Management

Cover Story

Maximising Real Opportunity

The growing number of aviation companies setting up MRO facilities in India shows that the country has a huge potential of becoming an MRO hub. By Gayatri Vijaykumar

Civil aviation in India has come a long way since the first commercial flight took place between Karachi and Delhi in 1912. Since then, the landscape has changed dramatically. Competition has helped reduce airfares that in turn have helped air travel shed its dubious distinction of being an elitist activity and becoming more accessible to the common Indian. Adding to this growing optimism is the modernisation and development of greenfield airports throughout the country.

With the government proposing investments of US$ 9 billion by 2010 to modernise the country's airports, the stage is all set to boost India into the global aviation scene. An important area where the country still has a long way to go however is in providing world-class maintenance, repair and overhaul (MRO) facilities. It is a well-known fact that every hour spent on the ground increases the airline's operating costs. Hence, in order to reduce costs and to optimise operations, it is essential to have efficient MRO facilities which would help reduce the time spent by the airline on the ground.

The current scenario

According to a GMR spokesperson, a world-class third party MRO facility does not exist in India right now. Explains the spokesperson, "Hence, domestic airlines have to go overseas for heavy maintenance checks on aircraft, engine and components. This obviously involves a lot of foreign exchange drain."

Amit Kishore Prasad, co-founder and joint managing director of HAMCO AeroZone - India's first 'aviation park' - feels that the MRO facility in the country at present is insufficient to support the growing demand. According to him, maintenance requirements in India are more stringent than other countries worldwide. "In the US, there is no need to do a transit check by an Aircraft Maintenance Engineer (AME) each time a flight lands and is taking off. The pilot can himself certify the same. In India, you need AMEs for these transit checks also. Then there are 'A' checks (typically 600 hours of flying), night-halt checks, weekly checks and 'C' checks (between 1800 and 3000 hours of flying). All these need a lot of manpower, resources and facilities which aren't easily available in India today," he says.

He adds that as per a 2010 projection, the facilities will be a quarter of that required by the number of aircraft. This will lead to a lot of foreign exchange draining out of the country as aircraft will need to go to those destinations for maintenance.

The GMR spokesperson adds that a third party MRO would not only reduce costs but also increase availability of aircraft by not having to ferry it overseas for repairs. Consequently, it would save foreign exchange. "The MRO sector in India is presently lacking a world-class MRO facility. In addition, the expertise of MRO for heavy maintenance has not yet been established in the country. Since airlines have to go outside the country for heavy maintenance checks on aircraft, engine and components, aircraft have to stay out of service for longer periods. This financially burdens the airlines," states the spokesperson.

MROs in the pipeline

The southern cities of Bangalore, Chennai and Hyderabad are emerging as major players in the MRO scene. Jet Airways has plans of setting up an MRO and is considering a few southern cities. According to Wolfgang Prock-Schauer, its CEO, the cost of the project is estimated to be around US$ 60 million. "However, how much Jet will invest depends on the decision of whether it is planning to go on its own or with a joint venture partner," he adds. Kingfisher Airlines and Deccan are also actively looking at setting up an MRO in Bangalore, which in addition to servicing their fleet will also be open to third parties.

The GMR group has entered into a joint venture with Lufthansa Technik to set up an MRO facility at Hyderabad International Airport Limited (HIAL). To be developed with an investment of more than Rs 100 crore for the initial phase, Lufthansa Technik holds 75.5 per cent stake while the GMR Group holds 24.5 per cent stake. Scheduled to commence operations in the last quarter of 2008, the day-to-day running of the facility will be carried out by Lufthansa Technik while the GMR Group will have a proportionate share of the dividends.

According to the spokesperson for GMR, for the initial phase, the MRO infrastructure at HIAL covering 6.92 acres will provide heavy maintenance services (including 'C' and 'D' checks) for the Airbus A320 family and Boeing 737 family (including 737 Classic and 737 NG). Services will be expanded to include wide-body aircraft like Airbus A330/340 and Boeing 777/787 based on market demand. The hangar facility will initially consist of a two-bay narrow body hangar with modular design which can later be expanded to include a single-bay wide body hangar. "The facility would obtain DGCA as well as internationally recognised FAA (Federal Aviation Administration) and EASA (European Aviation Safety Agency) approvals," explains the GMR spokesperson.

