Maintenance, Repair and Overhaul (MRO) Industry in India
The importance of aircraft Maintenance, Repair and Overhaul (MRO) industry can be gauged with the fact that airlines spend some 13–15 percent of their revenues towards maintenance, which makes it the second-highest cost item for airlines after fuel. India’s MRO industry is at a nascent stage with over 90% of Rs. 5000 crore MRO expenditure being spent outside India in Sri Lanka, Singapore, Malaysia, UAE etc. Currently, India’s share is just 1% in global MRO industry and it is growing with rapidly growing number of the aircrafts in both civil and defense; and rapidly growing fleet capacity of the aircrafts.
There are several roadblocks to a vibrant MRO industry in India. Firstly, the key international airports have lack of hanger space, which is needed for temporary protective storage of the aircrafts. Secondly, setting up MRO is highly capital intensive with high initial as well as recurring investments and a long break-even time. Thirdly, operating a credible MRO is highly dependent on investing in the right manpower – that is regularly trained and optimally utilised with a strong focus on quality and turnaround time. It also requires continuous investment in tooling, certification from safety regulators. In India, there are 60 different aircraft types operating in a total market of about 350 aircraft (business jets, turboprops and helicopters). Each individual type requires trained technical manpower, tooling, and approvals from regulator as well as the OEM to enable an MRO to offer world-class maintenance services. Fourthly, non-availability of spare parts in leads to frequent grounding of aircraft for lack of spares. The custom duty regime has also discouraged the MROs from stocking parts on behalf of customers.
In summary, the key issue for the government is to have adequate infrastructure to create a level playing environment for Indian MROs when they compete with their global peers to attract business into the country.
What should the government do?
Firstly, the heart of the MRO industry is in human resource. Government needs to develop environment for preparing skilled human resource to deal with complex aerospace systems. For that, the existing institutions needed to upgraded and expanded to world class level.
Secondly, there is a need to encourage the domestic MRO companies to keep continuously receiving the global accreditations and certifications. This is because most of the aircrafts are leased from European or American companies and it becomes impetrative for Indian MRO to comply with Federal Aviation Administration (FAA) or the European Aviation Safety Agency (EASA) certifications.
Government should consider giving some special status to the MRO related financing requirements and tax incentives similar to the IT and ITES industry. Currently, the spare parts are subject to custom duties & VAT and MRO service is subject to service tax. This makes Indian MRO to be 30% costlier than those in the neighbourhood such as Sri Lanka, Dubai, Hong Kong, Singapore and China. The tax regime can be changed in favour of the industry.
Steps provisioned in Draft National Civil Aviation Policy 2015
The Draft Civil Aviation Policy has been released by the NDA Government on 31st October 2015. For MRO industry, it has the following provisions:
- Services under MRO to be zero rated
- The tools and toolkits for MRO will be exempted from custom duty.
- The process of custom clearance of parts will be simplified.
- Foreign aircraft brought to India for MRO work will be allowed to stay for the entire period of maintenance or up to 6 months, whichever is lesser, provided it undertakes no commercial flights during the stay period.
- Prompt visa to Foreign MRO experts, Temporary Landing Permits for foreign pilots operating an aircraft to and from India for the purpose of servicing.
- MRO will be declared as a separate category instead of clubbing it with Ground Handling (GHA) for security procedures and remove restrictions on foreign registered aircraft for MRO work.
- The Union Ministry will persuade states to exempt VAT on MRO.
- Rationalization of other levies.