Market Research India - MRO Market in India 2009

MRO Market ‐
MRO Market India
July 2009

Executive Summary

 Airlines maintenance, repair and overhaul (MRO) market valued at USD 970 mn in 2008; Expected
to reach USD 1.17 bn by 2010
Market  India is emerging as the global MRO hub due to its low‐cost and favorable geographical location
 Domestic carriers source MRO services from service providers in Singapore and Europe
Domestic carriers source MRO services from service providers in Singapore and Europe
– Only line maintenance and some other basic checks are done in India

 Drivers:  Challenges:
– Growth in air traffic – High tax regime and regulatory limitations
Drivers &
Drivers &
– Manpower cost arbitrage – Shortage of land and skilled manpower
Challenges
– Increasing fleet size
– Government Initiatives

 Defense Procurement Procedure 2008 provides opportunities for public‐private partnerships
Defense Procurement Procedure 2008 provides opportunities for public‐private partnerships
Government  100% FDI is allowed for greenfield MRO projects through automatic route
policies &  Imported spare parts attract high customs duty
initiatives  State‐level initiatives by various state governments to encourage investors to set up MRO centers
 MRO market is in a nascent stage at present, but it is fast emerging as a competitive segment
O k i i b i i f i ii
 Major domestic players include Air Works India Engineering Pvt. Ltd, Max Aerospace & Aviation
Competition Ltd, Hyderabad Aircraft Maintenance Company
 Foreign players like Lufthansa Technik, Pratt and Whitney, Singapore Technologies Aerospace, Gulf
Aircraft Maintenance Co. are some companies which have shown interested in setting up MRO
Aircraft Maintenance Co are some companies which have shown interested in setting up MRO
centres in India

MRO MARKET – INDIA.PPT 2

•Market Overview
Market Overview
•Drivers & Challenges
•Government Policies & Initiatives
•Competition
•Joint Ventures
•Key Developments
y p


International MRO facilities are running at overcapacity and
looking for low cost destinations to offload work

UK Germany

Southern Central Eastern
France
California USA Europe

North
South
South
Africa India
I di Eastern
E
Mexico Florida
UAE China

Singapore

Indian carriers go to
Singapore or Western
Europe for MRO
Established hubs
services
Emerging hubs

North America & Western Europe contribute to more than 60% of the world MRO market
North America & Western Europe contribute to more than 60% of the world MRO market


MRO market in India is at nascent stage with the potential to
become MRO hub
Market overview Market size & growth
• MRO market estimated to reach USD 1.17 bn 2010
• Many new players, both domestic and international, USD mn
are entering this fast emerging market in India 1,500 +10%
10%
• By 2020, India will be having the potential to service 1,170
1,067
970
a fleet of 1,000 commercial planes and 500 general 1,000
aviation aircraft
•A t f
Apart from commercial airlines, MRO service
i l i li i 500
providers also provide services to the operators of
0
chartered aircraft and corporate‐owned aircraft
2008 2009 2010
Market share by activities
Market Description
Segment
Share
Line Maintenance (A‐Check) 16% • Performed once in every 3‐5 days and done overnight at an airport gate
p ( )
Components (B‐Check) 12% • Performed once in every 8 months and done overnight at an airport gate
y g p g
Engine Maintenance (C – Check) 44% • Performed once in every 12‐18 months at a maintenance base in a hangar
Heavy Maintenance (D– Check) 20% •Performed once in every 4‐5 years at a specialized facility
• Modifications of interiors, cabin electronics, avionics and paint are done
Modifications 8%
when required
h i d


Currently line maintenance and some other basic checks are
done in India
MRO Outsourcing/Offshoring overview MRO Activity by Indian carriers
• Entry of low cost airlines has led to increase in
outsourcing/offshoring of MRO related activities Major portion of
In house
In‐house the offshored
the offshored
• Currently a lot of MRO work is offshored to service activity includes C
30%
providers in Singapore and Europe and D checks
• Only line maintenance and some other basic checks
are done in India
• I di i l k d t th f t
India is looked at as the future hub for MRO activities
h b f MRO ti iti 70%
and huge investments have been made in this sector Outsourced/Offshored
in the past few years

Maintenance Cost in airlines Activity‐based Outsourcing by Indian carriers
Maintenance Line maintenance 90%
Outsourcing MRO
13% (A‐check) 10%
services reduces 2‐
3% of maintenance Components 40%
costs (B‐check)
(B check) 60%

Engine maintenance 30%
(C‐check) 70%

Heavy maintenance 55% In‐house
87% (D‐check)
(D check) 45%
Outsourced
Others costs