Private MRO facility for commercial aircraft Hyderabad Airport Maintenance Company (HAMCO) plans to start operations in mid-2008. Prasad explains, "Our differentiator is that our founding team comprises AMEs who are technically capable of handling high-end requirements of airlines. AMEs are in short supply in the market and fast becoming a limiting factor in the growth of MRO facilities in India." According to him, AeroZone will be a 400-plus acre campus offering MRO, training and allied services to airlines. It will also have its own private airstrip to facilitate the arrival and departure of customer aircraft.

Why India?

The fact that most big names in the aviation industry are looking at India to set up their MRO facilities shows that India has the potential of becoming a global hub. Foreign companies like Boeing, Airbus and SIA Engineering are looking at entering into joint ventures with Indian companies to set up MRO facilities in the country. Says the GMR spokesperson, "The aviation sector has seen phenomenal growth since the Indian government initiated an open skies policy with foreign airlines and permitted domestic airlines to fly international routes. This interest will spur new opportunities for equipment and project finance such as modernisation and upgrading of existing airports, construction of new domestic and international airports, which would help India emerge as an MRO hub of the world."

It is also considered to be more profitable to set up MRO facilities in India. Having MRO facilities in the country will save us foreign exchange. Says the GMR source, "The MRO business will also generate numerous related ancillary and associated industries and services. These centres also generate a large volume of employment, for example LHT is looking at around 300-400 people working for them in the project."

The geographical location of the country also helps. "India is in between Europe (that has high labour cost) and Far East Asia. Moreover, the increase in the number of airlines can bring in significant cost savings to them," explains Prock-Schauer. Add to this is the availability of talent in the country. "India has good engineering schools with many young talented people. They have to be trained for specific task and type of aircraft. With good planning, this should not be a problem for India," he says.

Most international airports being developed in the country have the capacity to handle MRO facilities. Hyderabad International Airport, Bangalore International Airport, Delhi International Airport, Mumbai International Airport and Chennai International Airport - all are being considered by various private Indian and foreign companies to set up MRO facilities. Prasad feels that all airports in the country are suitable for setting up MRO facilities. "An MRO facility does not need much space - about two to three acres for a hangar and 10,000 square feet for office space and components parking are sufficient. So all airports in India including the smaller ones are suitable," he explains.

However, the GMR spokesperson cautions that the economic viability of setting up multiple MRO centers has to be looked into since airlines are direct customers for MRO business and only limited aircraft in private sector are available for services. "With Indian having captive MRO and the merger of Jet Airways and Sahara, the industry is also witnessing a consolidation of sorts. All other private airlines are new and hence not ready for MRO checks," he explains.

Hurdles to cross

The country, however, faces challenges galore before it can find its name on the global MRO map. According to Prock-Schauer, the current system of tax on technical service for work done within the country provides disadvantages for MROs to set up shops on their own without a local airline partner. In addition, the lack of proper infrastructure and availability of land at key airports adds to the problem.

However, he adds that a good business plan can offer maintenance cost and a favorable tax regime that will lead to a lower cost of maintenance work done in India as compared to maintenance work done abroad. This is due to the cost saved on ferrying flights and ground time.

Prasad feels that the lack of clarity in government policies is a major concern. Praasd laments, "We applied to the government for space in Hyderabad's Begumpet airport in early 2006. We were made to run from pillar to post between Airport Authority of India and DGCA for two years. AAI wants us to get approvals and will then give us space while DGCA says that it cannot give approval to those who do not have space in airports. There is also some 1930 rule which states that 'non airlines' cannot be given space inside any airport, which has drastically affected our plan."

According to him, another challenge will be the conflict of interest between the airport developer and the provider of such services. Prasad cautions, "The private operators of major airports of India are not encouraging MRO players and are getting into joint ventures and partnerships to build a monopoly situation at their own airport. This will significantly hamper the growth of MROs in India. The government better wake up soon, else we will end up with poor quality maintenance, risky flights, loss of domestic revenue to international players and above all miss a big opportunity to become a regional aviation hub. Let us not let that happen!"