Estimates by credible agencies hold that in the civil aviation industry in India today, the aircraft maintenance, repair and overhaul (MRO) business is currently worth under $1 billion which is less than two per cent of the $50 billion global MRO market and has the potential to grow to over $2.5 billion by 2020.

However, lack of a favourable policy framework is proving to be a major impediment in the efforts of this extremely critical segment of the aviation sector to exploit the potential that the vibrant civil aviation industry has to offer. Currently, the MRO industry in India is groaning under the burden of complex, heavy and multitiered tax structure, exorbitant customs duty on import of spares or components and high royalty charged by airport operators. Apart from these, other issues impinging on the growth of the industry are absence of an industry regulator, shortage of space at major airports, lack of quality institutions to provide trained manpower and high attrition rate of skilled labour due to the growth of MRO activities in the region. Also, despite the optimistic growth projections of the industry, the Directorate General of Civil Aviation (DGCA) has not yet streamlined the process of certification of technical training. The existing system of certification by the DGCA does not measure up to the standards laid down by the European Aviation Safety Agency (EASA), thus effectively excluding international carriers from the list of potential customers of the Indian MRO industry. EASA certification is necessary as the fleet of airliners manufactured in Europe and the US dominate the Indian airline industry. One of the major stumbling blocks is that some of the government policies do not offer much clarity and this becomes a frustrating bureaucratic hindrance for those within the country and even abroad desirous of setting up MRO facilities in India. The maze of statutory requirements and bureaucratic timelines prevent MROs from keeping pace with the growth in the aviation industry in India.

The combined effect of all these factors is that it neutralises the advantage of low-cost labour in India and renders initiatives in this segment of the industry by entrepreneurs somewhat uncompetitive. Tax burdens on the customer is so high that the Indian carriers find it financially far more attractive to avail of MRO facilities overseas as they save up to 30 per cent on maintenance costs. Unfortunately, the Indian MRO industry has not been able to exploit the inherent advantage of India’s geographic location between Europe and the Asia-Pacific region. Some experts in the industry are of the view that the private companies that have invested huge resources in setting up MRO facilities in India may not remain economically viable for long and may have to wind up. As per Bharat Malkani, Chairman and Managing Director of Max Aerospace and Aviation Pvt Ltd, “The single largest problem faced by Indian MRO companies is the non-availability of level-playing field. While import of services is totally free of duties and taxes, Indian MRO companies are straddled with levies to the extent of 40 per cent.” As per Malkani, a number of MRO firms operating out of Bengaluru have already ceased functioning and those still in the field are literally struggling to survive. Also, European companies that were intent on establishing MRO facilities in India have put their plans on hold.

As per Amber Dubey of the aviation consultancy firm KPMG, on account of the skewed cost structure, India is losing not only foreign exchange and investments, but valuable opportunities in this sector of the aviation industry. Dubey is of the firm view that the first requirement is to remove the anomalies in the tax structure. There is definitely the imperative need to eliminate or even minimise bureaucratic impediments and make the regulatory process less convoluted and cumbersome to facilitate speedy processing of cases. Induction of technical personnel from the industry with the right expertise to help streamline the regulatory process, ought to have high priority. Amongst the list of priorities that KPMG has drawn up for the new government at the centre, the plight of the MRO industry in India figures high. KPMG has recommended a ten-year tax holiday on MRO and provide incentive to the global aerospace majors to establish component manufacturing and MRO units in India. The government needs to adopt the Singapore model of creating an environment that attracts global aerospace industry.

While the nation has high hopes of the new government, the task before it in the civil aviation regime is formidable indeed. However, no achievement of significance would be possible without creation of a businessfriendly environment that would include an efficient regulatory framework, rational tax structure and a bureaucracy with a clear mandate to deliver.