•Market Overview
Market O er ie
•Competition
•Joint Ventures
•Key Developments
y p


Drivers & Challenges

Drivers Challenges
Growth in Air Traffic High Tax Regime and Regulatory
Limitations
Manpower Cost Arbitrage Shortage of Land and Skilled
Manpower
Increasing Fleet Size

Government Initiatives


Increase in air traffic has lead to the establishment of MRO
facilities
Growth in air traffic Impact
• Emergence of low‐cost carriers has led to growth in passenger traffic and freight movement
• Boom in aviation sector coupled with better capacity utilization has increased the demand for
MRO services
• Aircraft movement witnessed growth of 11% p.a. from 2006‐09
 Passenger traffic recorded growth of 7% p.a. from 2006‐09 while freight traffic grew by 4% p.a. during the
same period

Passenger Growth in India Freight Traffic growth in India

mn +7%
% ‘000 tonnes +4%
146 141
12 150 137
10.06 127
10 9.36 8.99
8 7.33 100
6
4 50
2
0
2006 2007 2008 2009 2006 2007 2008 2009


Availability of low cost manpower is driving the MRO segment in
India
Manpower cost arbitrage Impact
• Increase in competition with the emergence of low‐cost airlines to service the fleet locally at
reduced costs has given Indian MRO segment a cost advantage
• Since India can offer MRO services at attractive rates due to its low labour costs, many third
party MRO service providers are trying to set‐up their base in India

Manpower cost across geographies
USD/hr
40 38
35
30
30
-60%
60%
25 -50%
20 19
15
15
-19%
10
5
0
Europe USA APAC India


Large fleet orders placed by Indian carriers is attracting
investments in MRO segment
Increasing fleet size Impact
• With the growth in global aviation industry and increase in world fleet size, the demand for
MRO services is also expected to spur
• Indian carriers have placed orders for 344 additional aircrafts in order to increase their fleet size
 By the end of 2010, India’s fleet size is expected to reach 500‐550 aircrafts
• Many OEM players have plans to enter Indian MRO market
 Boeing and Airbus had committed a total of USD 200 mn in setting up MRO infrastructure in India
Boeing and Airbus had committed a total of USD 200 mn in setting up MRO infrastructure in India

World Fleet Size and New Orders Fleet Size and Orders of Indian Carriers
New Orders Carrier Fleet size (2009)
( ) Orders
Size
Si Fleet size (2008)
Fl i (2008)
2009‐2028 NACIL 149 63
Large 870 740 Jet Airways 85 44
Twin Aisle 3,510 6,700 Kingfisher 74 136
Single Aisle
Single Aisle 11,360
11 360 19,460
19 460 Spicejet
i j 21 9
Regional Jets 3,060 2,100 Indigo 21 75
Total 18,800 29,000 Go Air 7 7
Paramount 5 10
Total 362 344


Various initiatives taken by the government is promoting the
development of Indian MRO segment
Government Initiatives Impact
• The government is planning to allocate land at fair lease rentals to encourage the creation of
MRO hubs in the country
• The DGCA had also brought in regulatory changes by allowing graduate engineers and diploma
holders to be employed in MRO facilities
• Major greenfield international airport projects are undertaken and developments are being
made in other domestic airports as well
• Over the next 5 years AAI has planned a massive investment of INR 153.5 bn
 43% of this investment will be for three metro airports in Kolkata, Chennai and Trivandrum, and the rest will
go into upgrading other non‐metro airports and modernizing the existing aeronautical facilities


Tax structure and regulatory limitations are the major challenges
faced by MRO segment
High tax regime and regulatory limitations Impact
• Many foreign players have put on hold their plans to enter Indian market as high import duties
and additional service tax escalates the cost of the venture by almost 50%
• Cost of running operations at MRO hubs like Nagpur, Bangalore, Hyderabad and Delhi is higher
compared to international locations like Dubai and Singapore
• A mandatory C check ,done every 12‐18 months, costs around INR 30 mn in India compared to
INR 20 mn abroad
•IImport duty on spares is exempted from tax for airlines but not for MRO providers
td t i t df t f i li b t t f MRO id
• Import of engineering services is free of customs duty, hence all domestic airline carriers hire
foreign‐based companies for their engineering needs though the same work can be carried out
in India but attracts service tax and value added tax
Tax structure for MRO spares
T t t f MRO Landing charges in India (USD/landing)
L di h i I di (USD/l di )

