Aviation MRO: The Runway to Endless Opportunities

Aditvya Bahl

India is set to become the world's third largest aviation market and estimates suggest the country will need more than 2,000 aircraft in the next 15 years. The number of airports in India has almost doubled during the past eight years, from 74 to 147 and the government aims to make at least 220 airports operational by the 2025. The UDAAN (Udey Desh ka Aam Nagrik) regional connectivity scheme has linked remote areas and boosted economic development. This exponential growth in India's civil aviation industry presents a strong case for the expansion of the MRO (Maintenance, Repair and Overhaul) industry in the country. India is also poised to become a large defence aircraft market, propelling demand for military MRO capabilities as well.

"MRO industry is integral to the Civil Aviation industry in India. As Civil Aviation takes on new wings with unprecedented growth with huge potential in both domestic and international market, the MRO industry becomes an even more important cog in the wheel of the Civil Aviation sector's development. Sensing and understanding this, not only have the fiscal incentives been revised by reducing the GST rates from 18 per cent to 5 per cent but also, we've permitted 100 per cent FDI into the sector. The new MRO policy ensures that land and other amenities are available to the MRO sector at the least available costs. I urge our MRO industry to think big, think global, act global and with this policy and thought, we are with you to develop the sector and to ensure your growth. The sector has a turnover of close to USD 2 billion but our work is limited to 15 to 20 per cent of the market today, which we need to ensure is fully tapped into," Union Minister for Civil Aviation, Shri Jyotiraditya Scindia said while addressing the Aero MRO India A&D 2022 held in New Delhi.

The Government of India under its Aatmanirbhar Bharat mission has brought in a slew of reforms in the area of MRO which have opened up several opportunities for MRO players and OEMs (Original Equipment Manufacturers) from overseas. India is positioning itself strategically to attract investment from OEMs and large MRO service providers from across the globe. For example, French engine maker, Safran Group, is setting up its largest MRO facility in India for the overhaul of engines in use by Indian and foreign commercial airlines. The MRO facility, through direct foreign investment of $150 million in Hyderabad is expected to create 500-600 highly skilled jobs and employ lakhs of supporting human resource. The facility will be able to overhaul over 250 engines per year in the beginning.

Why is MRO Important?: Maintenance, Repair and Overhaul (MRO) refers to the set of activities that are necessary for keeping aircraft airworthy and in safe operating condition. These activities include inspections, maintenance, repair, and overhaul of aircraft components, systems, and structures. MRO is a critical function in the aviation industry as it ensures the safety of passengers, crew, and cargo, and the reliability of aircraft operations.

·        Safety: Safety is the paramount concern of the aviation industry. MRO activities including regular inspections repairs, and maintenance of aircraft components, systems, and structures ensure that they are functioning correctly and safely. Any issues identified during these activities are corrected immediately to prevent accidents and ensure the safe operation of the aircraft.

·        Reliability: The reliability of aircraft operations is critical for airlines as it affects their ability to meet schedules and maintain customer satisfaction. Timely MRO ensures that aircraft components and systems are in good working condition, reducing the likelihood of unexpected failures and unscheduled maintenance.

·        Cost-Effective Operations: MRO activities can identify issues with aircraft components and systems before they become major problems. This proactive approach to maintenance and repair can help airlines avoid costly unscheduled maintenance and reduce downtime. Proper maintenance and repair of aircraft components and systems can also extend the life of these components, reducing the need for costly replacements.

·        Compliance: Regulatory bodies such as the Airports Authority of India (AAI) require airlines to maintain their aircraft in a safe and airworthy condition. MRO activities ensure that airlines comply with these regulations by providing regular inspections, maintenance, and repair of aircraft components and systems. Non-compliance with these regulations can result in costly fines and damage to the airline's reputation

Indian Aviation MRO Policy Landscape: Indian Aviation MRO Policy Landscape

·        MRO Policy 2021: In September 2021, the Ministry of Civil Aviation (MoCA) launched a new MRO policy aimed at encouraging investments in the sector and improving the development of airport MRO arms. Highlights of the MRO Policy 2021:

·        Establishment of MRO facilities: The policy identifies eight airports across India for the establishment of MRO facilities, including Begumpet in Telangana, Bhopal in Madhya Pradesh, Chennai in Tamil Nadu, Chandigarh, Delhi, Mumbai in Maharashtra, Kolkata in West Bengal, and Tirupati in Andhra Pradesh.

·        Land allotment: The MRO Policy 2021 enables the lease of land for MRO services through open tenders, removing the royalty charged by the Airports Authority of India (AAI). The land allotment has been extended from the previous short-term period of three to five years to a more favorable term of 30 years

·        Rental rates: The lease rental rates for MRO services are now determined through bidding instead of being predetermined by the AAI. The rate of escalation for lease rental rates has been set at 15% every three years, an improvement from the previous rate of 7.5-10% per annum.

·        Military and civil MRO activities: The MRO Policy 2021 also aims to converge military and civil MRO activities in the country, thereby reducing duplication and improving efficiency.

·        Skill development: The policy emphasizes the need for skill development in the MRO sector and encourages the establishment of training centers to meet the demand for skilled personnel.

·        Encouraging investment: The MRO Policy 2021 aims to encourage investments in the sector by providing various incentives, such as tax exemptions, subsidies, and credit guarantees.

National Civil Aviation Policy 2016: The National Civil Aviation Policy 2016 was launched to address the challenges faced by the aviation industry in India and to improve its competitiveness. The policy aimed to make air travel more affordable, increase regional connectivity, and encourage the development of MRO facilities in the country.

