Draft policy clears runway for 25-30% cheaper plane servicing

Getting aircraft serviced in India could become 25-30 per cent cheaper than now, if the draft aviation policy's proposals on maintenance, repair and overhaul (MRO) delivers.

Announced by the Ministry of Civil Aviation in October, the draft policy could alter the business potential of MRO of aircraft in India if exploited properly. If approved, aircraft would be allowed to come to India for 180 days without any permission.

Till now, the ministry has refused to allow aircraft to come into India for more than 15 days without a cumbersome approval process from the directorate-general of civil aviation (DGCA). The process usually takes 30 days.

As MRO work takes about 30 to 60 days, getting this approval is essential for any aircraft coming to India for refurbishment. As a result, most airlines chose Malaysia, Dubai, Jordan, Sri Lanka, Singapore and Hong Kong over India, though it has the technical capability and could provide competitive rates.

"It's a bit like not allowing patients from other countries seek medical services in India without a government approval," said a source in the sector.

The draft also allows aircraft to come into the country with passengers, get the checks done and then leave with passengers, so as to not lose out on revenue during its flights.

At present, airlines bringing in A320 or B737-800 model aircraft - that carry 180 passengers - lose about Rs 4 crore (assuming average international fares) flying in and out empty, on the insistence of the government.

Though the proposed amendment will not give India any advantage, it will at least put it on the same footing as competing countries.

The draft policy also plans to remove the 13 per cent royalty payable for MRO work at Airports Authority of India (AAI) facilities. (This is charged only if an airline seeks MRO services at an airport; not for their own repair and maintenance.)

Industry sources joke about it, saying this was like a "privilege for working at an AAI airport".

But its effect on the sector is no joke: the royalty payment has pushed Indian business out of India.

They now prefer to fly a passenger flight to Malaysia or Dubai, do an MRO check and fly people back.

In addition to the revenue, the airline saves up to Rs 50 lakh per check, assuming that a heavy check costs roughly Rs 2 crore.

Delhi airport charges a royalty of 20 per cent and is one of the reasons why so little MRO works happens there.

The draft policy also proposes removing a 14 per cent service tax.

As of now, because of the little MRO work done in the country, the government earns a meagre Rs 70-80 crore annually through this tax (14 per cent of the roughly Rs 500-crore industry).

Industry sources have been trying to argue that a lower tax on a much larger base may in fact be more beneficial for everyone than a high tax on such a tiny base.

In most competing countries - Dubai, Malaysia (a lot of Jet airways aircraft there), Sri Lanka (almost all IndiGo business), Jordan and Hong Kong - MRO business is tax free since it is labour intensive. It creates many white and blue collar jobs.

The policy also proposes removing a 19 per cent import duty on spares and tools.

Vivek Gour, managing director of AirWorks - one of the larger MRO companies in India - said if accepted, the draft could be a game changer. His own firm, which has grown considerably in West Asia and Europe, could move half its business to India over the next two years. Now, it carries out only one-third of its business in the country.