AI to hive off MRO business this year

Written by Shaheen Mansuri | Mumbai | Updated: Apr 5 2011, 07:23am hrs
Air India (AI) will spin off its maintenance, repair and overhaul (MRO) division into a separate company in the current financial year, coinciding with the centenary year of civil aviation in the country.

Arvind Jadhav, chairman and managing director of the airline, said, This is a very appropriate time (for the MRO hive-off). AI has a world-class testing laboratory, which is not marketed well. Once our MRO is hived off as a separate company, it will have the capabilities to service 300 aircraft every year.

AI kicked off celebrations marking the centenary year of Indian civil aviation on February 18, which will go on till February 18 of 2012. It was on that day in 1911 that the first commercial plane flew in India between Allahabad and Naini. Today, India is the ninth largest civil aviation market in the world.

Hiving off a profitable venture like MRO is a critical component of AIs turnaround plans. The airline, which incurred a cumulative loss of over R13,300 crore since its merger with Indian Airlines in 2007, had chalked out a turnaround plan in 2009. The carrier expects to post a revenue of R3,000 crore per year from its MRO division hive-off alone. Other aspects of the turnaround plan included route rationalisation and expanding capacity domestically for its low-cost subsidiary Air India Express, which currently flies mostly to the Gulf from southern cities in India.

Meanwhile, the civil aviation ministry is preparing a Cabinet note seeking government approval to convert AIs MRO division into a separate company.

The $800-million MRO market in India is still under-served by aviation standards. MRO is still considered nascent in the country and AI can reap the benefits of being one of the early movers in this space. With 420 aircraft crisscrossing the countrys skies, more and more global MRO companies are setting their sights on India with plans to offer engineering services by forming joint ventures with Indian companies. The MRO market is growing at about 15% annually. Several MRO companies, including those of aircraft makers Airbus Industries of Europe and Seattle-based Boeing, and Germanys Lufthansa Technik, Hindustan Aeronautics, Air Works India, Max Aerospace & Aviation and Hyderabad Aircraft Maintenance Company, are currently servicing the market.

Babu Peter, executive vice-president (engineering), GoAir, said, Indian carriers outsource MRO work of around $700 million to international companies every year. There is a great need to develop MRO infrastructure in India. Experts say when airlines send their aircraft abroad for engineering services, they lose at least 20 days in ferrying the aircraft abroad. Moreover, customs clearances cause further delays.

Voicing concern over domestic airlines paying a huge import duty for importing any spare parts, Bharat Malkani, CMD of domestic MRO firm Max Aerospace, points out, Indian carriers have to pay at least 40% in import duties on each spare part they import.

AI officials add that if the national carrier hives off its engineering division into a separate company, issues like heavy import duty on equipment can be minimised, with the availability of engineering components in India. AI is looking at a foreign ally to form a joint venture for technical support for the MRO venture.

The MRO space is a $45-billion market globally, of which India constitutes only 1%. Global MRO firm Singapore Technologies Aerospace, which provides comprehensive engineering services, has clients like Jet Airways, SpiceJet and AI. Similarly, Singapore Airlines SIA Engineering and Lufthansa Airlines Lufthansa Technik generate at least 35-45% revenues from their MRO verticals and are consistently looking at countries like India, among others, in the Asian continent to expand their reach.