Union Civil Aviation Minister Jyotiraditya Scindia urged Indian airlines to persuade their original equipment suppliers (OEMs) to develop maintenance, repair and overhaul (MRO) facilities in the country.
“When they get orders for expanding their fleet, they also need to give the boost and push to OEM suppliers to be able to bring their MRO capabilities to India,” said Scindia.
Emphasizing the immediate availability of the engineering base required for this purpose, he added: “The policy is in place, the market is there and the demand for aircraft is increasing. Industry and OEMs need to work with us to make this possible, because it is something that will help them in the longer term.
Scindia made the observations during the three-day annual meeting of the Industrial Chamber Confederation of Indian Industry (CII) in association with the Department of Industry Promotion and Domestic Trade (DIPP).
According to official estimates, the market size of the country’s civil aviation industry is currently set at Rs 90,000 crore. In this segment, MRO segment accounts for around 15% share, or Rs 13,500 crore. However, as it stands, 85% of MRO related work is outsourced to countries like Sri Lanka, Malaysia , Singapore and the United Arab Emirates, and only 15% is done in India.
This means that entities based in the country have to manage a meager Rs 2,000 crore of the business, with the rest of the money flowing overseas.
Make India a Global MRO Hub:
As part of the National Civil Aviation Policy (NCAP), announced in 2016, the NDA government led by Prime Minister Narendra Modi wants to develop the country as Asia’s MRO hub to attract companies from airlines foreign airlines as part of its “Make in India” initiative.
The MRO segment has long demanded equal opportunities for growth, alignment of taxation at par with competing hubs in the country’s vicinity, lower import duties on spare parts and a favorable GST regime. .
In response, the GST on MRO services was reduced to 5%, down from 18% in March last year. In September of this year, Scindia announced a 100-day plan for the civil aviation sector, including policy interventions, the development of airports and heliports and the MRO segment.
A draft policy incorporating recommendations made by the segment’s supreme body, the MRO Association of India (MAOI), is also on the anvil.
“Stakeholders in the MRO Advisory Group have given their contributions to the Minister, which will be incorporated into the new policy. The association is confident that the new draft policy will be made public for stakeholder input by January 2022, ”In Pulak Sen, founding secretary general of MOAI, told BusinessToday.
The main recommendations include the abolition of the existing framework of royalties and rents to facilitate foreign investment in the segment by making it competitive.
“Once the policy is formulated and published, it will attract foreign actors to India to settle. But it will take at least three years for this dynamic ecosystem of MRO and support to show results, ”Sen warned.
Take the carrot and stick approach:
However, some within the industry believe that the intention could unravel unless the government grants appropriate tax incentives to end users, i.e. airlines.
“It’s encouraging to hear about the government’s interest in the region. However, a strong financial incentive program needs to be developed as part of civil aviation policy so that it is beneficial for airlines to push OEMs to set up MRO facilities here, ”said Rohit Tomar, partner at Caladrius Aero Consulting.
This would involve a mixture of advantages and penalties. “The process should begin as soon as the Directorate General of Civil Aviation (DGAC) issues type certification to equipment manufacturers. It is during this phase that the aviation regulator and the government have the maximum leverage to gather and access the important design and technical documentation of OEMs, ”added Tomar.
“They can then create an incentive like Malaysia’s Industrial Collaboration Program (ICP) that benefits airlines to make the clauses in their Request for Proposal (RFP) related to domestic capacity development. Finally, the strength of the Indian Competition Commission (ICC) can be used to prevent monopoly and duopolistic OEMs from exercising prohibitive practices against Indian MROs, ”said Tomar.
Considerable effort would therefore be required to get this ambitious endeavor off the ground.
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