GMR to launch aircraft facility in Oct without Jet investment

GMR to launch aircraft facility in Oct without Jet investment

New Delhi: GMR Hyderabad International Airport Ltd (Ghial) will go ahead with the launch of its aircraft maintenance facility in October at a cost of about 308 crore, despite promised investment by Jet Airways (India) Ltd not coming in, two GMR officials said.

MAS-GMR Aerospace Engineering Co. Ltd (MGAE), the operator of the facility, will be a 50:50 joint venture between Ghial and Malaysian Aerospace Engineering Sdn. Bhd (MAE), a subsidiary of Malaysia Airlines System Bhd (MAS), they said, requesting anonymity.

Jet has not made up its mind on its stake in the facility, said one of the two officials. “The process has gone slow (with them)," this official said, referring to negotiations with the country’s largest passenger airline by market share.

In its 2010 annual report, Jet said its board had in the fiscal year gone by approved an investment of 45 crore in the share capital of MAS-GMR, adding that it wanted to partner an “experienced MRO (maintenance, repair and overhaul) service provider" to maintain and check on its fleet in India.

“This will help achieve the company’s objective of enhanced aircraft availability, reduce maintenance costs as well as ensure the aircraft maintenance checks performed are of the highest standard," Jet said then, but hasn’t made an announcement since.

It was not immediately clear if the airline plans to continue with the investment.

An email to Jet seeking comment remained unanswered at the time of going to press.

An analyst said the deal may not have worked because of the project’s valuation.

“From a GMR perspective, getting an airline like Jet was critical for that project with their 115-odd planes," said Kapil Kaul, South Asia chief executive officer for the Centre for Asia Pacific Aviation (Capa). But “from Jet’s perspective, there could be issues related to valuation, project structure".

The facility at Hyderabad airport, called MAS GMR Aero Technic Ltd, will be designed to perform airframe maintenance checks for ATR, Boeing 737-NG, B777, Airbus 330 and A320 type of aircraft. It will have one wide-body, two narrow-body and one narrow-body-cum-paint hangars.

It is the first third-party aircraft MRO facility of its scale in the country.

So far, only Air India Ltd has certified capability for heavy aircraft checks on its fleet. In recent years, a few third-party MROs such as AirWorks have come up, but of a smaller scale.

Most Indian airlines including Jet send their aircraft for heavy maintenance to Dubai, Malaysia, China, Germany, France, Jordan, Sri Lanka or Israel, which have advanced MRO facilities.

The MAS-GMR project will be funded with about 77 crore in equity from the promoters, with the rest raised in debt.

GMR has approached Prime Minister Manmohan Singh and aviation minister Vayalar Ravi to inaugurate the facility on 8 October, but they are yet to confirm their presence, said a government official, also declining to be named.

The Indian MRO market is valued at $800 million (around 3,800 crore) and is estimated to grow to $1.75-2 billion by 2020. Yet, according to Capa, MROs in India haven’t been able to take off because of high taxes on aircraft components, strong competition from other countries, and a shortage of trained people.

Kaul says in the near term, only two-three large MROs will emerge in India.