India's MRO sector remains in idling position so far; here's why

In October 2015, when a new policy to give a push to the maintenance, repair and overhaul, or MRO, sector in India was announced, hopes were high. If things were to go according to the plan, industry analysts were predicting a sharp jump in MRO work in India. But it did not happen.
 
The size of the industry when the policy was announced was roughly Rs 5 billion. The size today still remains at Rs 5 billion.
 
So where’s the snag? Why has the sector not taken the major leap as the policy envisaged and was designed to deliver?

 

Let’s start with what went right. A big change that occurred was that aircraft were allowed to come to India for 180 days without any permission. Prior to that, it could not come into the country for more than 15 days without a cumbersome approval process, which often took 30 days, from the Directorate General of Civil Aviation (DGCA). As a result, most airlines chose Malaysia, Dubai, Jordan, Sri Lanka, Singapore, and Hong Kong over India, even though India had the technical capability and could provide competitive rates. But the policy set this right and that helped.
 
Second, aircraft are now allowed to come in with passengers, ensuring no revenue is lost. Earlier, that too was not permitted, which meant a loss to the airline each time it flew empty.

 
But while some of the proposals did happen, there were others that failed to take off. A 19 per cent import duty on tools and spares that the October 2015 policy proposed to remove remains as of now. So does the 13 per cent royalty charged on such work at the airports.
 
Sources were of the view that at Delhi and Mumbai airports it may not happen since GMR and GVK, the two private players involved, have protested against this. The Delhi airport continues to charge a 20 per cent royalty. However, Cochin airport, also a private facility, is not charging any royalty. As a result, some private players have in fact taken hangars at Cochin for MRO work.

 
Then, the 14 per cent service tax has been replaced by the goods and services tax (GST), which is higher at 27 per cent. Earlier the tax that was paid on labour could not be set off against the tax that was being paid by airlines, but now the full GST can be set off. Industry sources said this would be better for airlines as their overall tax liability would come down.
 
However, industry sources said while the policy did not deliver what it promised, the ministry was working overtime to get things moving in favour of the Indian MRO companies.

 
The industry wants the Airport Authority of India (AAI) to allow MRO work to happen at its airports across the country. Although this is permitted at their airports, detailed rules and regulations make it practically impossible. The space needs to be made available at reasonable rents and procedures simplified for MRO work to be carried out.
 
Sources also argue that rents at the two main airports of Delhi and Mumbai need to be rationalised. Rents charged at Delhi and Mumbai airports are 50-100 per cent higher than that charged at equivalent facilities in Europe and Turkey. The high revenue share amounts promised at these two facilities compel the two private players to charge as much as possible.

 
A third issue for the MRO sector is poor training infrastructure. The quality of institutes that are approved by the DGCA for technicians for MRO work is so poor that companies effectively have to retrain them for two years before they let them loose on the aircraft. Other than one or two reasonable quality institutes in Bengaluru, there are at least 20-30 institutes that do not even have an aircraft in-house for training. “It’s a bit like trying to train doctors without a cadaver,” said an industry source. He said it was better to close down this plethora of institutes and have a handful that provides a somewhat decent quality of technicians.

 
If the October 2015 policy had been fully implemented, aircraft servicing in India would have become 25-30 per cent cheaper. But since many of the proposals are yet to translate into reality, getting aircraft serviced in India is roughly 10 per cent cheaper as things stand.
 
If some of the changes that are currently being discussed can be translated into reality, it could be a game changer for the industry. But that remains a big if as with all issues of governance. The intent seems right but delivery often goes awry.