Date:14/04/2006 URL: http://www.thehindubusinessline.com/2006/04/14/stories/2006041401000700.htm

Back MRO sector braces up for consolidation

Amit Mitra

India may see benefits of aviation boom

Fuelling growth
While some MRO companies are mulling setting up shop in India, others are on the look out for joint ventures and strategic alliances with Indian companies in the MRO space.
The surge in air traffic in India, fuelled by the emergence of low-cost carriers, has perked up fleet utilisation.

Mumbai , April 13

While the $500-million Jet-Sahara deal is believed to have set the pace for consolidation in the Indian aviation sector, a segment within this industry, the MRO (maintenance, repair and overhaul) segment, is also revving up for significant consolidation in the months to come, fuelled by a surge in demand.

The estimated $800-million MRO market within the aviation sector is, indeed, set to balloon, with independent foreign MRO companies eyeing India as a potential destination. While some MRO companies are mulling setting up shop in India, others are on the look out for joint ventures and strategic alliances with Indian companies in the MRO space.

Big names

After Boeing's proposed Rs 450-crore MRO facility in India, other companies such as Singapore Airlines, ST Aerospace, Lufthansa Technik of Germany and El Al Israel Airlines Ltd are also looking seriously at the growing MRO market in the country, industry sources say. Even engine manufacturers, such as GE, Rolls Royce, Snecma and Pratt & Whitney, are considering setting up MRO facilities in India, according to the sources.

"With the expansion of the aircraft fleet, the third-party MRO service segment is bound to open up tremendous business opportunities. A few years from now, India may well become a major outsourcing hub for global aviation players," says Mr Subhranshu Sekhar Das, Frost & Sullivan's Industry Manager and a MRO analyst.

Normally, about 20 to 30 per cent of the cost of operating an aircraft is spent on MRO services. The surge in air traffic in India, fuelled by the emergence of low-cost carriers, has perked up fleet utilisation. And this in turn is spawning the growth in the MRO market, which, till a few years ago, had been largely within the Government domain in India. "The Indian MRO market is growing at about 8 per cent annually. In fact, the entire Asia-Pacific aircraft and engine MRO market totalled $8.71 billion in 2005 and is estimated to touch $12.90 billion in 2011. India can be a major player in this segment because of its skilled labour," Mr Das points out.

Growing market

However, significant capital investment with risk costs and extended return on investment make setting up of independent world-class MRO facilities a challenge. Despite this, the first airframe heavy checks and engine overhaul in 2006 and 2007 will contribute significantly to the growth of these markets in India and the Asia-Pacific region, industry analysts say.

Foreign tie-ups

As the Indian MRO players have not yet developed the required expertise and capabilities to handle the requirements of the Indian carriers, they are looking for tie-ups with global players. "Initially, hand holding with foreign players is required, so that there is transfer of technology. But I feel allowing 100 per cent FDI in a strategic sector such as the MRO sector is not the right path to follow. The Government should put a cap of 49 per cent on foreign investment in this sector," says Mr Bharat Malkani, Chairman of Max AeroSpace & Aviation Ltd.