Graphic: Yogesh Kumar/Mint

Graphic: Yogesh Kumar/Mint

Air France-KLM to set up plane parts repair facility in India

Air France-KLM to set up plane parts repair facility in India

Mumbai: The aeronautical division of Europe’s largest airline, Air France-KLM group, has entered India’s aircraft component repair market by acquiring a 26% stake in Mumbai-based aircraft maintenance, repair and overhaul (MRO) company Max AeroSpace and Aviation Ltd for an undisclosed amount.

A formal announcement is expected on Wednesday.

Air France Industries, KLM Engineering and Maintenance and Max AeroSpace will jointly build an aircraft component repair facility at a special economic zone (SEZ) that will be capable of servicing Boeing Co. and Airbus SAS planes, their executives said.

Mid-sized planes made by Boeing of the US and Europe’s Airbus dominate the Indian market.

As India’s aviation sector grows, the domestic MRO market is expected to earn a revenue of $1.06 billion (Rs 4,781 crore) by 2015, up from $499 million in 2009, according to a 2009 report by Frost and Sullivan. MRO service requirements in the country are expected to grow annually at a compounded rate of 13.5% in the same period.

“Labour costs in India are around $30-35 per man-hour, compared to $55-60 in South-East Asia and the Middle East and even higher in the US and Europe," said Frost and Sullivan analysts Chethan Kambi and Arun Narayanan. “Therefore, India has the potential to service not just Indian aircraft but also those from neighbouring regions."

Graphic: Yogesh Kumar/Mint

“We are evaluating two-three SEZs for our aircraft component MRO. We are yet to finalize the location. The investment details will be known only once the location is finalized," Malkani said.

Max Aerospace was founded as an aviation engineering services organization in 1994. It has a hangar at the Juhu Aerodrome in Mumbai and is currently building an integrated facility at an SEZ near Nagpur, Maharashtra.

Malkani neither confirmed nor denied Nagpur as the location for the joint MRO facility.

In 2004, two large international airlines—Air France and KLM—decided to merge and create one of the world’s largest maintenance firms, which supports more than 1,230 aircraft operated by 150 global carriers.

Franck Terner, president of Air France Industries, the maintenance division of Air France-KLM group, said the joint venture will initially look at aircraft components and “hopefully extend to other range of MRO", including airframe MRO.

“We found a good partner in India. This joint venture will also focus on transfer of technology transfer. The MRO will be having at least 10,000 sq. m space initially. The MRO will be working under Max MRO," Terner said.

He added that the facility will help the company move closer to customers. “This will bring us better margins, better quality and help us to lower the cost."

Air France-KLM group will get a first-mover advantage in India as there is no dedicated aircraft component MRO facility in the country, said Neelam Mathews, editorial director of MRO Asia 2010, one of the biggest events of the aircraft maintenance sector, organized by Aviation Week, an international aviation magazine.

“This joint venture holds immense prospects for future and this will be good for airlines as they can do away with sending parts abroad," she said.

Currently, only 5% of component repair is carried out in India. Airlines typically send their components to Singapore, Europe or the US for maintenance and repair.

Maintenance accounts for nearly 13% of an airline’s operating cost.

Between 2004 and 2007, when domestic carriers decided to buy a total of around 500 planes over a five-year-period, MRO seemed to be a growing business in India.

But the subsequent economic slowdown led carriers to scale down their aircraft orders and derailed the MRO plans of many companies.

Boeing and Airbus 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.

There are some success stories, however. Mumbai-based Air Works Engineering Pvt. Ltd, which began repairing aircraft 59 years ago, started an MRO facility in Hosur, Tamil Nadu, and acquired 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 hold a 33% stake in Air Works.

Airport developer GMR Group is in the process of starting an MRO facility with Malaysian Aerospace Engineering Sdn Bhd at the Hyderabad airport. Jet Airways (India) Ltd, the country’s largest airline by passengers carried, picked up a 26% stake in MAS-GMR Aerospace Engineering Co. Ltd.

The alliance of Air France-KLM group and Max AeroSpace will compete with leading MRO companies such as Lufthansa Technik AG, an arm of Lufthansa German Airlines.