Aircraft Maintenance Repair Overhaul Industry

IAS Current Affairs

2 months ago

Source: PIB
GS III: Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Overview

Why in the News?

India Implements Uniform 5% IGST on Aircraft Parts to Boost Domestic MRO Industry, Aims for Global Aviation Hub Status.

Union Civil Aviation Minister Kinjrapu Rammohan Naidu has announced implementing a uniform IGST rate.
The decision marks a significant milestone for India’s Maintenance, Repair, and Overhaul (MRO) industry.
It is a global aviation hub as it will reduce operational costs, resolve tax credit issues and attract investment.

Introducing a uniform 5 per cent IGST rate on MRO items is a major boost for the aviation sector.
Previous GST Rates and Challenges
- Previously, the varying GST rates of 5 per cent,12 per cent, 18 per cent, and 28 per cent on aircraft components.
- This creates challenges, including an inverted duty structure and GST accumulation in MRO accounts.
Highlighting the prospects Indian MRO industry is projected to become a $4 billion industry by 2030.

What are the components?

The OEMs, airline operators, suppliers, makers of parts and spares, and service providers make up the Maintenance, Repair, and Overhaul (MRO) ecosystem.
MRO services are categorized into four major segments
- Line
- Components
- Engines
- Airframes
Engine and APU Maintenance constitute almost 60% of the total MRO outlay.
Engine and APU maintenance is majorly done in the USA.

Indian MRO Industry

India’s civil aviation industry, with a market size of USD 900 million.
Indian MRO Industry Projection
India is the world’s third-largest domestic aviation market – with a domestic traffic of 275 million.
It is expected to surpass the United Kingdom (UK) to become the third-largest air passenger market.
In India, airlines spend around 12 to 15% of their overall revenues on maintenance.
Engine and component repairs account for over 60%-70% of MRO costs.
Indian MRO Industry registered a CAGR of 8.9% as compared to the global average of 5.9%.

Fact base for Potential MRO in India

Rising demand as a result of growing fleet size
- MoU between Air India Engineering Services Ltd. (AIESL) with Pratt & Whitney to launch a joint engine MRO facility in Mumbai.
- The venture between Wadia Group and SIA Engineering Company has been a key development in the sector.
Availability of low-cost, English-speaking diverse pool of engineers
- India is globally recognized for its strong engineering curriculum.
- Labour cost which forms a considerable share of the overall cost in airframe and component maintenance.
Prevalent sale and lease
- Redelivery maintenance is an important aspect of an airline.
- This is a big opportunity for component repair as well as heavy maintenance.
- Due to several legal and technical restraints, this is currently done largely outside India.

Advantages of a Flourishing MRO Market in India

Addressing MRO demand of the increasingly growing Indian fleet.
Economic benefits such as lower costs, reduced turnaround time, less inventories, etc.
Addressing MRO demand of global fleet and competing with the MRO players in the Asia-Pacific (Middle East, South Asia and South-East Asia).
Reduction in foreign exchange outflow.
Employment generation.
Increased revenue and investments.
Manufacturing of components and spares within the country.

MRO market in India can be primarily categorized into five regions

Challenges to the Aircraft Maintenance Repair Overhaul Industry

Economic and Infrastructural Barriers
- Competing against already established international players in terms of scale.
- Large initial capital expenditure for facilities, personnel training, components, marketing, etc.
- Apprehension amongst MRO customers towards incurring switching costs.
- Information asymmetry as a consequence of control of information, data and manuals by OEMs/ manufacturers.
Licensing and Compliance Issues
- Getting FAA/EASA licences as DGCA licenses and regulations have limited recognition in the global markets
- Intense FAA/EASA audits of MRO provider’s documents, processes, stores, AME licensing, stock referring parts issued or fitted in the aircraft, etc., which are lengthy and logistically cumbersome processes.
Labour Issues
- Brain drain – Fewer availability of jobs within the country composes skilled personnel to seek jobs outside the country.
- Lack of training infrastructure for human capital development.

To enable 300 million domestic ticketing by 2022 and 500 million by 2027 along with international ticketing to the tune of 200 million by 2027.
MRO service companies are to be exempt from airport royalty and extra costs for five years.
MROs no longer expected to provide proof of their client’s demand for parts or orders.
Extension of duty-free component imports for MRO from one to three years.
Provision for airlines to claim a set-off on the 5% GST of MRO performed outside India.
Permission for foreign aircraft to visit India for MRO for a six-month term instead of the erstwhile 15-day time period.

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