Page 33 - CII Artha Magazine

Sector in Focus

Industry government has taken several the aircraft systems. Besides, forge strategic partnerships, measure, the central and state Enhancing We believe that to address cent to 28 per cent,
Meanwhile, as a short-term
proactive steps. The MRO
there is a regulatory overhang
collaborations and acquisitions
including engine
these concerns, the
Potential Guidelines 2021 provide a wherein the MRO providers for building better state of the The Future of Governments may consider India's MRO Government can consider components, which
hampers the industry's
clutch of initiatives for one it
reducing the excise duty and
several steps.
art technology for engines,
must comply with numerous
provides security of tenure regulations and standards of landing gear and major Value-Added Tax (VAT) on ATF, competitiveness.
As per industry estimates, the and transparency of land different countries. The components maintenance. The respectively. This will provide Capabilities • While airlines enjoy
size of the industry, pegged at leasing through open tenders, non-recognition of Indian availability of a huge pool of Indian Aviation: relief to airlines, fostering a customs duty exemption, • Developing policies such
US$1.7 billion in 2021, is exemptions on airport standards by foreign talented IT professionals should healthy aviation ecosystem, components and spares as Production-Linked
expected to touch US$4.0 royalties on all AAI airports, counterparts, sub scale give us a heads-up in avionics. and boosting tax collections. As India's skies swarm with an required for MRO Incentives (PLIs) for
billion by 2031 registering a for establishment of MRO operations, inadequate capital Lower tax rates on ATF expanding fleet, robust continue to attract full components and spares,
CAGR of 8.9 per cent as facilities etc – to develop India investments, low value MRO companies will have to be Challenges and stimulate passenger numbers, maintenance, repair, and duty, making Indian MROs along with tax waivers and
compared to the global as a global MRO hub and addition, lack of ecosystem for future ready, frugal and efficient resulting in increased revenue overhaul (MRO) capabilities less competitive. priority sector lending, can
average of 5.6 per cent. This attract investments to the spare parts, among others can and will need to shift to a digital and socio-economic growth are now imperative. Ensuring incentivize capital
reinforces the potential of sector. be a challenge especially for first operating model which for states. aircraft safety and reliability • A 0 per cent customs investments in the MRO
India to become a significant small players with limited could enhance operational demands significant duty and expedited sector.
regional MRO hub and Similarly, the National Civil resources. efficiency, improve service Pathways to investments in MRO customs processing for
gradually strive to establish its Aviation Policy 2016 and other quality, ensure transparency with Financing and infrastructure and expertise. these critical components • Co-recognizing DGCA
foothold in the global supply measures like providing Further, the market structure stakeholders with real-time This effort not only enhances may be considered. regulations through
chain. infrastructure status to the promotes taking an aircraft tracking and aid in manpower the Cape Town safety but also fosters job bilateral agreements and
MRO sector, rationalisation of abroad for lucrative jobs such development. Sustainable creation and technological • Ensuring that there are no memorandums of
Indian carriers account for GST, removal of Gross as maintenance checks and Convention advancement in the aviation restrictions on Goods and agreement between FAA
one of the largest order books Turnover Tax (GTO), treating overhaul given that the Indian There is a need for creating a sector. Services Tax (GST) input and EASA can streamline
of aircraft manufactures. With transactions sub-contracted by fleet is lease based. This is a talent pool with cutting edge credits for Indian airline regulatory processes.
the 470 aircraft on order by foreign OEMs and MRO lost opportunity for the Indian technological and engineering Growth As India embraces this aviation Presently, MRO is customers can significantly
Tatas (Air India) and another companies to domestic MROs MRO sector. capabilities. For this incremental boom, the need for decentralized because no support the MRO sector. • Establishing guidelines and
500 aircraft by IndiGo, the as exports with zero-rated steps such as joint ventures with infrastructure and policies to single entity controls all policies to facilitate
Indian aviation sector is poised GST, waiving custom duty on established global MRO players, sustain growth is evident, given aspects, and critical segments • It is essential to confirm convergence between civil
for exponential growth that tools, toolkits and spares Way Forward focus on MRO segments with the impending arrival of over are contractually governed by that MRO services and defence MRO sectors
provided to foreign
OEMs. While India handles line
will ensure the efficient
Introduction airframe maintenance will inevitably create a imported by MROs, and lower IP control (electrical and 2,700 new airplanes. As lessors and hangar maintenance (Less aircraft flying into India, utilization of available
play an expanding role in
significant demand and market
electronics, avionics, structural
permitting 100 per cent
functions. However, the major
even for transit purposes,
segment of MRO operations for repair and maintenance Foreign Direct Investment The Government has taken repair, etc.) and a gradual shift India's aviation, considering than 20 per cent of total MRO are zero-rated for GST. infrastructure and capacity.
