Airlines need to persuade OEMs to develop MRO infra in India: Jyotiraditya Scindia

Union Civil Aviation Minister Jyotiraditya Scindia has urged Indian airlines to persuade their original equipment manufacturer (OEM) vendors to develop maintenance, repair and overhaul (MRO) facilities in the country.

“When they secure orders for fleet expansion, they must also put the impetus and thrust on OEM suppliers to be able to bring their MRO capacities into India,” said Scindia.

Emphasising the ready availability of the engineering base required for the purpose, he added, “The policy construct is in place, the market is there and the demand for aircraft is increasing. Both the industry and OEMs need to work with us to make that possible because it’s something that’s going to help them in the longer term.”

Scindia made these observations at the three-day annual gathering of industry chamber Confederation of Indian Industry (CII) in association with the Department for Promotion of Industry and Internal Trade (DIPP).

According to official estimates, the market size of the country’s civil aviation industry is currently pegged at Rs 90,000 crore. Of this, MRO segment accounts for about 15 per cent share, or Rs 13,500 crore. However, as things stand today, 85 per cent of MRO-related work gets offshored to countries like Sri Lanka, Malaysia, Singapore and the UAE, with only 15 per cent being done in India.

This means that entities based in the country are left handling a paltry Rs 2,000 crore of the business, with the rest of the money flowing overseas.

Making India a global MRO hub:

Under the National Civil Aviation Policy (NCAP), announced in 2016, the Prime Minister Narendra Modi-led NDA government is keen to develop the country as Asia’s MRO hub to attract business from foreign airlines under its ‘Make in India’ initiative.

Since long, the MRO segment had demanded equal opportunities for growth, aligning of taxation at par with competing hubs in the country’s neighbourhood, lowering of import duty on spare parts and a favourable GST regime.

In response, GST on MRO services was reduced to 5 per cent from 18 per cent in March last year. In September this year, Scindia had announced a 100-day plan for the civil aviation sector, comprising policy interventions, development of airports and heliports and the MRO segment.

A draft policy incorporating recommendations made by the apex body for the segment, MRO Association of India (MAOI), is also on the anvil.

“Stakeholders from the MRO advisory group have given their inputs to the minister, which will be incorporated in the new policy. The association is confident that the new draft policy will be made public for stakeholder inputs by January 2022,” Pulak Sen, founder secretary general MOAI, told BusinessToday.In.

Key recommendations include abolishing the existing framework of royalties and rentals to facilitate foreign investments in the segment by making it cost-competitive.

“Once the policy is formulated and released, it will attract foreign players to India to set up shop. But it will take at least three years for this vibrant MRO and support ecosystem to show results,” cautioned Sen.

Adopt carrot and stick approach:

However, some within the industry feel that the intent might come undone unless the government extends appropriate fiscal incentives for end-users, i.e., airline companies.

“It’s heartening to hear about the interest being taken by the government in the area. However, a strong financial incentive programme needs to be developed as part of the civil aviation policy framework to make it beneficial for airlines to push OEMs to set up MRO facilities here,” said Rohit Tomar, partner at Caladrius Aero Consulting.

This would involve a mix of benefits and penalties. "The process should start right from the time of the Directorate General of Civil Aviation (DGCA) giving the type certification to the OEMs. It's during this phase that the aviation regulator and the government have the maximum leverage to gather and access the important design and technical documentation from OEMs," Tomar added.

“They can then create an incentive like Malaysia’s Industrial Collaboration Programme (ICP) that profits the airlines to make the clauses in their request for proposal (RFPs) linked to domestic capability development. Finally, the force of Competition Commission of India (CCI) can be used to prevent monopolistic and duopolistic OEMs under prohibitory practices against Indian MROs,” Tomar said.

It would, therefore, take some dedicated effort to get this ambitious endeavour off the ground.

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