Description Tax
Malaysia/
Service tax 12.5% 300 350
Singapore
Import duty on spares 34.13%
Value added tax 12.5% India 600 700
Octroi 4%
Lower estimate
Upper estimate


Land scarcity and shortage of skilled manpower acting as
barriers to growth
Shortage of land and skilled manpower Impact
• MRO units are ideally located close to airport and shortage of land near major airports is
becoming a hindrance in the development of MRO facilities in India
• The process of land acquisition is tedious and time consuming
The process of land acquisition is tedious and time consuming
• Due to shortage of land, the real estate prices are extremely high
Average lease rentals in airports
0 100 200 300 400 500 600 700 800
USD/Square metre
Kolkata 300
Chennai 300
Hyderabad 400
Bangalore 500
Delhi 500
Mumbai 800

• Apart from land shortage, MRO players are also facing shortage of skilled manpower to set‐up
MRO operations in India
• A full fledged MRO unit doing all types of checks requires around 35,000 to 45,000 engineers


•Market Overview
Market O er ie
•Competition
•Joint Ventures
•Key Developments
y p


Favourable government policies and initiatives are the key for
the future growth MRO activity in India
Defence  Overhaul of military aircraft is entirely undertaken by government owned Hindustan
Procurement Aeronautics Ltd. Nevertheless, DPP 2008 provides opportunities for outsourcing
Procedure (DPP) maintenance operations through PPP (public‐private partnerships). Of the projected
defense expenditure of USD100 bn in next five years, the offset opportunity for
aerospace sector is significant
USD bn
100 Provides significant
20 6 opportunities for the
50 100 aerospace sector
aerospace sector
0
Defence expenditure Military aircraft Offset for civil sector

 For greenfield projects, 100% FDI allowed through automatic route in helicopter and
FDI Policy seaplane operations and establishment of maintenance, repair and overhaul facilities
p p , p
but subject to sectoral regulations

Custom Duties & × 34.13% customs duty on imported spares  and 12.36% service tax on the value of the
Taxes repair service is encouraging airlines to send parts abroad for repairs and get them back
duty‐free
duty free

 Gujarat Government  floated a company, Gujarat Airport Infrastructure Company, to
State level execute development work needed for setting up airports and MROs
initiatives  Madhya Pradesh to provide 7000 acres of land for setting up India’s first aviation city
that includes MRO facilities and a cargo hub. The cost is expected to be USD 5 bn for
th t i l d MRO f iliti d h b Th ti t d t b USD 5 b f
this facility


•Market Overview
Market O er ie
•Competition
•Joint Ventures
•Key Developments
y p


Indian MRO space is emerging as a competitive space with large
investments from many foreign players
Competition Aircraft Maintenance Relationships
• MRO space in India is at a nascent stage with few
Airline Line Maintenance Component repair
domestic players
(
(A‐check)
) (B check)
(B‐check)
• Many foreign players are planning to enter the
market Air India Air India Air India
• Many projects in the pipeline are about to complete Jet Airways JAECO JAECO
and operations will start by 2011
Kingfisher Indian Airlines Indian Airlines
• Ai I di J t Ai
Air India, Jet Airways and few others have their own
df th h th i
facilities for line maintenance and basic repairs and Spicejet Hamilton Hamilton
also offer service to other airlines Indigo Air Indigo Air Rockwell Collins
• Domestic airlines source MRO services from service
Go Air Go Air Sahara/Air India
providers in Singapore and Europe
providers in Singapore and Europe
• Most of the line maintenance activities are carried in‐ Paramount Paramount GE
house in India but majority of C and D checks are Air India & Indian Airlines got merged and formed NACIL; Sahara merged with Jet
Airways
done outside India
Outsourced/Offshored In‐house
Expected Entrants in Indian MRO
Expected Entrants in Indian MRO
• Lufthansa Technik, • Singapore Technologies
• Pratt and Whitney Aerospace Ltd Air India got permission to carry C‐check for Boeing 777 in
• GE • SIA Engineering Co. India recently
• Jordan Aircraft • Israel Aerospace Industries Ltd
Maintenance Ltd • Gulf Aircraft Maintenance Co.


