Home' Asian Aviation : AAV March 2016 Contents 34 AsianAviation | MARCH 2016
heavy tax structure forces airlines like IndiGo to look
beyond India for MRO services. MRO has been
more expensive to perform in India than abroad
following a string of tedious regulatory compliances
including a 14.5 percent service tax and customs
duties on the import of consumables and tool-kits
among other things.
For the past decade, the industry has requested a
simplification of procedures for customs clearances
and for state governments to remove value added
taxes on spare parts sold by MROs. Of India’s
US$700 million total MRO business, only US$70
million is actually carried out in India, said H.R.
Jagannath, CEO of Air India Engineering Services.
While the government has not removed the service
tax, it announced on 29 February that it would grant
customs exemptions on a wide variety of equipment
and tools required to be imported by an MRO service
provider. The customs duties on aircraft imported for
repairs have also been completely exempted.
“In fact the exemption has been completely
streamlined with operational procedures followed
by airlines and an international airline can fly into
India with passengers, get the aircraft serviced and
thereafter use it to fly passengers from India. This has
been much delayed, but yet a welcome move and
may yet help in establishing India as a preferred MRO
destination,” said Kabir Bogra, a partner at Khaitan
& Co., law firm. As aviation turbine fuel becomes
cheaper, the incentives are likely to jumpstart the
sector, he added.
India’s MRO sector is expected to get a further
boost as the country’s air travel sector develops. Last
year domestic travel grew at 21 percent over the
previous year and the fleet sizes of Indian carriers
too are increasing. Boeing, in a “Current Market
Outlook,” said last year it expects a demand for
1,740 aircraft in India over the next two decades.
“India’s economy and the country’s potential for air
travel growth, both for leisure and business, continues
to be strong and we remain confident in the Indian
commercial aerospace market,” Boeing senior vice
president for Asia Pacific, Dinesh Keskar, said.
Airbus, with a more conservative forecast, said in
2014 Indian airlines would need 1,290 new aircraft
by 2032, of which 73 percent would be for fleet
expansion and the rest for replacement.
Meanwhile, Airbus customer and India’s largest
airline by market share, IndiGo, with a growing fleet
of 102 A320s, has announced Airbus will, beginning
in March, deliver 24 A320neos by 2017. In the past
year, IndiGo increased its passenger base by 35.5
percent over the previous year.
To address the growing demand, IndiGo has
entered into leases for seven more used A320
aircraft to be inducted between March and Nov
2016. While the new A320neos will substantially
reduce costs, the move “also marks the beginning
of the next phase of our growth, and will enable us
to make air transportation far more accessible,” said
Aditya Ghosh, president and director of IndiGo.
The airline, with a long-term contract with Sri
Lankan Airlines for MRO services, is likely to look at
additional partners as its fleet reaches C checks and
as many prepare to be returned to lessors.
Air India Engineering Services (AIES), established
in 2013 following Air India’s decision to separate the
engineering and ground handling services into two
wholly-owned subsidiaries as part of its turnaround
plan and which are treated as separate profit centres,
has been envisaged as an MRO for Air India’s fleet
of 125 aircraft.
In addition to its major facilities around India
including Mumbai and Delhi, a $100 million,
greenfield MRO facility built by Boeing as part of an
offset commitment following a framework agreement
signed between Air India and Boeing in April,
2010 for the purchase of 68 aircraft, was recently
inaugurated in Nagpur.
Constructed by Larsen & Toubro, the 50-acre
facility has two wide-body hangars and a GE90/GEnx
engine-overhaul shop under construction. A 1.8 -km-
long taxiway has been completed by Maharashtra
Airport Development that has now paved the way for
the first D check of a 777-300ER to be carried out
in Nagpur. This is the 18th D Check on a 777 being
done by AIESL.
The airline is in talks with Jet Airways — the only
other Indian carrier using the 777 — to carry out
checks. “To bring costs down of transportation from
Mumbai to Nagpur, we might look at servicing Jet
Airways from our Mumbai facility where we have the
capability,” HR Jagannath, CEO of AIESL, told Asian
Aviation in an exclusive interview.
While there is enthusiasm to grow the MRO
business in India, GMR Aerospace Engineering
a wholly owned subsidiary of GMR Hyderabad
International Airport, is waiting for the country’s
aviation policies to evolve so it can begin construction
on a 250-acre parcel at Rajiv Gandhi international
airport in Hyderabad. The country’s military is also
opening up to private MRO airframe maintenance
and AIESL and others are eyeing a request the
military has issued to upgrade 20 AN-32s of the
Indian Air Force.
Looking aggressively to market AIESL and having
recognized the commercial aviation business will
take some time to develop, Jagannath is looking
forward to the military request. The contract will
include 11 packages, which will include repainting,
wing structure modification, and ageing fleet and
ultrasonic inspection he said. “We propose to do this
work at our new facility in Nagpur. We expect each
aircraft will take 206 days to complete.” AIESL has
also been mandated to overhaul eight Indian Navy
737 P8-Is and the VVIP B-747.
AIESL’s Nagpur facility that recently received an
approval for the A320 by Indian regulator Directorate
General of Civil Aviation, is hoping that U.S . Federal
Aviation Administration (FAA) will audit it soon as
“third-party jobs and lessors prefer a facility audited
by EASA or FAA.” The company is spending
US$3million for specialised tools. “We want up to
D check approval,” adds Jagannath.
To establish its international status, AIESL recently
released an Expression of Interest to check market
interest in a future third-party provider “to operate
and manage Boeing and Airbus airframes MRO on
revenue sharing basis” at Nagpur. “We have received
several offers from big companies,” said Jagannath,
declining to disclose details. He added no decision
had been made if the deal would be “a joint venture
or a marketing agreement.”
An issue that remains is building up of the
company’s engineering strength. “For the last 15
years there was no recruitment as we continued to
expand and new aircraft models started to come in,”
said Jagannath. The recruitment process has now
started with clearance given for 220 engineers.
Training is presently being conducted in Singapore
for the 787 composite structures that AIESL plans
to do in Nagpur. The first D Check for its 787 will
come up in mid-2018.
AIESL is also making training a new source for its
revenue having trained 800 in the past two years with
400 more by next year.
Another possible spinoff business is the recent
MOU signed with Haveus Aerotech India for a
US$100 million, 9,000 sq. m. MRO facility on at Al
Maktoum International Airport in Dubai to cater to
the demand of aircraft engine overhaul of CFM56-
7B and 5B fitted on B737 and Airbus A320 family
aircraft in the Gulf, Far East, Asian and the adjoining
While the government has not removed
the service tax, it announced on 29
February that it would grant customs
exemptions on a wide variety of
equipment and tools required to be
imported by an MRO service provider.
3/03/2016 7:21:11 PM
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