Liberalisation of FDI norms: In 2015, the government allowed up to 100% foreign direct investment (FDI) in the aviation sector, which helped in attracting more investments in the MRO industry. The liberalisation of FDI norms also allowed foreign MRO companies to set up facilities in India and collaborate with local players.

Reduction in customs duty: The government reduced customs duty on MRO services from 18% to 5% in 2016. The reduction in customs duty made MRO services more affordable and encouraged more airlines to use Indian MRO services, thereby boosting the growth of the industry.

Current Trends and Demand Projections: The Indian civil aviation industry is at the forefront of driving growth in the MRO industry in the Asia Pacific region. It is anticipated that by 2031, the Indian aviation sector will experience substantial growth of 9.1%. With a current fleet size of 713 commercial aircraft, India is set to become the world's third-largest aircraft purchaser, with over 1,000 commercial aircraft on order. Airlines in India currently allocate around 12 to 15% of their total revenue to maintenance, making it the second most expensive item after fuel, which accounts for 45% of operating expenses. Currently, Indian airline operators conduct on-tarmac inspections in-house while out-sourcing engine, heavy maintenance, and modification work to thirdparty MRO service providers. Engine and component repairs make up more than 60%-70% of MRO costs, while airframe maintenance accounts for the remaining 30-40%. Airframe maintenance is where Indian MROs excel, but engine and component MRO services are typically outsourced abroad. Furthermore, there are no major helicopter MRO facilities in India, except for Pawan Hans and Hindustan Aeronautics Limited (HAL). As a result, helicopter MRO services present significant business opportunities with considerable potential for the future. The market size of the MRO sector in India stood at USD 1.7 billion in 2021, which is expected to reach USD 4.0 billion by 2031, registering a CAGR of 8.9% as compared to the global average of 5.9%. The import of MRO services (2019-20) by airlines in India stood at USD 1.26 billion, sourced mainly from countries like France, Sri Lanka, Germany, Jordan, Malaysia, Singapore, Turkey, United Arab Emirates and the USA. The MRO market size is estimated to reach to around USD 2.8 billion in the next five years, with a considerable share being procured from domestic MROs.

Globally, the MRO industry is expected to experience substantial growth, given the steadily increasing size of the fleet. By 2031, it is anticipated that the global MRO demand will reach USD 117 billion, an increase of 70% from USD 68.5 billion in 2021. Engine MRO is expected to experience the highest growth rate, projected at around 93%. This makes it a priority area of focus for both established and emerging MRO markets. The potential benefits of the Indian MRO sector could be manifold for the aviation industry. The foremost advantage of a thriving Indian MRO sector would be to meet the increasing demand for MRO services for the Indian fleet, which is expanding rapidly. Once the Indian MRO players have established their foothold in the domestic aviation industry, they can potentially expand to the global markets and compete with the established players in South and Southeast Asia, as well as other international MRO hubs. A well-established MRO industry in India would not only have the aforementioned advantages, but also create mutually beneficial outcomes for all the stakeholders involved. In addition to reducing foreign exchange outflow, there would be other benefits such as employment generation. The manufacturing of components and spares within the country would be boosted, which would subsequently increase indigenous capacities and ensure overall economic growth, faster turnaround times, and the creation of a sustainable end-to-end ecosystem for commercial, general, and military aviation.

The Way Forward: In order to bolster the MRO sector in India and place Indian MROs at par with the global players, the challenges including infrastructural bottlenecks, lack of access to credit, licensing and certification issues, OEM's aftermarket monopoly, and duty, tax and royalty issues need to be adequately addressed. Further, in order to attract investments into Indian MRO services, the sector has to display strong economics. For this, defining steps need to be taken in terms of attracting volumes, cost-saving, ensuring better quality services and maintaining ease of doing business. Apart from servicing a significant fleet size, capturing a larger geographical market is also imperative to attain envisaged growth in areas such as engine and aircraft maintenance.

Other key strategies that may be adopted for propelling growth in the MRO sector include:

(i)                Fostering strategic partnerships between leading OEMs and Indian MROs to facilitate access to newer technology, components, spares, designs, manuals, etc. Such collaborations will aid the development of a broader of MRO operations in the country

(ii)             Promoting and incentivising research and development in the MRO industry in sync with government's vision of 'Aatmanirbhar Bharat.'

(iii)           Identification of components and spares where India can have a comparative advantage and subsequent incentivisation of manufacturing such components and spares.

(iv)           Capturing the higher end of the component supply chain having greater IP control through bilateral negotiations and improved capacity.

(v)             Offset deals can provide necessary push to the Indian MRO industry in terms of technology acquisition, capacity development and infrastructure development if properly implemented

(vi)           Developing a public-private partnership model for civil and defence public sector MROs.

(vii)        Civil defence MRO convergence for capacity enhancement and collaborative efforts to bolster the industry

(viii)      Identify and actualise key technological interventions in the MRO sector such as drones, predictive analytics, artificial intelligence, etc. to impart competitive edge.

(ix)           Human capital development: The aviation MRO industry is a highly technical and specialised field that requires skilled workforce to maintain and repair aircraft. Facilitating collaboration between industry experts and the academic institutions can help develop specialised courses and training programmes that are tailored to the specific needs of the industry.

(The author is a Delhi-based journalist. He can be reached at aditya90.bahl@gmail.com)

Views expressed are personal.