Hyderabad: It was to be India’s first independent aircraft maintenance and repair facility. But a year after the foundation stone was laid, the investors have backed out and the company has been shut.
Duke Aviation Engineering Pvt. Ltd had planned to set up a maintenance, repair and overhaul (MRO) unit in a special economic zone, or SEZ, in Nagpur run by Maharashtra Airport Development Co. Ltd, with an investment of $150 million (around Rs681 crore).
Growing market: With lower labour costs than West and South-east Asia, India has the potential to service aircraft from these regions, too.
Ajith Karnik, who was a promoter and chief executive of Duke Aviation, said the project had to be shelved as the investors had backed out. “We would be reviving the project in a different name and different set of investors,” he said.
Duke Aviation was promoted by Karnik and Dubai-based Duke Equity Ltd, whose managing partner Gopal Patwardhan said now is not “the right time for civil aviation. We will be reviving the project after 18 months”.
Interest in the MRO business gained momentum during the Indian aviation industry’s boom years from 2004 to 2007, when domestic carriers decided to buy a total of around 500 planes over a five-year period, making the business a natural draw as maintenance accounts for around 13% of an airline’s operating cost.
But with the downturn and the scaling down of aircraft orders, prospects for MRO operators also appeared less rosy.
Aircraft manufacturers Boeing Co. and Airbus SAS had committed $100 million each four years ago to set up MRO facilities in India after they won local orders, but their projects are yet to begin.
Airbus had signed an agreement with the erstwhile Indian Airlines, and Boeing with Air-India, to set up MRO units after selling a total of 111 planes to the two state-owned airlines. Indian Airlines and Air-India have since merged under National Aviation Co. of India Ltd, or Nacil.
Boeing’s India president Dinesh Keskar said construction on the firm’s MRO facility would begin this year, without elaborating. Other Boeing executives said the unit would now come up by 2014 at Nagpur. As for the Airbus facility, a senior official at the ministry of civil aviation said it “is very much on track and it is coming up in Delhi”. He did not want to be named and did not provide any further details.
Kiran Rao, executive vice-president for sales and marketing at Airbus, said the firm recently submitted its business plan for the MRO unit to the government.
Airbus had undertaken the venture through its parent company EADS NV, which in turn had a tie-up with Jupiter Aviation and Logistics Pvt. Ltd.
S. Ravi Narayanan, chief executive and managing director of Jupiter Aviation, said his firm has submitted a business plan for an MRO unit to the government. He declined to give more details.
Analysts still see good potential for India’s MRO industry. Consulting firm Frost and Sullivan, in a September report, said India’s fledgling MRO market had an estimated revenue potential of $499 million in 2009 and this figure is expected to more than double to $1.06 billion by 2015.
“Labour costs in India are around $30-35 per man-hour, compared to $55-60 in Southeast Asia and (the) Middle East and even higher in the US and Europe,” Frost and Sullivan analysts Chethan Kambi and Arun Narayanan said in the report. “Therefore, India has the potential to service not just Indian aircraft but also those from neighbouring regions.”
Suresh Soni, executive director of Mumbai-based Air Works Engineering Pvt. Ltd, which began repairing aircraft 59 years ago, said his firm can save airlines about 25% of their costs on painting wide- and narrow-body planes, following its acquisition of European aircraft refurbishing and painting firm Air Livery UK Plc for an undisclosed amount.
Engineering firm Punj Lloyd Ltd and US-based private equity Global Technology Investment Group each holds a 33% stake in Air Works.
Neelam Mathews, senior contributing editor to Aviation Week, an international aviation magazine, said India needs to revise its taxes for MRO facilities. Even Air India, which has its own MRO units, sends its planes abroad for maintenance and repairs, she points out. “A multifarious tax regime makes it cheaper for airlines to do checks out of the country. Including service tax, the total tax for an independent, third-party MRO operator would come up to 35%,” Mathews said. “The government will have to wake up to the reality that it is losing precious foreign exchange.”