Mumbai: Investments are flowing into the business of aircraft servicing even as the Indian aviation industry struggles with slowing passenger traffic and mounting losses in the face of an economic downturn.
US plane maker BoeingCo.last week leased 50 acres of land at a special economic zone (SEZ) in Nagpur, Maharashtra, to build a maintenance, repair and overhaul (MRO) facility in association with the National Aviation Co. of India Ltd(Nacil) that runs Air India. SEZs are self-reliant enclaves that offer tax holidays.
Mumbai-based Duke Aviation Engineering Pvt. Ltdalso acquired 36.5 acres on 31 January in the same SEZ of Maharashtra Airport Development Co. Ltd(MADC) where it will spend $150 million (Rs735 crore) to set up an MRO facility. The company expects to start construction in March and be operational by February next year. MADC is also likely to pick up a small stake in Duke Aviation.
Upbeat outlook: A Jet staffer works on an aircraft. Globally, aircraft repair and maintenance is a $40 billion industry and is expected to grow at a compounded annual growth rate of 5% to $55 billion by 2015. Bloomberg
Air Works India Engineering Pvt. Ltd, a firm in which engineering company Punj Lloyd Ltdand US-based private equity firm Global Technology Investment Group hold a 33% stake each, has started constructing an aircraft maintenance facility at Hosur, Tamil Nadu, in November.
“India is expected to emerge as the fastest growing MRO market over the next 10 years. MRO spending is estimated to rise from merely $440 million in calendar year 2007 to $1.2 billion in 2017, exhibiting a CAGR (compounded annual growth rate) of 11.8%,” says a September 2008 report by audit and consultancy firm Ernst and Young India Pvt. Ltd .
“Further, the Indian MRO industry is expected to have the potential to service a fleet of 1,000 commercial and 500 general aviation aircraft by 2020,” the report, authored by Kuljith Singh, partner, and Asha Katyal, associate director at E&Y, added.
Globally, MRO is a $40 billion industry and is expected to grow at a CAGR of 5% to $55 billion by 2015, it said.
To be sure, not everybody is equally upbeat about its prospects in India. “Every second company was announcing MRO businesses during the civil aviation boom, though the Indian fleet is primarily brand new, which will not have to visit MRO for five years at least,” said an aviation sector analyst, who didn’t want to be identified.
Jet Airways(India) Ltdand KingfisherAirlines Ltd, the country’s top two carriers by passengers, had announced plans to start MROs last year, as also Paramount Airways Pvt. Ltd. Companies such as Taneja Aerospace and Aviation Ltdand Jupiter Aviation and Logistics Pvt. Ltdalso have similar plans.
The analyst said multiple taxes, such as service tax, customs duty on import of spares, value-added tax and octroi, make servicing an aircraft in India costlier than global rates. This business segment, therefore, is unlikely to fully benefit from the country’s low labour cost advantage, he pointed out.
Ajith Karnik, chief executive of Duke Aviation, said he was well aware of the newness of the Indian fleet and many MROs waiting in the wings.
However, “there is enough room for two-three players”, he said. “Our unique selling proposition would be providing (a) one-stop-shop at lowest man-hour rates. Since we are operating in (an) SEZ, we would be able to offer substantial savings to airlines for their maintenance cost, which is about 13-15% of the total cost.”
Karnik said Duke Aviation will be offering man-hour rates of around $35, which compares favourably with rates around the world.
Chinese firms, for instance, typically charge $35-40 an hour and the US $60-65, he said.
Boeing’s vice-president (sales) Dinesh A. Keskarsaid the company’s Nagpur facility would offer comprehensive MRO services and is part of an investment commitment of up to $100 million, following a $11.6 billion aircraft sale deal with Nacil.
“This will be repairing all Air India’s Boeing planes initially. Later this will cater to other airlines of India and (the) neighbouring region,” he said.
Ravi. S. Menon, director and group head (business development) at Air Works India, said his facility would be an independent MRO, run by a non-airline company.