Even as the country is projected to become the third largest aviation market by 2020, the aviation maintenance, repair and overhaul (MRO) sector is waiting to take-off.

According to a recent report, India’s domestic aviation market grew at over 20.3% during the year 2015 – the highest growth rate recorded in the world, adding up to 81 million trips. Against this backdrop, the FICCI-KPMG ‘India Aviation Report 2016’ predicts India is well on its way to become the third largest aviation market by 2020. The report suggests that aspects such as increasing disposable incomes, fall in prices of Aircraft Turbine Fuel (ATF), increase in tourism, visa reforms, etc., have placed India in a unique position. This is bringing the country closer to achieving its vision of becoming the largest aviation market by 2030. The report also highlights that the National Civil Aviation Policy (NCAP 2016) is likely to provide a significant fillip to the industry.

It is no surprise then that IndiGo, India’s largest domestic airline with a market share of a little over 38 per cent with around 100 aircraft in its fleet, placed an order for 250 Airbus A320neo planes last August, the largest single order for the European aircraft manufacturer. Though long plagued woes on account of various factors including high fuel prices and the government’s unrealistic aviation policies, private airline operators in India are maintaining a brave front. One would expect such a robust industry to develop a much stronger impact on downstream industries in services, but unfortunately, in India the aviation maintenance, repair and overhaul (MRO) sector’s performance has been far from impressive.

Typical of a sector suffering from neglect, even the figures bandied about by various sources fail match, ranging from USD 700 million to 2 billion as the size of the MRO industry in India. The FICCI-KPMG report says that due to a disadvantageous tax structure, the market size of MRO sector in the country has seen a marginal growth, going from $0.6 billion in 2011 to $0.9 billion in 2015, less than 10% of which is catered to by Indian MRO firms. The illogical tax structure makes MRO services in India 25-30% more expensive in comparison with those available in established countries in the region. Most of the airlines from India service their planes in countries including Sri Lanka, Malaysia, Abu Dhabi, Hong Kong, Jordan, which is a costly affair. Indian MRO firms have to pay 12.5-15% Value added Tax (VAT) rates on imported aircraft parts, while no such tax is levied on the airlines importing their own spares for self-consumption. VAT is also levied on selling price and not on cost price, making total tax component to around 20-22%, added with service tax. With suitable amendments in this tax structure, the balance can be tipped in favour of domestic MRO services. If there is a rationalisation of taxation in the MRO space, airlines would be not only saving on the outflow of foreign exchange drain, but also would reduce the fuel and crew costs incurred when sending aircraft abroad for maintenance services.

There are reasons to be optimistic. Just last month, Air India Engineering Services Ltd (AIESL), the MRO arm of the national carrier, announced that Jet Airways has become its first major customer when it handed over a Boeing 777-300 ER to Air India Engineering Services Ltd (AIESL) for checks. The job, which is the first major check of a third-party aircraft for AIESL, includes ‘C’ check and landing gear replacement with an agreed turn around time of 30 days. A ‘C’ check is a major check of an aircraft that is conducted every three years and involves inspection of complete aircraft/engine systems and components and servicing. AIESL was hived off from Air India in 2013 as a separate subsidiary. The company has now set a target of Rs 175 crore revenues in this year from outside work. Though the AIESL earns most of its revenues from servicing of India and its subsidiaries, it wants to now attract more of its business from other domestic airlines and foreign airlines which are within five hours of flying from India. Not to be left behind, reports indicate Jet Airways also is mulling over plans to enter the lucrative domestic MRO market, which is understandable given the opportunities.

Manufacturing services

Besides the potential goldmine of MRO services, there is also increased activity on the manufacturing front as the government’s Make in India initiative is gaining traction. In April US aircraft manufacturer Boeing awarded a contract to Bharat Forge for titanium forgings for the Boeing 777X.

“We are pleased to expand our partnership with Bharat Forge who started supplying titanium forged flap tracks for the Boeing Next-Generation 737 airplane earlier this year. They’ve demonstrated not only a high level of technical expertise, but also an understanding of the need to meet market requirements for affordability,” said Pratyush Kumar, president, Boeing India. “This contract demonstrates our commitment for building a globally competitive aerospace supply chain in India to realise the full potential of the Make in India initiative.”

The titanium forgings will be developed and manufactured by Bharat Forge using a closed die forging process. The first two forgings are scheduled to begin shipping to Boeing in late 2016, and will be followed by two more forgings in early 2017. Bharat Forge completed its first shipment of titanium flap-track forgings for the Next-Generation 737 earlier this year. The company will also supply forgings for the 737 MAX, scheduled to enter service in 2017.

