Mumbai: A senior director at National Aviation Co. of India, or Nacil, which runs Air India, recalls that in January 2006 he used to get at least one email enquiry daily from maintenance-repair-overhaul, or MRO, operators.
“Almost all leading international MRO operators were wanting to tie up with Indian players to start a unit here,” says the director, who didn’t want to be named because he is not authorized to speak to the media.
On 11 January 2006, Air India signed a deal with US aircraft maker Boeing Co. to buy 68 planes. In a separate deal, Indian Airlines, since merged with Air India under Nacil, agreed to buy 43 planes from Toulouse-based Airbus SAS.
Critical work: An employee carries out maintenance work on a Jet aircraft. Indian carriers are expected to post a loss of $2 billion in this fiscal and many, including Jet, have frozen their fleet expansion plans. Jet Aviation Management via Bloomberg.
“MRO operators were upbeat on fleet acquisition programme of Indian players. Now, with the economic meltdown and slowdown in aviation, they are very sceptical,” he adds.
During the civil aviation boom in India, which ended last year, leading players such as Lufthansa Technik AG, Pratt and Whitney, General Electric Co., Rolls-Royce Plc., Jordan Aircraft Maintenance Ltd, Singapore Technologies Aerospace Ltd, SIA Engineering Co., Israel Aerospace Industries Ltd and Gulf Aircraft Maintenance Co. were interested in its engines and airframes maintenance market.
Local companies such as Air Works India Engineering Pvt. Ltd, Taneja Aerospace and Aviation Ltd, Jupiter Aviation and Logistics Pvt. Ltd, Max Aerospace and Aviation Ltd and Indamer Co. Pvt. Ltd had also been eyeing a share of the maintenance business.
Almost all airlines were ready to join the MRO business. Nacil, Jet Airways (India) Ltd, Kingfisher Airlines Ltd, Go Airlines (India) Pvt. Ltd and Paramount Airways Ltd were looking for global partners.
As part of the aircraft sale to Nacil, Boeing and Airbus had committed a total of $200 million (Rs972 crore) in setting up MRO infrastructure in India.
Why the rush? In good times, Indian carriers had decided to buy as many as 500 planes over a period of five years. And maintenance is the third largest segment of the operating cost of an airline at 13%.
“The surge in Indian air traffic, fuelled by the emergence of low-cost carriers, has helped an increase in fleet utilization which is spawning the growth in the MRO market,” according to a report released in July last year by KPMG Advisory Services Pvt. Ltd. In addition to commercial airlines, the consultancy firm said, operators of chartered aircraft and corporate-owned aircraft would be the potential customers of MRO services.
Two months later, KPMG’s peer Ernst and Young India estimated India would be the fastest growing MRO market in the world over 10 years. “MRO spending is estimated to rise from merely $440 million in calendar year 2007 to $1.2 billion in 2017,” it said.
By then, however, with economic growth slowing and passenger traffic declining, confidence among some investors had already changed.
In mid-2008, the world’s leading MRO operator Lufthansa Technik had pulled out of a tie-up with GMR Group reached in April the previous year for a $20 million MRO facility at the new airport in Hyderabad.
Malaysia Airlines, or MAS, later teamed up with GMR, and Jet Airways is looking at taking a stake in that facility.
“Success of an MRO hugely depends upon long-term client support,” a Bangalore-based MRO expert and a consultant to various MRO projects said on condition of anonymity. “Lufthansa backed out from the deal because it did not get a long-term assurance from any of these airlines.”
The demand for passenger planes in the country too waned, with private carriers such as Jet Airways, Kingfisher Airlines, SpiceJet, IndiGo, GoAir and Paramount freezing their fleet expansion plans in an attempt to ride out the turbulence in the industry.
Still, there is enough business in terms of components repair and maintenance, says one entrant. “In any case, there is a place for two-three MRO players in India,” says Ajith Karnik, chief executive of Duke Aviation Engineering Pvt. Ltd, which is building such a facility in Maharashtra.
Such optimism is driving action in the MRO space elsewhere too.
For instance, European Aviation Holding Co. Pvt. Ltd acquired Indamer, a leading Mumbai-based MRO firm for an undisclosed amount.
That leaves only two leading firms in the business: Max Aerospace and Aviation Ltd and Air Works, in which publicly traded engineering company Punj Lloyd Ltd and US-based private equity firm Global Technology Investment Group each hold a 33% stake.
In addition, Mumbai-based Duke Aviation Engineering has acquired 36.5 acres on 31 January in the Nagpur special economic zone, or SEZ, of Maharashtra Airport Development Co. Ltd, or MADC, where it will spend $150 million on an MRO facility. Boeing had also leased 50 acres of land in the same SEZ, while Air Works has started MRO work in Hosur, Tamil Nadu.