The MRO industry needs the government’s support to achieve its true potential
India is seen as the most lucrative aviation markets in the world because of the sheer number of people preferring to travel by air within the country in the past few years. As per the International Air Transport Association’s (IATA’s) data, in 2018, India was the fastest growing domestic aviation market for a fourth consecutive year with 18.6 per cent increase in growth as compared to the previous year.
While consumer aspiration was at an all-time high, 2019 took a beating due to the grounding of Jet Airways and economic slowdown. That year, the passenger traffic growth slowed to 3.47 per cent. Despite the drop, Indian Airlines’ fleet grew by 29 per cent in 2019. The number of commercial aircraft rose to 669 from 521 in 2018. As the aviation sector resumes growth after Covid-19 pandemic, IATA’s data suggests that India will surpass the US and China and become a global aviation hub by 2037.
The growth of the aviation sector, hand-in-hand, brings in more opportunities for the Maintenance, Repair and Overhaul (MRO) industry. Currently, the MRO industry in India stands at USD900 million and has the potential to grow further. A number of Indian and foreign airlines get their maintenance done from the Indian MRO industry. The announcement of budget 2016-2017 brought in customised provisions for the Indian MRO industry so it could grow and India could become an MRO hub of Asia. The tools and tool-kits used by the MRO were exempted from customs and excise duty and the storage period was extended for three years for aircraft spare parts.
Founder secretary general MRO Association of India, Pulak Sen, says that the battle for recognition of an MRO industry in India has been long drawn. The MRO Association of India was first established in 2011. It was during the 2012-2013 budget that the government took a decision to exempt the industry from custom duties on spare parts, aircraft tyres and testing equipment.
“With airlines buying new aircraft and adding to their fleet, the work of the MRO industry will increase multi-fold. Additionally, before the lockdown, some MROs were getting overseas work because of price arbitrage in India. The manpower cost in India at the highest was USD 42 per hour, whereas in countries like Singapore and Malaysia, it was USD 65 per hour. In the West it is much higher. In April 2020, we downsized the GST from 18 per cent to five per cent—a 13 per cent advantage for the industry. Out of this 13 per cent, they can give a five per cent discount for any MRO work they undertake. Even then they will save eight to nine per cent, which will add to their profit margin. Unfortunately, this happened at the time of the pandemic, so we may not see the results this year. But we will surely see the results next year. In any case, the world aviation industry is in doldrums because of Covid-19,” he says.
Sen adds that while the GST has been reduced, the Integrated Goods and Service Tax (IGST) continue to be high. “We have been making representations to the government to bring it down. They are considering our plea.”
India’s MRO industry has only recently begun to flourish. For a self-reliant aviation industry, it is important that this sector grows. The year the Indian government implemented the Goods and Service Tax (GST), the MRO industry asked for an exemption from the 18 per cent tax of levying customs duty in aircraft being serviced from outside the country. It had argued that the tax makes servicing in India costlier than abroad. After the 2016 decision of exemption from customs duty and Maharashtra’s decision (because it is home to almost 80 per cent MRO units within the country) to abolish Value Added Tax (VAT), the GST was seen as a step back for the growth of the industry. However, in 2020, the government slashed the GST rate from the earlier 18 per cent to five per cent. The MRO industry was at the receiving end of the flawed tax regime and had been demanding a level-playing field with foreign MROs that received 95 per cent Indian business due to lower taxes.
The MRO as an industry is a fairly new concept in India, not more than a decade-old. While the process to make the atmosphere conducive for the functioning may have begun, there is certainly a long way to go before recognising India as a hub. Earlier, Indian Airlines bought MRO services by going to countries such as China, Dubai, Sri Lanka, Malaysia and Singapore because they offered MRO services at lower taxes as compared to India. While Malaysia and Singapore charged seven per cent, Sri Lanka did not charge any taxes on its MRO services. With five per cent tax, India can now attract more business for this sector. Singapore attracts three per cent global market share and 25 per cent of the Asian market share. The country also has Original Equipment Manufacturers (OEMs) from countries such as the US, the UK and France which operate either independently or have set up joint ventures with local MROs.
Talking about the validation of interdependence of military and civil MROs from the government, Sen says, “The government has formed the committee of two additional secretaries, one from the civil aviation ministry and the other from defence ministry. They are working out the modalities of how it should be done. First, they have to map the manpower and then cross utilise them. The Director General of Civil Aviation’s (DGCA’s) rules will have to be changed. All this will, of course, take time. I am sure the ministry is working hard to bring this to fruition. Ground rules will have to change. That will be done. The government has identified land banks. These land banks will be offered to MROs, spare-part manufacturers and the aviation industry to build their factories in India. The infrastructure will have to be built. In the next three years, people will be able to see the momentum.”
When asked how complex aircraft are dealt with, he says, “There are many types of aircraft and there are stages of certification. One cannot take up MRO services for a certain type of aircraft unless they have the requisite certification. For aviation, you have to be authorised to certify an aircraft. There are exams to be passed. Then there are sub parts. If one is trained on engines, he will take up work on only engines and the type of engines he is trained on. Someone who is trained on accessories and components will do only that component, he/ she cannot certify any other component or engine or aircraft.”
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