“This second contract is the result of our successful partnership with Boeing and brings to forefront our capabilities in precision manufacturing techniques to offer high end technology and value in the aerospace sector,” said Subodh Tandale, executive director, Bharat Forge. “We are well versed in the stringent process requirements for titanium forgings and have mastered the process. We will be supplying critical wing components for one of the most advanced Boeing aircrafts. This also confirms our commitment to meet the aspirations of the Make in India initiative.”

Late last year, Bharat Forge had also won a contract from Rolls Royce for supply of certain aero engine parts. As established companies are looking for the most cost effective manufacturing locations around the world in order to stay competitive globally, more such opportunities are expected for leading Indian companies with proven capabilities and expertise. As part of the long-term agreement, Bharat Forge will also supply some components for Rolls-Royce’s famous Trent range of aircraft engines after a long period of collaboration to define the level of quality and process approvals.

Precision engineering company Aequs too has further expanded the aerospace ecosystem in its Special Economic Zone (SEZ) by signing a contract with All Metal Services Ltd (AMS), a subsidiary of Reliance Steel & Aluminum Co. The contract is to establish a metals service centre in Belgavi (Karnataka). The centre, a 35,000-square-feet facility, will be operational in first quarter of 2017. The facility is expected to provide various metals, including titanium, aluminium and steel, in various forms including plate, sheet and tube and related processing services for aerospace industry applications.

At present, aerospace companies source material primarily from the US and Europe for their requirements. AMS’ facility at the Aequs SEZ is planning to provide a local resource for Indian and regional customers to obtain specialty materials and processing services.

Aravind Melligeri, Chairman and CEO, Aequs, said: “This addition of the AMS facility at Aequs SEZ is a significant step towards increasing the in-country, value add for the aerospace industry. With this addition, we will have 21 operating units in total and over 600,000 square feet of manufacturing space with in the SEZ.” Aequs’ SEZ produces aerospace components and systems for global firms such as Airbus, Honeywell, Saab, Magellan and United Technologies. The factories, set up in 2009 with an investment of Rs 500 crore, employ over 1,000 people and make wing parts for Airbus 380 planes. Aequs earned revenue of $25 million in fiscal 2015 and expects to nearly double it to $45 million in the current fiscal. The company is working on 2020 strategy to be a large supplier of systems in critical segments such as castings, landing gear components, long bed machining and engine components to global aerospace firms.

The aviation sector also supports a large number of manufacturers of peripheral equipment and products required during servicing like hydraulic jacks, chocks, ladders and platforms, cranes and other material handling equipment, etc.

Defence aviation

Besides commercial aircraft, the defence aviation space is also opening up for increased civilian participation as the Indian Air Force is in the midst of finalising acquisition plans for a range of aircraft for its operational preparedness. A clutch of the country’s top corporate groups, including Tata Group, Larsen & Toubro, Mahindra & Mahindra, and Anil Ambani’s Reliance Group are investing in local defense manufacturing and aerospace technology, as the ambitious Make in India initiative aims to turn India into a global manufacturing hub.

The latest to jump into the fray is Swedish defence firm Saab with its newly unveiled fighter aircraft, Gripen E. The company said the jet is being offered to India under the Make in India initiative, along with transfer of technology.

Gripen E is equipped with a highly integrated and sophisticated sensor suite including an Active Electronically Scanned Array (AESA) radar, Infra Red Search and Track (IRST), Electronic Warfare (EW) suite and datalink technology, which, when combined gives the pilot, and co-operating forces exactly the information needed at all times.

The company has not only offered to set up a base here but also help in the development of aerospace capability for the next 100 years. It has also offered to partner in developing the next version of indigenous Light Combat Aircraft (LCA) Tejas and the Advanced Medium Combat Aircraft (AMCA), being developed and designed by Aeronautical Development Agency.

The Tejas in the meanwhile was also in the news as the chief of the Indian Air Force, Air Chief Marshal Arup Raha took control of the LCA for the first time, thus becoming the first IAF chief to fly the fighter. The air chief is reported to have said that the Tejas is a good aircraft for induction into IAF operations. If the IAF and the Indian Navy – there is a naval version as well – order the aircraft in sufficient numbers, the Tejas could strike a big blow for Make in India as over 60% of the components in the aircraft are said to have been developed indigenously.

In conclusion, the sector is certainly going witness a lot of action and in turn trigger manufacturing activity on a significant scale.