Mumbai
Mumbai
India is a land of opportunities even though it has a population of 1.33 billion. It has immense growth potential in Aviation sector as well. During the 2005-2006 periods, the country had around 300 aircrafts which has increased over a period. With the aggressive order by Indigo Airline &SpiceJetfor a greater number of aircrafts there has been a substantial increase in the aircraft numbers today despite closure of Jet Airways. The complete aviation industry of the country today has around 643 aircraft (Source: List of scheduled operators, DGCA). This is an abysmal low count when compared to China which has more than 3500 aircrafts serving 1.39 Billion and USA which currently has a fleet of 7309 aircrafts serving a population of 0.329 Billion. The point to be noted here is that with 1.33 Billion populationsthe demand for travel by air route in India is expected to grow tremendously because of its geographical spread and increasing purchasing power of Indian common man. With an increase in the number of aircrafts in the Civil Aviation Sector, we can expect allied industries to grow as well. For example, MRO industry which is hardly present in the country is expected to grow on a large scale. Currently, the entire MRO industry is a $150 million industry and has the potential to grow over $1.5 billion(with current fleet size) if India promotes its MRO industry and push for indigenization. The current government in India emphasizes on ‘Make in India’. We can, therefore, expect MRO industry to get its due recognition in Indian aviation industry.
MRO stands for maintenance repair overhaul of aircraft components. Currently, 90% of the activities required for this industry (MRO) is carried out in other countries due to technical and regulatory requirement. This states that most of the work in this industry is outsourced. In the coming years we can expect an increase in employment in Aviation MRO sector due to the government’s drive and impetus towards this sector as an employment generator. For this to happen India needs to increase its MRO industry activitiesby many folds and many pedagogies. For e.g. Incentivised this industry from tax burden and encourage investment.This will enable a great jump in aviation MRO industry in the years to come. This will also result in big requirement of capability development which will enable component testing repair activities in India which will require a head-start to skill development and skill absorption.
This paper is about preparing a Working Financial Model for Capability development in MRO Industry. Capability Development means specific Aircraft Component Testing, Repair, Overhaul facility Development. The capability of aircraft component repairmust be developed by inducting tested and proven infrastructure which will need approval by a regulatory authority. In India, the regulatory authority is the DirectorGeneral of Civil Aviation(DGCA). First the DGCAshould approve the capability for component repair.After the approval, an organizationcan service aircraft parts.
Keywords: MRO (Maintenance, Repair & Overhaul), CMM (Component Maintenance Manual), Director General of Civil Aviation (DGCA), Regulator, Capability Development, Hard Time Maintenance, Cost Structure, Capability Development
India’s present i.e. 2019 MRO market is estimated to be around $900 million. Boeing forecasts this market is expected to grow at a 7% compound annual growth rate. However, due to lack of proper MRO facilities and high taxes being imposed on the provision of MRO services in India, 90% of the Indian MRO work is outsourced to countries like Singapore, Dubai, UAE, Sri Lanka, and others. There are hardly few major players in this market currently.Increase in the number of air passengers year on year last decade, drastic expansion of commercial fleet size by Indian Aviation companies, government initiatives and entry of low-cost carriers have been major push factors for the Aviation market.Hence Indian Aviation MRO Market which is the progeny of Aviation operators is also expected to grow rapidly. Indian Aviation was valued at around USD 20 billion in FY'19. The air passenger traffic of scheduled airlines grew from 103.7 million in 2013 to approximately 198 million in 2019. This increase along with growth in airline fleet sizes has increased demand for MRO services.
With the fleet size likely to double in coming years, the need for a strong domestic MRO industry is critical, not just desirable. Further recent government initiatives of exempting MRO service provider from customs duties on Aircraft part and toolkits and extension of storage period for Aircraft part up to 3 years have helped MRO companies to grow their businesses.Until recently Indian Airlines such as Indigo, Spice Jet used to send the Aircraft for C-check to Shri Lanka, Dubai, Singapore but Indian government duty exemption move made this industry cost competitive to get C-check done in India.
Prepare a Model for Costing of New Capability development projects which will help for new entrepreneurs and existing MRO companies for more accurate investment or CAPEX planning for capability development and in turn help to do feasibility study of new capability planning.
This working Financial Model for Capability development for MRO Industrymust ensure all the necessary regulatory, technical, commercial, financial, and environmental aspects are considered which will ensure successful capability development with necessary regulatory approvals.
Research Methodology:
Stratified Random Sampling of Projects was carried out to finalize an appropriate and suitable model. Primary research carried out by interviewing the industry specialist in this Aviation MRO domain. The model is the outcome of the consensus received from industry professionals as well.
To develop the expertise and capability in this field, MRO Industry needs experienced manpower who can guide the organization for capability development. This is an important activity to develop and grow MRO industry on its own in India.Here we are elaborating the steps involved in nearly ideal capability development process in India. This takes in to account Indian Business macro conditions andsubsequently the processes are designed keeping in view the Risk Management in Capability Development.
To meet new capability development requirement the MRO Companymust invest in facility development. The investment can be high if there is a requirement of OEM special tools, OEM supplied equipment/ test benches and where equivalency cannot be established. With the current stature of the Indian economic cycle, it becomes necessary to develop these capabilities at lower cost without compromising on quality and deliver best output.