Domestic Players (1/3)

Company Business Description
• Established in 1964
• Headquartered in Bangalore with divisions in Nashik, Lucknow, Hyderabad, Korwa, Koraput
Hindustan Aeronautics
Hi d t A ti and Kanpur
and Kanpur
Limited (HAL) • Services include line maintenance, overhaul and repair services relating to engine segment
• HAL provides its services to the Indian Air force and Pavan Hans
• HAL plans to foray in to civil aviation sector and recently formed a joint venture with Pratt &
Whitney for setting up an MRO, the deal is kept on hold for time being
• HAL plans to turn the old airport in Bangalore to a commercial MRO for civil aircraft. The
airport has hangars, fuelling and other necessary infrastructure for an MRO unit
• Headquartered at Mumbai International Airport with additional facilities in 9 airports
around the country (New Delhi, Bangalore, Chennai, Hosur, Pune, Baroda, Jakkur, Madurai,
Air Works India Jaipur)
Engineering Pvt. Ltd • Services offered include airframe maintenance, structural modifications, avionic upgrades
and a paint shop
• Authorized Service Center for Agusta Westland Bell Helicopter Bombardier Gulfstream and
Authorized Service Center for Agusta Westland, Bell Helicopter, Bombardier, Gulfstream and
Honeywell
• 75 plus aircraft under maintenance
• Air India Express, Reliance, Birla, Essar are few of their clients



Max Aerospace & • Headquartered in Mumbai and has representative offices in New Delhi, Goa and Bangalore
Aviation Ltd
Aviation Ltd • Services offered include Avionics Electrical wiring inspections and Air frame services
Services offered include Avionics, Electrical wiring inspections and Air frame services
• Jet Airways, Kingfisher, Blue dart, Paramount, Spice jet, Pavan Hans are few of their clients

• Located in Hyderabad
• Services offered include avionics, electrical wiring inspections, airframe, engine changes and
Hyderabad Aircraft
other maintenance services
Maintenance Company
• Developing an Aero Zone in Hyderabad spread across 250 acres, which would provide one
stop MRO services

• Established in 1945 to serve the general aviation industry in India
Indamer Co Pvt. Ltd • Located in Mumbai
• Exclusive distributor for Raytheon Aircraft
• Services include line maintenance phase inspections electricals avionics etc
Services include line maintenance, phase inspections, electricals, avionics etc.
• In Jan 2009 European Aviation Holding Co. Pvt Ltd acquired Indamer Pvt. Ltd.
 One of the directors of European Aviation Holding Co. Pvt. Ltd. is also the Chairman of Max Aerospace



• Headquartered in Hosur, Tamilnadu and has corporate office in Bangalore
Taneja Aerospace &
Taneja Aerospace & • Tied up with Air Works Commercial MRO Services Pvt Ltd to lease seven acres and up to
Tied up with Air Works Commercial MRO Services Pvt. Ltd to lease seven acres and up to
Aviation Ltd. (TAAL) five hanger space as part of a strategy to develop its private airfield as an MRO and
aviation park
• It also got DGCA Maintenance approved under CAR 145 for maintenance of Aircraft of
difference types
• Owned by Jupiter Capital
• Located in Yelahanka, Bangalore
Jupiter Aviation & • Entered in to aviation projects including MRO facility, Flying school and Charter airline
service
Logistics Pvt. Ltd
• Si d
Signed an agreement with the European Aerospace and Defence group (EADS) to set‐up
t ith th E A dD f (EADS) t t
an MRO for Airbus aircrafts, also to set‐up four aviation schools to train 150 pilots and
1200 aircraft maintenance engineers annually


•Market Overview
Market O er ie
•Competition
•Joint Ventures
•Key Developments
y p


Joint‐Ventures (1/3)

• Date of JV: Yet to be announced
• Pratt &Whitney Canada (P&WC) is interested in starting an MRO shop for aircraft engines along
with HAL in Bangalore
• The MRO centre would service about 150 aircrafts every year and initially plan to start with 50
engineers
• HAL also planned to invest in a venture to manufacture engine components at its Koraput
division in Orissa
• P&WC would take care of tooling process for this venture by providing technical support
including training and quality audit of the facilities
including training and quality audit of the facilities
• HAL expected to generate USD 50 mn annually from this venture

• Date of JV: Feb 2009
• GMR Hyderabad International Airport Ltd (GHAIL) has formed a joint venture with MAS
GMR Hyderabad International Airport Ltd (GHAIL) has formed a joint venture with MAS
Aerospace Engineering for setting up a state‐of‐the‐art aircraft MRO facility in the airport
premises
• The project would cost about USD 100 mn and and the time frame to launch the first phase is
18 months i.e by around August 2010
• The facility is spread over 25 acre land and would be equipped to service about 60 to 80
aircrafts annually
• GHAIL is planning to offer aviation training, aerospace engineering and high value services,
including design at the special economic zone adjacent to the airport
• About 72 trainees were sent to Malaysia for onsite work and development as licensed aircraft
About 72 trainees were sent to Malaysia for onsite work and development as licensed aircraft
engineers