expenditure), over 80 per cent
e-commerce drives demand
he maintenance, repair, i.e., engine and component capability within the country. (FDI) through the automatic proactive measures and many towards the higher end of the T he Indian domestic India's burgeoning middle for narrowbody conversions, Navigating robust financing mechanisms is goes abroad, primarily for This aligns with facilities in In summary, as India's aviation
of the constraints faced by the
and overhaul sector MRO services which are In fact, according to industry route, etc. are some of the MRO industry have been MRO value chain (such as passenger air traffic has class with increasing paramount. However, a critical component and engine competing hubs like Dubai sector ascends to new heights,
(MRO) ensures the safety and capital intensive and fiercely reports, India is poised to be other key interventions to addressed and steps taken to manufacture of landing gears, not only rebounded but has disposable incomes fuels the and the expansion of India's Aviation Fuel challenge lies in the absence of maintenance. India missed the and encourages foreign it's crucial to prioritize
airworthiness of aircrafts restricted by OEMs through the third largest civil aviation attract investments to the boost the sector. As the sector etc.) need to be taken. already surpassed demand for air travel, both electronics manufacturing India's ratification of the Cape opportunity to localize these carriers to choose India financing mechanisms, taxation
through repair, service, and IPRs are largely procured from market in the world by 2026, sector. pre-pandemic levels, domestically and industry, especially in Taxation Town Convention, impacting services a decade ago, for MRO services. policies, and MRO capabilities
inspection. Moreover, it abroad. Hence, about 80-85 which clearly throws up evolves, further interventions There is thus strong case for the showcasing the pent-up internationally. This prompts higher-value segments, fuels the leasing environment. resulting in their establishment to sustain this remarkable
may be required to propel
constitutes the second highest per cent of MRO sufficient opportunity for growth in the sector. However, Indian MRO sector to build scale demand for travel and the airlines to expand their fleets, cargo demand. The Indian High taxes on Aviation Turbine Without this ratified treaty, in multiple foreign locations. • Ensuring a 0 per cent journey. Striking a balance
cost of operation of airlines requirements in India are growth and expansion of MRO Challenges at this point of time it is for to effectively compete industry's adaptability. India's benefiting aircraft Government's regional Fuel (ATF) in India present a creditors lack priority in case The primary challenge lies in airport royalty policy at all between growth and strategic
after ATF. As such, the currently met through imports facilities in India. the private corporate sector internationally for which it commercial aviation market is manufacturers, maintenance, connectivity schemes open up multifaceted challenge to the of airline insolvency. This component and engine MRO, Government-owned investments and policies will
development of indigenous or done abroad. This only should tie up with large scale set to become one of the repair, and overhaul (MRO) underserved markets, making domestic airline industry. ATF scenario introduces a level of where most spending occurs. airports is essential. ensure that India's aviation
capacity in MRO sector shall underpins the need to develop The availability of a rich and Due to various historical to leverage the conducive anchor companies to take a lead world's top three by 2041, providers, and related service air travel accessible to a accounts for a substantial risk for creditors who may However, new aircraft models Negotiating a similar narrative continues its upward
policy sphere and India’s
reasons and the trade
play a pivotal role in and channelize domestic diverse pool of skilled practices of the global OEMs dominant position in the in the global market. with a fleet size nearly industries. The broader population. portion of airline operating face potential loss of their driving local repair stations are policy at major privatized trajectory, delivering benefits
revitalizing the Indian aviation capabilities in the segment. workers, engagement with the MRO players in India face global order book of the quadrupling since 2019. growth in Additionally, India's positioning costs, sometimes reaching as investment should an airline a decade away. Efforts to hub airports will further not only to the industry but
sector and shaping its growth. redelivery maintenance formidable challenges which aircraft manufactures, to seize To conclude, the MRO sector in According to the Boeing as a global manufacturing hub high as 40-45 per cent, in default on loan or lease bolster India's MRO incentivize the sector. also to the nation's economy
The presence of an efficient contracts and favourable come in the way of the the opportunity. First, the India is presented with a huge Commercial Market promises increased investment contrast to global payments, resulting in capabilities, especially in and its people.
MRO sector would be critical policy interventions of the sector’s growth. For instance, existing players need to opportunity to support the Outlook 2023, South Asia in aerospace manufacturing. counterparts with fuel costs in significantly higher leasing components and engines, are • Implementing a minimum
for the sustainability of the government shall be further Indian MROs find it difficult to expand the MRO capacities to growth of Indian aviation. India is about to welcome over the range of 20-30 per cent. rates for the Indian airlines. essential to support the GST rate on spares and
aviation industry and in the catalysts for spurring growth establish a presence in the India to cater to the large shall surely seize this golden 2,700 new airplanes in While India's civil aviation These high taxes strain While the Indian Government growing aviation sector, create components used for
process it would create wealth of the domestic MRO sector. existing global value chains number of aircrafts under opportunity to eventually the next two decades, sector outlook is promising, it airlines' financial viability, is contemplating the jobs, and enhance MROs is crucial. The
and employment in the comprising OEMs, established order and make provisions for emerge as a global hub for with 90 per cent destined faces some challenges amid potentially leading to reduced ratification of the Cape Town technological prowess. current effective GST
country. Policy MROs and airline operators. more land to be acquired for aviation maintenance. The for India. This growth rapid growth. As the industry margins, exit from few routes, Convention, a clear timeline often ranges from 15 per
aims for new heights, it must
for this process remains to be
projection also demands
question is not Will? It is When?
The MRO sector has four Initiatives Moreover, due to the brain the development of additional approximately 37,000 pilots navigate a complex airspace of and fare hikes, hindering the determined.
sector's growth. To alleviate
airport infrastructure,
drain to the middle East
major segments namely- line, impediments are also faced including the creation of MRO and 38,000 mechanics in the obstacles. this issue, the Government
components, engines and due to paucity of experienced facilities at the site. region, largely led by India. may consider bringing ATF
airframes maintenance. Of Responding to the pressing engineering, design and under the GST regime at an
these four segments, the requirements for a robust technical manpower who can The time is now ripe for the optimum rate.
Indian MROs are competently MRO sector to support the negotiate the complexities of domestic MRO industry to Mr Salil Gupte, Chairman, CII Aerospace
performing the line and aviation industry, the Committee & President, Boeing India
32 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 33
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
SEPTEMBER 2023 SEPTEMBER 2023