Before going through the steps involved in MRO capability development one should know the following:
New developed Capability can only take up commercial operation after approval from Regulators. E.g. DGCA approval for the new capability is must if part is to be fitted in Indian registered Aircraft. EASA/FAA approval is mandatory for the new capability if the component is to be used in European or US based Aircrafts unless otherwise the foreign regulators accepts the certificate issued by DGCA. Hence commercial operations of new capability can start only after above approval for the capability and MRO Organization has trained approved staff to perform MRO activity on the said component. Further approval needs to be yearly reviewed by regulators for their recency and upkeep with regulations and revised CMM requirement (if any).This also needsto be considered in capability development and its costing.
Hence capability development has the following stages. This begins with:
You will also be checking whether the test benches can be fabricated in India or to be imported? Point to be noted that if the part number of test bench is mentioned in the CMM then you need to import the same or else you should have OEM or Airline current serviceable bench diagram forin-house development of said test bench. This is must for proving the Regulator that your designed testbench is equivalent. Identifying the consumables requirement and their availability in India or in the international market is also must arrive at appropriate cost with minimum variance.
In case of Special tools as well, if part number is specified in the CMM then you need to purchase it from OEM or online Aircraft part suppliers like https://www.locatory.com ; https://www.allsparesaviation.com; www.aircraftspruce.com, www.skygeek.cometc.
Also identify normal and specialize process required for repair or overhaul. Identify whether these processes can be done in India. If this cannot be done in India,then identifiesthe specialequipment’s which are necessary for these special processes. If this can be purchased as the part of Capex, then arrange for landing cost of such equipment as MRO companies outgo will be based on landing price. If the Special processes cannot be done in India or it is too high, then such projects should be avoided as implementation cost of such projects will be too high to make feasible in India at competitive rates.
From the CMM consumables Also to be listed and to be check whether those consumables can be procured from Indian vendors to save cost. Individual Import of these consumables will be not economical for project implementation.
Modelled Excel sheet of initial template shows whether project feasibility checked for initial consideration with regards to Test Bench, Tooling & Equipment, Processes and Consumables.
Here in the first part of Capex calculation‘Model Commercial Template’ is mentioned
Variable Cost per Unit is calculated considering following: Man-hours required, Consumables required, electricity and other overheads required for performing the test. Further for variable cost per unit calculations we need to consider following:
In this research paper the above process practically explains each step required in new capability development requirement.
This paper explains a financial model for the MRO industry and how to optimize its cost to cater the need and to bridge the gap.This financial Working Model is showing, how the capability development cost can be determined in the aviation MRO industry? This is very important for a newMRO company. There are times when a new MRO companies are not aware of the requirement of this industry and its implication on cost.By proper adaption of the Model will help entrepreneurs and industrialists to take up the new challenges and set up new capabilities at minimum cost making it a successful business case.
This paper will benefit new MRO organizations leading to indigenization and fulfilling the Indian government’s vision to increase employment. This can be a pivotal contributor for India to become a $5trillion economy promoting Make in India. Further this research paper emphasizeson localization of test set up and special tooling developmentmaintaining the safety standards which will ensure Indian MRO’s capability is at par with the global test setups.
Looking at the optimistic market for the aviation industry and the increasing demand in air travel by the Indian population and the diaspora abroad, the requirement of aircraft services will increase leading to many operational requirements/ services. Increasing the number of aircraft will make a robust and profit-making industry increasing employment for future pilots, flight crew, administration department, and other categories of workers including MRO staff. This Model will contribute to MRO Industry growth in India.
In the absence of a well-developed MRO base in India, there are currently around 40 overseas maintenance providers approved by the Indian aviation authority DGCA to conduct work on Indian-registered aircraft, in locations including the UK, Germany, France, Romania, Jordan, Israel, the UAE, Sri Lanka, China, Singapore, Malaysia and Australia. Meanwhile, some of the large global MRO players are in the process of establishing MRO bases in India.
Until recently, Thailand faced a similar situation. In 2017, 60% of aircraft maintenance services for Thai carriers were provided by foreign companies. The Thai government took steps to change that situation by promoting the domestic maintenance industry, including generous tax incentives modelled on Singapore’s program. There, MRO providers are also turning to state-of-the-art technology such as automation to offer high-quality maintenance, thus keeping their competitive edge. Hence Indian Government also needs to support this Industry by reducing the GST rate for Indian MRO industry.
Further the two main airports in New Delhi and Mumbai charge rents to MRO providers that are 50-100% higher than those charged at equivalent facilities in Europe and Turkey. The two main airports also impose a royalty charge of about 20% on maintenance work at the airports. And demands from the MRO industry to the government to slash these rates was sternly opposed by the airport operators.
If India can also translate the changes that are being discussed into reality, it could be a game-changer for the MRO industry in India.
In view of the above Indian MRO Industry has a great opportunity to grow.If these MRO’s used the templates attached with this paper for their capability development, itwill help them for better cost management of the project leading to successful MRO capability development intern it will result in successful MRO organization. The Model highlighted the micro details which are generally ignored by current MRO industry professionals leading to failure or non-competitive services. The paper is to make MRO industry self-reliant keeping in view the concept of’ Entrepreneurship Development in MRO Sector’ & ‘Make in India’.
Limitation of Study:
The study is limited to MRO activities in civil aviation segment only. There is need for MRO activities in defence Aviation as well;however, the need for this is substantially different than Civil Aviation.
Further, it is assumed that the existing MRO organization is developing the new capability, has CAR 145 approval is needed for set up of new MRO organization. Further, it is also assumed that the MRO organization has necessary infrastructure and key manpower resources like Accountable Manager, Quality Manager, and Workshop Manager & Approved Engineer.
