GMR puts aircraft maintenance unit on sale
Move to sell facility at Hyderabad airport is in line with GMR strategy of divesting non-core units to pare debt
Mumbai: The GMR Group wants to sell its stake in an aircraft maintenance facility at Hyderabad international airport and has appointed investment banker Rothschild India Pvt. Ltd to look for buyers, three people close to the development said.
The move is in line with the group’s strategy of divesting non-core units to pare its total debt of Rs.39,170 crore as on December.
“GMR had seeded the MRO (maintenance, repair and overhaul) unit to create an ecosystem for the Hyderabad airport,” one of the people said. “The business, however, is not core for the group and they want to sell it to a buyer who has an expertise in this segment.” All the three people requested anonymity.
MAS GMR Aero Technic Ltd is an equal joint venture between GMR Hyderabad International Airport Ltd and Malaysian Aerospace Engineering Sdn Bhd. It is unclear how much the proposed sale would fetch.
“As a company policy, we do not comment on speculative news,” a GMR Group spokesperson said.
A Rothschild spokesperson declined to comment.
The Bangalore-based conglomerate, which has a presence in power, road and airport projects, in 2012 decided to follow a so-called asset-light, asset-right approach.
The maintenance venture is operating out of a special economic zone at Hyderabad airport, which is run by GMR’s airport company. With an initial investment of Rs.350 crore, the subsidiary has a capability to service narrow body planes such as the Boeing 737 family, Airbus A320 family and even smaller planes such as ATR 42/72 family. The facility also has the capability to repair widebody planes such as Boeing 777 family and Airbus A330.
The facility includes one widebody plane hangar (accommodates two narrow body aircraft), one narrow body hangar with two bays, and one narrow body-cum-paint hangar. At any point in time, it can provide maintenance services to five aircraft simultaneously. These hangars are backed up with the necessary workshops to handle aircraft maintenance, painting, avionics upgrades, interior refurbishment, structural repairs and component replacements, among other services.
The size of the aircraft maintenance market in India is estimated to be around $700 million, and by 2020, the total Indian fleet would double in number to nearly 1000 planes, according to a March report by consultancy firm KPMG.
Just about 5-10% of the maintenance work for domestic scheduled carriers is carried out in India, the report said, while most of the maintenance activities are outsourced to overseas service providers.
“While the airlines can partly undertake maintenance of aircraft themselves, they do require a third party. The MRO business requires scale which all airlines cannot build,” said Harish H.V., partner, India leadership team at consultancy firm Grant Thornton India LLP. “At present, airline operators in India get the planes serviced out of Dubai and Singapore.”
GMR is keen to exit the business since it is considered to be non-core for the group. While the group has managed to offload several assets successfully, finding a buyer for the Hyderabad facility may not be easy.
“India has not seen any deal happening in the MRO space very recently, so there is no benchmark available for a buyer to evaluate the deal,” another expert said, requesting anonymity. “Arriving at a valuation is also going to be very tricky.”
Finding a buyer globally will also be difficult as the overall business volumes have come down for firms in the aircraft maintenance space, he added.
“Most of the airlines are now undertaking maintenance and repair of planes and the outsourcing of these activities to MRO firms has come down,” he said.
One of GMR group’s units, GMR Highways Ltd, sold a 74% stake in GMR Jadcherla Expressways Ltd to Macquarie SBI Infrastructure Investments Pte Ltd and SBI Macquarie Infrastructure Trust for more than Rs.200 crore in 2013.
GMR Highways sold a 74% stake in GMR Ulundurpet Expressways Pvt. Ltd for Rs.222 crore to IDFC Ltd.
In the energy business, the group sold a 70% interest in GMR Energy (Singapore) Pte Ltd to FPM Power Holdings Ltd for a total equity value of S$660 million.
The GMR Group has also just sold a 40% stake in Istanbul Sabiha Gokçen International Airport, which it manages in Turkey for €225 million, to Malaysia Airport Holdings.