Steps to Revive the Present Indian Mro Industry to Realize the Potential Growth in Indian Airline Industry

Steps to revive the present Indian MRO industry to realize the potential growth in Indian airline industry.

• Reforms to the existing heavy taxation policies: The main challenge in positioning India as an MRO hub comes from the indirect tax structure, specifically customs duties and service tax. The Goods and Services tax being levied in India for aircraft servicing is 18% which is far higher in comparison to other countries where the figure is around 5-7 % making it a costlier option. Reforms to reduce this should be put forth to make India an attractive destination for MRO services. Complete tax exemption for an initial period for newly set up MRO facilities would boost the market entry.

• Cutting down the custom duties and reducing the time elapsed for clearances: The high custom fees associated with special tools and equipment, spares and consumables significantly shoot up the overall costs. The very long lead time taken for custom clearances is another matter of concern. Initiatives and regulations to bring about positive changes to these factors and setting up of fast track procedures would aid in worthwhile improvements. Duty exemption reforms for short term boost to the MRO facilities would be encouraging.

• Setting up of OEM warehouses through government tie ups: With no OEM warehouses existing in India, the MROs are currently relying on heavy inventory holdings to meet the spare parts demand. The costs associated are huge and are subsequently shooting up the overall costs of the MRO services. Government involvement to encourage the aircraft OEMs in setting up their warehouses in India would bring down the inventory costs substantially.

• Bringing down the high rentals, infrastructure costs and royalty fees: The costs incurred on hiring a hanger near airports in India are very steep. The rents are priced at above $ 2000 per hour unlike marginal $ 500-$ 1000 elsewhere. These will add up to the infrastructure costs directly increasing the man-hour rate. This issue of high initial setting up costs needs to be addressed through government interventions (PPPs) or JVs. The royalty fees for carrying out MRO services at private airports in India is huge and should be either lowered or waived off to encourage airlines and MRO companies set up their facilities in their premises.

• Setting up of Overhaul facilities for aircraft component repair: The price component of getting an aircraft component system overhauled at a foreign location which include the shipping costs, clearances, customs duties etc. are very high. So, setting up such authorised facilities in India through partnerships would bring down the costs.

• Addressing the skill gap issue and setting up authorised training facilities: India has a robust supply of talent, available at relatively cheaper rates in comparison to other countries. The MRO market segment primarily bets on the certified and authorised technicians. So, efforts to set up dedicated training institutions to cater to the specific industry needs should be taken up. Technology enabled virtual trainings, simulations, practical exposure through in-house trainings should be undertaken to build a strong resource capable of being industry ready at a faster pace. MRO companies can work in tandem with educational institutions in the early stages of working to guide graduates towards aerospace and also institute after-graduation employment programmes.

• Strong focus on Innovation and Adopting the latest disruptive technology trends to the MRO industry: With the advent of technology, there is huge potential of bringing down the cycle time for maintenance activities through adoption of latest diagnostic and health monitoring systems. Researching the advantages in usage of robotics, IoT, AI, drone monitoring, big data analytics, blockchain technologies in various MRO functionaries as applicable and subsequent adoption would aid in bringing down the maintenance cycle time and there by the overall costs. With Airlines increasingly demanding the MRO’s to provide faster, better quality, cost effective and reliable maintenance solutions, a strong focus on innovation should be in place to meet the same and innovation will only intensify given the rise in the number of MRO players and the consequent increased competition.

• Building support structures in setting up MRO facilities at prospective locations:  India’s inherent geographic advantage of being in between Europe and Asia Pacific region gives a huge advantage of exploiting the MRO business. Domestic carriers can benefit from having MRO facilities within India’s borders. This cuts the cost of sending their aircraft to Dubai or Singapore.  International carriers, who have been increasing their flight routes to India, can have their aircraft serviced in India, thereby leveraging cost arbitrage opportunities.

The government owned and funded airports under the AAI ambit should ease out the regulatory requirements and permit setting up of MRO facilities at or close to their locations to provide advantage of collective aviation services and logistics to prospective MRO companies and private airline companies. Pushing the new or existing airlines towards utilising the MRO facilities based in India rather than elsewhere through levying higher service taxes or penalising the same for outsourcing the function.