AAI lines up concessions to attract aircraft repair firms to its airports

Plans to abolish royalty, offer steep discounts in lease rent

Government-owned Airports Authority of India (AAI) plans to abolish royalty and offer steep discounts in lease rent to encourage maintenance, repair and overhaul (MRO) units to set up facilities at its airports.

Around 85 per cent of the $1.4 billion maintenance work of Indian airlines is carried out overseas and the government hopes that policy sweeteners will attract investment in the sector, generate employment and reduce import dependence.

Last year, the government cut goods and services tax (GST) rate on aircraft repair and maintenance work from 18 to 5 per cent. To further incentivise the industry, it will lease out land at airports at discounted rates to repair units. Airports such as Bhopal, Chandigarh, Chennai, Hyderabad (Begumpet), Juhu, Kolkata and Tirupati, among others, have been identified for the purpose. Also, AAI has land parcels in Delhi that are also being considered for lease.

Airports in India charge a minimum 13 per cent royalty on MRO firms’ annual revenue, thus reducing their profit margin.

The civil aviation ministry has in-principle approved the MRO policy and is awaiting AAI board’s nod.

“We are working on a policy to attract MRO investments in India. We have already issued expressions of interest for setting up flying training schools at six airports. We are creating an enabling policy environment for both MROs and training schools. These will lower costs for trainee pilots as well as airlines and reduce foreign exchange outgo,” a senior AAI official said.

Air India Engineering Services, Air Works and GMR Aero Technic provide routine and major maintenance services to airlines. Indamer Aviation, which focuses on servicing private and non-scheduled operators, has set up an MRO facility in Nagpur.

“Around 40-45 per cent of maintenance work by value is on engines. Except Air India, no one has the capability to carry out major engine overhaul work in India. Component overhaul work, too, is largely outsourced. We would need to forge partnerships with original equipment manufacturers (OEMs) if we have to scale up our MRO industry. Tax concessions will help the sector but what is also needed is a stamp of approval from manufacturers,” said an MRO industry veteran.

Others are also hopeful. “The policy will bring in new investors and make the MRO sector in India competitive,” said Rajeev Gupta, chief executive officer (CEO) of Indamer Aviation. “The proposed benefits should be extended to existing MROs situated on AAI airports and not restricted to new ones only. We are discussing this request with the civil aviation ministry,” said Pulak Sen, secretary-general of MRO Association of India.

While announcing post-Covid-19 financial stimulus last May, finance minister Nirmala Sitharaman had said India will become a hub for MROs, following tax concessions and other policy initiatives. 

She added that major engine manufacturers across the world would set up repair facilities in the coming year. Also, convergence between civil aviation and defence sectors will be established to create economies of scale.