The maintenance, repairs and overhaul (MRO) industry in Indian aviation is losing business to counterparts in Dubai, Singapore and Sri Lanka, despite India being one of the fastest growing markets in the sector, due to the high-cost environment. Vivek N Gour, managing director of Air Works India Engineering, founded a little over 60 years earlier, talks to Disha Kanwar on these issues. Edited excerpts:
What can the government do to address the structural issues of a high-cost MRO environment?
We are serving in a very high-cost environment, compared to Sri Lanka, Kuala Lumpur, Singapore or Dubai, where there is no service tax or customs duty.
The only foreign direct investment (FDI) that has come in India has been in Air Works. We have two private equity investors, New Enterprise Associates and GTI Capital Group, which invested around $30 million.
No investor will come to India just because India allows you to invest. First, Airports Authority of India needs to change its policy on providing land to MROs on a long-term lease. The FDI that has come to Air Works is because we have got access to a private airfield, in Hosur (near Bangalore). The land is on a 25-year lease from Taneja Aerospace and the size is enough to build five hangars. Second, the customs duty of 20 per cent on spare part costs needs to be done away. When an MRO imports spares, customs duty is levied unless you consume the spares within 90 days. There are millions of parts inside an aircraft and we look after 50 different types of planes. It is not possible for us to judge if the part will be used in 90 days or not. So, we ask the customer to get the parts.
Doing away with customs duty will save 20 per cent of the cost of the spare parts and the overall cost advantage will be 10 per cent. A typical Boeing 737 check costs $400,000-500,000. Even if we save 10 per cent, over a fleet of 50 or 100 aircraft, it will be a huge saving in such a cost-sensitive industry.
What is your clientele and how do you woo them in such a high-cost environment?
Jet Airways and GoAir are our main clients. Kingfisher was a longstanding one till their recent problems. We still get business as we give faster turnaround, we are in the country and we run two shifts. In business jet categories, we have 25 per cent of the business and a little less than 10 per cent of business in commercial planes.
Air India will be starting its own MRO. Is that a potential threat?
Not at all. AI already have their own MROs, in Delhi and Mumbai, already doing their own work. The only thing is that they are coming up with a new facility in Nagpur. It is not that a new competitor has come up.
We are already handling more fierce competition with Singapore, Dubai, Kuala Lumpur, etc. At least, we will be on a level playing field with AI, with the same service tax and customs duty.
What aircraft management services do you provide?
We have acquired Empire Aviation in Dubai, in this business. We opened a facility in Bangalore in December, catering to the segment owning business jets. People owning a jet do not want the hassle of running a miniature airline, as a great deal of infrastructure at the back office is required to fly just one aircraft. We provide AMS to them. We just need a four-hour notice and we arrange pilots, navigational approval, refuelling, approvals for landing and parking, etc. All the hassle regarding dealing with staff, getting insurance and looking after the jet when it is parked is with us. Usually, we train our pilots on several different aircraft, so that we can switch them and, hence, get the benefits of scale. If, for any reason, your aircraft is not available, we will provide one of similar calibre.
What is the potential of this service in India & Dubai and how much cost advantage does a businessman get?
There is around 10-15 per cent cost advantage and a lot of of hassle that one saves. The average cost of managing a business jet is around Rs 10 crore annually and our service will cost Rs 8.5-9 crore. Currently, India has about 150 business jets, 200 business turboprops and 200 business helicopters. The market here is more cost-sensitive; we have to run a tighter shift and more efficient costing to provide this level of service, vis-à-vis other countries. Right now, we are handling one aircraft and in the next three years, we want to grow it to 25.
In Dubai, we handle 20 aircraft. There is potential to grow it by another 10-15 aircraft in the next two to three years. The larger ones might go for their own service’s cost advantage but if you own just one business jet, it is a very good service to take.
