New Delhi: New Delhi: According to a report by research agency CRISIL Ratings, released Monday, the revenues of domestic maintenance, repair and overhaul (MRO) services providers in the aviation sector are expected to triple from around Rs 1,800 crore currently to Rs 5,500-6,000 crore by fiscal 2028.
This increase in revenue will be driven by factors such as the expansion of airplane fleets, favourable policies and ongoing investment in airports, says CRISIL.
According to the report, the demand for MRO services, which correlates highly with the size of aircraft fleet, will get a shot in the arm from substantial orders that airline operators have placed to purchase aircraft. The domestic fleet — around 700 units as of March 2023 — is expected to be more than 1,000 units by 2027, it added.
“Consequently, the overall amount spent by Indian airlines on MRO services (both domestic and global) is projected to surpass Rs 25,000 crore by 2028 from around Rs 14,000 crore levels last fiscal,” the report said. It added that opting for domestic MRO services is generally considered cost-effective in terms of fuel and logistics and saves time as well.
MRO services comprise activities such as inspection and maintenance of aircrafts and its components, including engine and airframe, to ensure availability and airworthiness of aircrafts.
CRISIL’s report is based on the study of three MRO services providers which account for more than 90 per cent of the industry’s revenue, the agency said.
“The domestic MRO industry’s penetration rate is expected to reach 22-24 per cent by fiscal 2028 from 12 per cent at present, piloted by the less-complex line-maintenance services,” said Ankit Hakhu, Director, CRISIL Ratings, in a press statement. “The engine and component maintenance segment, where global technical companies are investing to develop local capability, should also see penetration improve.”
Noting that the revenue of domestic MRO providers has been minuscule so far, the research agency added that revenue per domestic aircraft for Indian operators is less than Rs 5 crore against more than Rs 400 crore in Singapore, which caters to demand from other countries, including for aircraft from India.
“The government has introduced several policies over the past year to realise its vision of making the country a global MRO hub,” said Varun Marwaha, Associate Director, CRISIL Ratings, in a press statement. “The upshot of these will be a 10-20 per cent reduction in the overall cost of MRO services.”
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Capacity additions have begun
To boost investments in the sectors, the government had announced a new policy for MRO services in 2021. As reported in the media, the updated policy allowed for allotment of land at Airports Authority of India (AAI) airports through open tenders instead of predetermined rates, and also did away with the levying of any royalty or cess on MRO operators.
Additionally, the allotment of land to MRO service providers is now done for 30 years instead of the earlier three-to five-year time period. In March 2022, the government announced a reduction of Goods and Services Tax (GST) on MRO services — down from 18 per cent to 5 per cent.
Crisil pointed out that capacity additions have already begun and the Delhi and Bengaluru airports have set up dedicated MRO facilities for select private airlines, with more underway. It added that plans are also afoot to establish two MRO facilities near the new Jewar airport in Uttar Pradesh, and more facilities are planned to come up at the Belagavi (Karnataka), Bhopal (Madhya Pradesh) and Tirupati (Andhra Pradesh) airports.
“All these developments are expected to lower costs and increase demand for domestic MRO service providers…with these positive developments, their financial metrics are expected to receive a boost. That said, macroeconomic uncertainties, timely capex completion, transfer of critical technical knowhow and developments within competing MRO markets will be monitorable,” the report added.
(Edited by Zinnia Ray Chaudhuri)
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