Air India seeks tie-up for MRO overhaul

Written by Shaheen Mansuri | Mumbai | Updated: Feb 1 2011, 03:22am hrs
Flag carrier Air India (AI) is looking to rope in a foreign partner to jointly operate its maintenance, repair and overhaul (MRO) facilities, a move it believes will enhance its technological capabilities in this space, leading to higher revenues from the segment. AI is in discussions with at least two overseas companies to establish the joint venture, a senior AI official told FE .

At present, AI garners around Rs 800 crore from MRO operations. The segment, however, has the potential to generate at least Rs 3,000 crore for the airline, its CMD Arvind Jadhav had said earlier. Experts say, for the segment to accord higher revenues to AI, the carrier needs to improve its technological offering. So far, one of the major hindrances in India evolving as an MRO destination is the lack of companies having a globally recognised certification like Federal Aviation Administration (FAA) of the United States and the European Aviation Safety Agency (EASA). Although part of AIs engineering facility is recognised as certified repair shops by both EASA and FAA, which makes it competent enough to service domestic and international airlines, the airline is looking at an investment of around Rs 500 crore, which a foreign partner can bring in for upgrading service standards. Second, through a joint venture, the carrier will have access to markets where its ally is a dominant player.

AI, at present, has engineering shops in Mumbai, Delhi and Hyderabad (which is under development).

The MRO spend by airlines in India, at present, is around $500 million and is expected to grow to $1.5 billion in 2020, suggest reports. Industry watchers have also estimate that MRO revenues, a direct function of the number of aircraft, are growing at a CAGR of 15% in India, which makes this space attractive. The MRO space is a $45-billion market globally, of which India constitutes only 1%.

Global MRO Singapore Technologies Aerospace, which provides comprehensive engineering services, has clients like Jet Airways, SpiceJet and Air India from the country. 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, amongst others, in the Asian continent to expand their reach.

Meanwhile, AI, has been looking to hive off its MRO vertical into a separate entity to general additional revenues, as a part of the three-year revival plan aimed to turn the carrier profitable. AI is saddled with a total debt burden of about Rs 40,000 crore. It suffered a Rs 5,551 crore loss in financial year 2010.

Kamaljit Rattan, CIO, AI told FE, Deloitte, a global consultancy company which has been hired by Air India to prepare a financial restructuring plan for the company, will submit it in 3-4 weeks. Also, whatever decision comes out, has to be ratified by AI's board.

Says an executive from AI, Lufthansa Technik has customers like Jet Airways and Kingfisher for engineering services. In fact, Lufthansa Technik India Services located in Bangalore provides regional supply of aircraft components and also offers airframe related components lease, technical training and logistics. The company is keen to expand its services in the region as the MRO market in India in under-served. Lufthansa Technik has over 29 MRO facilities around the world and is focussed on increasing its presence globally, he added.

AI is aiming to emerge as a major MRO centre in the Asian continent. The airline has over 5,000 highly skilled engineers and technicians capable of undertaking maintenance of all aircraft and engines currently in its fleet. The airline wants to offer flexible service package that is configured to fit the specific wishes and requirements of the airline customer. The customer can select what suits his needs best. This will assure customers the full service range at precisely predictable cost, said an AI official.