Reduction in taxation and a push from the government for self-reliance has prompted one of India’s largest MRO (maintenance repair and overhaul) company, Air Works to gain more business and look out for more investors.
Air Works is the largest 'independent' MRO provider in the country.
“Whether us or our competitors, our hangars now are chock a block. These has happened primarily because we have upped the facilities and two is the government’s push in keeping business inside the country,” said D Anand Bhaskar, chairman and managing director at Air Works.
Despite being one of the fastest growing aviation markets, 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.
To stop that 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 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.
The aircraft going out of country for primary maintenance functions like C checks is history now. “All those things are being here. Our hangar occupancy is around 90 percent now,” said Bhaskar.
The change announced by finance minister Nirmala SItharaman in last year’s Covid relief package was put into effect swiftly and Bhaskar says he saw instant results saying Covid has been a “ blessing in disguise.”
Attracted by the cheaper cost structure that Indian companies could provide and partly forced as they couldn’t send their aircraft abroad, Indian airlines started sending their planes for maintenance checks to Indian companies like Air Works.
“We were pleasantly surprised by the service they provided,” said a head of engineering of a private airline adding that he is planning to increase order size for Air Works.
The language of discussion has changed. Earlier it used to be case by case. I have two aircraft which needs a C-check. Can you do that? Now we are looking to sign annual repair contracts with them (Air Works),” the person said.
Buoyed by the resurgence, the company, which has been backed by private equity firms since inception sources said have been pitching itself to new investors. Air Works first got its funding from private equity in 20027 when GTI Capital, a New York-based venture capital and private equity firm, and construction and engineering firm Punj Lloyd invested $10 million each.
Bhaskar says that investors like private equity funds should be convinced to put money in the MRO sector, as they have been profitable. “With profits and volumes, we will be able to streamline flow of funds into the sector. We may not give multiples like the software industry but we are profitable,” he says.
Over the years, the MRO has also sold non-core businesses, including a paint shop Air Livery, part of paint shop ATE in France and its Argus unit. The proceeds helped reduce Air Works debt by more than 60 percent and open a new maintenance base in Kochi, an Indian port city with nearly 700,000 people.
“We have been very entrepreneurial in setting up the facility at Cochin and at a very good price point. My commitment to promoters is to break even in three years and make it attractive for investors,” Bhaskar says.
A large market that Air Works is tapping in is the contract of redelivery of aircraft from India’s largest airline IndiGo to lessors Over the next two years IndiGo will replace more than 100 Airbus A320 aircraft for new generation aircraft. The airline before redelivery has to ensure that the aircraft is in a similar condition when the delivery was taken. “That’s music for an MRO company like us. The business value is almost three times to a normal maintenance check,” Bhaskar says.