AAI will be removed completely.
The ministry has also identified eight AAI-run airports where MRO facilities will be developed – Begumpet, Bhopal, Chennai, Chandigarh, Delhi, Juhu in Mumbai, Kolkata, and Tirupati.
Impact on Indian MRO industry
The ministry wants to tap into India’s vast engineering and IT talent to develop large-scale MRO facilities in the country. Currently, airlines in India send their aircraft to foreign countries – mainly to the Middle East and the South-East Asian region, as it’s a lot more economical than to repair them locally.
As reported by the Hindustan Times, the Indian MRO industry is worth $2 billion annually. Of this, only 16% of the business is handled locally. Within the MRO services, the engine and aircraft component maintenance, in particular, is quite lucrative, and the government would want to develop these facilities in the country.
The HT report quoted Anand Bhaskar, managing director, and chief executive officer at Air Works Group, which runs an independent MRO unit with facilities across locations:
“With the country’s aviation industry on a growth trajectory, it makes ample sense to capitalise this precious opportunity and expand the country’s aviation maintenance capabilities for greater self-reliance, job creation and to scale up the value chain, instead of just concentrating on airframes, which most Indian MROs currently do.”
Positive steps
The change in MRO policy is certainly a step in the right direction. The announcement follows the government’s decision last year to reduce the goods and services tax (GST) on aircraft repair and maintenance from 18% to 5%.
It remains to be seen if India could eventually become the global MRO hub that the aviation ministry is aiming for. At the moment, there’s massive potential within the country itself with 700+ aircraft of Indian airlines that require regular maintenance. Hopefully, these policy changes will give the Indian MRO industry a significant boost.
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