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India's MRO industry to be worth $1.5 billion by 2020

Experts expect traffic to triple to 262 million passengers and estimate maintenance revenues are growing at 15% CAGR.

, ET Bureau|
Jan 27, 2011, 04.15 AM IST
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NEW DELHI: India is poised to become the fastest growing market in the world for aircraft maintenance, repair and overhaul (MRO) services over the next decade tripling its worth to $1.5 billion, as airline companies buy more planes to cater for the country’s rapidly growing traffic.

“The MRO spend by airlines in India now is $500 million and is expected to grow to $1.5 billion in 2020. As a result, we expect significant investment to come into this space over the next 10 years,” MRO services provider Air Works managing director Vivek N Gour said.

Industry experts have estimated Indian air traffic will triple to 362 million passengers by 2021-22, by which time the country’s air carriers would have more than doubled their fleet to about 1,000 aircraft.

Experts also estimate that MRO revenues, a direct function of the number of aircraft, are growing at a compounded annual rate of 15% in India, which makes this space attractive. The MRO space is a $45-billion market globally, of which India constitutes only 1%.

But, according to global consultancy firm KPMG, over the next decade India is going to be the leader in this space, which is currently split between North America and Western Europe, because of higher economic growth rate that the country is going to witness.

“The fleet size in India is now reaching a critical mass where it makes sense to have a strong MRO space not just for the domestic fleet but also for international airlines. Growth of MRO in India is now a necessity than an option,” KPMG director (aerospace and defence) Amber Dubey said. Moreover, India will have no dearth of skilled manpower and has the advantage of its good geographical position, he added.

While large carriers like Air India, Jet Airways and Kingfisher Airlines have their own or captive MRO facilities, several aircraft from India are sent to Europe, Middle East or South East Asia for major maintenance. The low-cost carriers are especially dependant on this kind of outsourcing.

In that sense, the clear benefits for domestic airlines in availing MRO services offered in India include cost advantage and faster turnaround time. “Also, India has the unique advantage of being within 5 hours flying distance from the Middle East and South East Asia, which allows it to tap into a larger market,” Gour added.

According to Ernst and Young, the MRO business is expected to tilt towards the Asia-Pacific region as almost 40% of the total air traffic is likely to be from or within this area. “The opportunity and the challenge for India is to position itself as a competitive regional MRO hub serving the broader Asia Pacific region through the advantages of faster turnaround time, a rich pool of engineering expertise and lower labour costs,” Ernst and Young Partner (Infrastructure Practise) Kapil Arora said.

However, the industry points out to a few issues that needs to be addressed in order to help facilitate growth in this space. From an MRO perspective, the import of spares into India is subject to both Custom duties and rendition of service is subject to levy of service tax. “This reduces competitiveness of the sector compared to its global peers based out of the Middle East or South East Asia,” Gour said.

Globally recognised certifications from the Federal Aviation Administration (FAA) or the European Aviation Safety Agency (EASA) are also imperative for players to cater to this market. “The government could help the sector by creating an MRO policy, assisting in land acquisition near existing airports and streamlining issuing of clearances from the DGCA, to begin with,” Dubey said.

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