France-based Safran Group is considering a $150-million investment in a new aircraft engine maintenance, repair and overhaul (MRO) unit in India to cater for its airline customers, according to the company.
Safran and GE Aviation own a 50 per cent stake each in the US-based CFM International, which manufactures engines for the Airbus A320 and Boeing 737 types of aircraft. Currently, around 220 Airbus and Boeing planes in India are fitted with CFM engines. Additionally, there are 485 planes on order from IndiGo, SpiceJet, and Vistara, which will be equipped with these engines and are expected to be delivered over the next five years.
CFM International, which competes with engine manufacturer Pratt & Whitney, won a $20-billion order from IndiGo to supply engines for 280 Airbus A320neo in June. Plans to set up an MRO unit in India are being evaluated following the big order win.
To a query from Business Standard about its plans, Safran said, “As a long-standing partner of the Indian aerospace industry, Safran is committed to supporting growth in the Indian market.”
“Given the fast expansion of the CFM fleet in Asia and in India specifically, we are considering the possibility of building a new Safran shop in this region of the world to address the growing MRO needs. This new shop will represent an investment of more than $150 million," adds Safran.
Currently, only Air India has capabilities for in-house maintenance of aircraft engines, while all other carriers send their engines overseas for overhaul and major repairs. A domestic MRO will help Indian airlines to reduce costs and save on foreign exchange, besides generating employment for engineers and technicians.
A team of Safran executives visited Air India's MRO facilities in Mumbai a few months ago to check the airline's capabilities. An Air India executive said labour costs in India were half of those in Europe or the US and that would make a maintenance unit attractive for other airlines.
Safran Group is discussing issues related to tax and regulatory framework for MROs with the civil aviation ministry. In India, an 18 per cent goods and services tax is applicable to aircraft maintenance jobs and airport operators charge high royalties on units, making the MRO business in India unattractive. An investment decision will depend on favourable policy decisions, it is learnt. Safran declined comment on the issue of tax structure in India.
According to the MRO Association of India, the size of Indian repair and overhaul market is $1-1.2 billion. "More than 90 per cent of business generated by Indian commercial airlines is being carried out overseas by large MRO companies in Singapore, Germany, Turkey, Sri Lanka, and Malaysia," the association said.