The Indian aviation industry is one of the most dynamic industries the world over and has witnessed an exponential growth over the last two decades. The liberalisation of the Indian economy led to the Open Skies Policy which brought about a good many private airlines competing for a market share, which until then was the exclusive domain of the national carriers. This rapid growth and resultant competitive environment fuelled the advent of low-cost airlines like Air Deccan, which pioneered the concept in India, Spice Jet, Go Air and Indigo. Air travel, which was affordable to only a select few, was now available to the “common man”. According to the latest figures released by the DGCA (Directorate General of Civil Aviation), the total number of passengers was 29.8 million in 2009, up 30 per cent from the previous year to grow by a further 19 per cent over the next five years. Interestingly, the Asia Pacific region accounts for 32 per cent of the world's passenger market.
Fleet size
The current fleet size of aircraft is expected to grow from the present 400 plus aircraft to around 720 plus at a compounded annual growth rate (CAGR) of 8.3 per cent. The environment has only gotten more and more competitive over the last decade. According to a report by the Centre for Asia Pacific Aviation (CAPA), the domestic airline industry will incur a combined loss of Rs. 7,000 crore in 2009-10 in addition to the accumulated losses of Rs. 26,000 crore. With the economic climate showing signs of revival, it is time for serious introspection to identify efficiencies, develop strategies, build long-term relationships and cut costs. Airlines will perforce be driven to focus on innovation, formulation of strategies and brand building, if they are to survive. The competition in the region is formidable with well entrenched players and an environment conducive to growth. It is time for airlines to outsource non-essential services such as MRO (maintenance, repair and overhaul) to third party service providers within the country.
The MRO spend by airlines in India now is $500 million and is likely to grow to $1.5 billion in 2020. The Indian MRO is now more of an imperative than an option. There has been much debate and speculation as to whether India has the potential to develop as an MRO hub in the region. Strategic alliances have been announced time and again of the Air India-Boeing and Indian Airlines-Airbus ventures in the MRO space. Recently, the GMR-Malaysian joint venture is off the starting blocks to commence in the first quarter of 2011.
The fact is MRO of aircraft is serious business and capital intensive in terms of financial outlay, creating cost efficient models and deliverables. Some of the domestic airlines have established capability to undertake their own checks. Yet, inadequacy of infrastructure requires a majority of their major inspections be farmed out to Europe, the Middle and Far East. Airframe inspections are labour intensive (70 per cent labour and 30 per cent materials) and constitute about 13 per cent of operating costs. At present, this 13 per cent reflects an annual spend of $70 million. The success of any MRO is fully dependent on its human resource, which determines the efficiencies in output. Skill shortages continue to plague the global industry in spite of recession and this trend is set to continue through the next 5-10 years. The growth of aviation and MRO activity in the Middle and Far East will lead to a high attrition of skilled mechanics and technicians. The retention of quality technicians and attracting fresh talent will be among the foremost of challenges to overcome.
These issues must be addressed sooner than later to ensure a level playing field. The government needs to take innovative steps to promote the MRO industry as it did with the IT and telecom industries.
The regulatory authority too has an important role in developing MRO capabilities. Emphasis on new advanced training technologies will ensure the creation of the right human resource to deal with the complex aerospace systems both current and future. Being maintenance literate is not just a one-time occurrence, but is a continuous process.
The existing training institutes must be compelled to upgrade capabilities to equip the aspiring engineers with the right knowledge sets. The regulatory authority must shoulder the responsibility to facilitate the process to make sure that Indian business opportunities are captured in India through active participation in building and securing airline comfort and confidence.
The government must push for the domestic MRO companies to work towards achieving globally recognised certifications. The fleet of various airlines includes a mix of directly purchased aircraft and aircraft that are leased. Since most of the leasing companies are either European or American, it is imperative for the Indian MRO companies to have either the Federal Aviation Administration (FAA) or the European Aviation Safety Agency (EASA) certification so as to be able to perform MRO activities. The clear benefits for the domestic airlines in availing the MRO services offered in India include cost advantage and faster turnaround time.
The ferry time of getting the aircraft serviced in India is another advantage, which will save valuable fuel, logistic costs, lost opportunity, engine, APU (auxiliary power unit) and component hours. This in turn translates into more revenue for the airlines. A major reason why the airlines continue to look towards the international market is because of the perceived quality of service, but what is interesting to learn is the fact that at the end of the day they are the Indian engineers who work on the aircraft, but just at a higher cost! The safety standards are the same globally.
Priority sector status
The use of the same network of knowledge with the same frame of reference, guarantees a consistency of approach of maintenance standards. Now is the time for airlines in India to develop relationships with Indian MROs, add value and realise the long-term benefits. MROs globally are fiercely competing in stagnant market conditions, driven to the wall by airline pressure to further reduce rates. Evidently, this is not sustainable. The future is in the Indian MRO industry which will have the advantage of helping domestic airlines save about 20-40 per cent on the total cost on airframe maintenance as compared to the rest of the world.
The aerospace industry warrants a priority sector declaration given its strategic and economic importance. The government could consider development funds, especially in the design and infrastructure requirements of the sector. Further the tax incentives (both direct and indirect) akin to other service sectors, like IT and ITeS, could provide the requisite thrust and stimulus for the industry to grow. From an MRO perspective, the import of spares into India is subject to both customs duties and rendition of service is subject to levy of service tax. Participants in India's MRO industry believe that the tax regime should change in order to promote the opportunity available to India in positioning itself as an MRO hub to the world.
The general aviation sector has a substantial population of aircraft, operated by corporate groups, Central and State government agencies, special mission operations and oil and offshore operations to name a few.
MRO capability to service these aircraft, though ramped up in the last few years, could do a lot better in the right environment. These aircraft are flown to the neighbouring regions for their major checks. Corporate aircraft such as those maintained under general aviation are as much a financial resource as airliners are to the country.
In the final analysis, the MRO is the vehicle for creating self-sufficiency of maintenance infrastructure. The future of the Indian MRO depends on the national pride of the airlines and the government. The Indian airlines have to take a long-term view and enter into strategic alliances with the Indian MRO industry and move from a transactional relationship to a value-based one.
Executive Director, Air Works Engineering Pvt. Ltd.
