Correct Policy Imbalances

Bharat Malkani, Chairman & Managing Director - Max Aerospace and Aviation

Maintenance, Repair and Overhaul (MRO) of aircraft, its components and engines is globally regarded as a strategic business. The skills required to support civil and military aircraft are similar. The ability of a nation to perform these tasks within the country is imperative to ensure sovereignty of its air power.

India is in the midst of an aviation boom of its civil aviation industry. Growth rates are consistently at 20 per cent for the last few years. Based on data from Airbus and Boeing the current fleet of 550 airliners will grow to 1000 by 2023. Due to historical lopsided tax policies of the previous government the MRO industry was literally ‘handed over’ to foreign MRO companies and the situation we face today is that 90 per cent of the MRO requirements of India are imported. MRO is essentially a services industry and unlike other service industry planes have the ability to fly to foreign locations, which is the very nature of their existence.

The industry estimates due to these imports we have lost 40,000 direct jobs to countries like Sri Lanka, Singapore, Thailand, France and Germany. These can easily be brought back to India by correcting the fiscal imbalance that has affected this industry since Independence. Indian engineering is amongst the best in the world and in our humble opinion; there is no valid argument that continues to allow this drain of precious forex and capability to foreign locations. The current MRO import bill (2017) of $850 million will rise to $2 billion by 2023 unless the Government realises the potential of this industry and takes quick and serious corrective action.

India has the ability to be the MRO hub of South Asia given its scale and technical capabilities. We only need our Government to support Indian industry. We can convert this $2 billion of net import of MRO into a $5 billion export potential in five years. To achieve this, we must evolve a tax and regulatory mechanism that rewards Indian MRO’s as opposed to penalising them as it stands today. We are subsidising imports by offering our entire nations MRO on a silver platter to foreign MRO companies. This is why no FDI has accrued in this sector even though 100 per cent FDI has been allowed. The reason is simple: it continues to be advantageous for Indian carriers/operators to import MRO.

Our request is that the Indian Government understands the value of this strategic industry and creates a fiscal environment that gives Indian MRO industry an advantage over its foreign competitors for a limited period of five years so that they are able to create necessary infrastructure that we can use to compete. We have benefited foreign MRO companies for over 70 years, now is the opportunity to change the balance in favour of local MRO industry.

IMPACT ANALYSIS OF ADDING A CUSTOMS DUTY @ 20% ON MRO IMPORTS

This 3% cost increase is lesser than even the fee charged by airport operators! Thus this policy achieves both objectives simultaneously. It brings revenues to the Indian Government with a minimal impact on airline ticket prices as well as encourages domestic MRO by finally offering a level playing field.

As Indian MRO’s ramp up their capability, this cost burden will keep reducing and even the direct taxes recoverable from direct staff employed on revenue of $1 billion generated from local industry will surpass the same in multiple numbers. Indirect employment is not even taken into account in this calculation neither are benefits from exports that have the ability to touch $10 billion in 10 years.