Trouble in the air for pvt repair shops biz

Trouble in the air for pvt repair shops biz

Mumbai: National Aviation Co. of India Ltd, or Nacil, the merged entity of state-run carriers Air India and Indian Airlines, is being advised to set up four aircraft repair workshops for servicing all types of aeroplanes and engines.

If Nacil follows up on its consultant Accenture Ltd’s advice, the move could potentially put pressure on the business plans of at least another dozen so-called maintenance, repair and overhaul units, or MROs, being set up by the likes of Jet Airways (India) Ltd and Kingfisher Airlines Ltd as well as a raft of ambitious start-ups to address a market that is estimated by trade body Confederation of Indian Industry to become a Rs15,840 crore annual business after four years.

Nacil’s MRO ambitions could derail other operators’ MRO plans. “If Nacil’s facilities are capable to handle all types of aircraft, then there is no point of setting up of separate projects by airlines or other MRO operators," said Bharat Malkani, chairman of Mumbai-based MRO firm Max Aerospace and Aviation Ltd.

“Nacil will have an edge over competition as Boeing and Airbus type planes are dominating the skies," said an airline executive, whose company flies Boeing jets, requesting anonymity. Most of the more than 310 passenger planes—projected to more than double by 2012—flying in Indian skies are either from Airbus or Boeing.

Jet Airways, Kingfisher Airlines and GoAir have plans to start MROs for handling mid-sized and widebody planes. Leading MRO operator of the world Lufthansa Technik AG of Frankfurt has tied up with GMR Group to set up an MRO facility at the upcoming Hyderabad International Airport.

Accenture, which is a paid adviser on the merger of Air India and Indian Airlines, submitted its report on Nacil’s MRO business plan last week. According to its recommendation, the proposed MROs should not restrict themselves to the Nacil fleet—currently nearly 140 planes—but also offer to manage repair functions for third-party airlines as well.

The original plan of Nacil was to have two MRO units for airframes and one engine workshop—all catering to its in-house requirements. It planned to have an MRO workshop exclusively for passenger jets made by Boeing Co. and another for Airbus SAS aircraft.

Nacil had asked Accenture to study its proposed strategic business unit for MRO services. Mint has not independently verified the recommendations in the Accenture report but a senior Nacil executive, who has reviewed the report but didn’t want to be identified, said: “For airframe MROs, Accenture suggested a joint venture with Airbus and another with Boeing. The third MRO will be for aircraft engines through a JV with engine manufacturers and fourth one for aircraft components."

This means, Nacil’s proposed facilities should be capable of handling mid-sized and large planes, except small planes made by Brazil’s Brasileira de Aeronáutica SA, better known as Embraer, Canada’s Bombardier Inc. and French turboprop maker ATR, a unit of Airbus.

“We will bring international MRO operators to run these JVs. Nacil will also pick up a significant stake in all these MROs," the Nacil executive said, adding Accenture had recommended that the two airframe MRO units should be capable of handling all types of planes regardless of whether Boeing or Airbus was a partner.

Airbus and Boeing have committed up to $100 million (just under Rs400 crore) each for Nacil’s airframe MRO units. Boeing MRO is planned in Nagpur while Airbus is exploring sites in Delhi and Bangalore. The estimated cost of airframe MRO firms is between $70 million and $80 million. The foreign direct investment in MRO businesses is limited to 49%. “We are ready to bring in financial equity for these MRO JVs," the Nacil executive added.

Apart from airlines, international MRO operators such as Gulf Aircraft Maintenance Co. of Abu Dhabi, SIA Engineering Co. of Singapore, Sabena Technics TAT of France and El Al Israel Airlines Ltd are looking to set up maintenance facilities in India. Indian firms such as Jupiter Aviation and Logistics Ltd, Taneja Aerospace and Aviation Ltd, and Air Works India Engineering Pvt. Ltd too are exploring the possibility of setting up MRO workshops in the country.

“There is no logic to have an owned facility if repair services are available in the country at a reasonable rate. Globally, airlines and aircraft manufacturers are not running MROs. Instead, they depend on third-party services for this," said an aviation consultant specializing in airports and MRO business, who preferred not to be identified as he advises similar projects.

“But one will have to see how Nacil is pricing its services. Currently, the services offered by Air India at its airport hangars are pretty high. Airlines will fly to West Asia if the repair rates are cheaper there," he cautioned.

The collective fleet size of Indian carriers is expected to increase by about 146% to around 631 aircraft by 2012, says Sidharth Agrawal, an analyst with IL&FS Investmart Securities Ltd, a research firm. Based on the Accenture study, Nacil plans to make these MROs as largest repair shops in South-East Asia, attracting businesses from other parts of the world.

The state-run company is estimating annual revenue worth Rs300 crore in the initial years as rival carriers may also avail of the facility.