• Boeing to invest USD 185 mn in a joint venture with Air India to set‐up an MRO facility in
Nagpur
• This is an industrial offset agreement between the firms, made in Dec 2005, when Air India
placed one of the largest commercial aviation order in India with Boeing
• Construction of the MRO centre at Nagpur will start in fourth quarter of 2009 and expected to
be completed by 2011
• The MRO would service majorly the heavy maintenance work for wide‐bodies such as Boeing
777s and 787s and two aircraft hangars will be constructed with each one capable of
777s and 787s and two aircraft hangars will be constructed with each one capable of
accommodating one Boeing 747

• Date of JV: Oct 2008
• NACIL and EADS signed a joint venture agreement to set up an MRO facility at New Delhi’s
Indira Gandhi Airport
• It is a five year project with a cost of USD 40 mn and the MRO would be a member of the
Airbus MRO network
Ai b MRO t k
• The centre is to employ about 300 technical personnel and would undertake airframe
maintenance and repair of NACIL Airbus aircrafts
• Plans to extend MRO facilities subsequently to other aircraft models and airlines



• Joint Venture between Taneja Aerospace and Aviation Ltd (TAAL) and Sabena Technics is to
develop an independent MRO facility in Hosur, Krishnagiri District
• The plan is to target regional turboprop aircraft like ATR42/72 in the initial stages
p g g p p / g
• Airbus A320 and Boeing B737 series will be added to the portfolio at a later stage
• TAAL has its own private airfield in Hosur, where it has manufacturing and aircraft maintenance
facilities including hangars

• Date of JV: Jul 2006
• The joint venture has identified eight airports to provide line maintenance services to aircraft
• It also plans to form an aerospace academy that can provide training to about 100 technicians
and 50 engineers
• The initial investment in the MRO would be about USD 32 mn which will provide services at
airports in Mumbai, Delhi, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad and
Thiruvananthapuram
• The services are provided to Go Air (Wadia Group) aircrafts initially and later would be
expanded to other airlines
• The MRO plans to expand the facility to around 25 to 30 airports across the country by 2011


•Market Overview
Market O er ie
•Competition
•Joint Ventures
•Key Developments
y p


Key Developments

Date Development
Jun 2009 Deccan 360 signed a 10 year contract with Lufthansa Technik , an MRO company of German aviation group,
for supply of components, repair and overhaul of the Airbus A310 freighter aircraft fleet.
Feb 2009
Feb 2009 Duke Aviation laid foundation stone for its MRO facility at Nagpur SEZ . It is an INR 7.5 bn project spread
Duke Aviation laid foundation stone for its MRO facility at Nagpur SEZ It is an INR 7 5 bn project spread
over 36.5 acres of land and is expected to start functioning within two years
Jan 2009 European Aviation Holding Co. Pvt Ltd. Has acquired the leading Mumbai based MRO firm Indamer Co Pvt
Ltd. This move comes as a major consolidation in MRO segment in India. One of the director of acquirer is
chairman of MaxAerospace
Jan 2009 Air India becomes the third airline in Asia to acquire “C‐check” capability on Boeing ‐777 aircraft. In‐house
C‐check would save about USD 4 mn for the airlines according to Mr. Unni, SBU Head (Engineering), NACIL
Nov 2008 Aviation service provider Air Works started operations at its Hosur MRO facility and is planning to employ
about 300 aircraft engineers
Oct 2008 Madhya Pradesh to provide 7000 acres of land for setting up India’s first aviation city that includes MRO
facilities and a cargo hub. The cost is expected to be USD 5 bn for this facility
Jul 2008 Jupiter Aviation has signed a memorandum of understanding with UK‐based operator Marshall Aerospace
for cloning its facility in Cambridge for the Hassan aviation cluster. Jupiter Aviation plans to make Hassan a
World‐class aviation lifecycle support centre, built in a 2,500 acre facility with a project cost of USD 600 mn
Jun 2008 Lufthansa Technik have suspended plans to set‐up MRO facility in Hyderabad. Earlier it planned for a JV with
GMR group to invest USD 200 mn for an MRO at Rajiv Gandhi international Airport, Hyderabad
Apr 2008 Jet Airways signed a land‐leasing agreement with the Bangalore International Airport Limited (BIAL) for
setting up an MRO facility for both wide and narrow‐bodied aircraft


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Market Research India - MRO Market in India 2009

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