Indian MRO Business Drowning in Tax Burden

 - November 29, 2018, 10:43 AM

High taxes on the Indian domestic maintenance, repair, and overhaul (MRO) industry have led airlines to outsource 75 percent of the country’s $1.4 billion MRO business to international providers, sending local operations into a state of gradual decline even amid increases in fleet sizes and the prospect of large orders in the near future.

In a letter to the Ministry of Civil Aviation, the MRO Association of India (MAOI) has called for the government to pay urgent attention to the declining industry and “offer at least a fair chance to compete with foreign MROs that enjoy a favorable import tax policy.”

No response has come from the government. “We cannot understand why they do not grasp the simple math that a few hundred million dollars in taxes will far offset the revenues of a lucrative MRO industry at home,” MAOI president Bharat Malkani told AIN. “We are subsidizing foreign MROs.” As MRO requirements increase, the value of the business will rise to $3 billion by 2023, he said.

Three MROs, including one now getting ready to open—AAR Indamer Technics—along with Air India Engineering Services and GMR Aero Technic, operate in special economic zones in Nagpur and Hyderabad that allow tax-free incentives to foreign customers, but not for India-registered airlines. The three companies hope to aggressively pursue a limited foreign market.

“We may be a bit late as very few countries will look at India for sourcing MRO,” said Abhijit Choudhury, senior executive at cabin interiors specialist Epsilon. “Thailand, Singapore, and Malaysia are already established and aggressive in their marketing. Middle East countries too have their own shops. Even Nepal’s airlines choose to go abroad.

“Airlines run on fuel and MRO,” he said. “The import-driven policy has lost 90,000 direct jobs to countries like Sri Lanka, Singapore, Thailand, France, and Germany.”

Malkani opined that jobs could return to India if authorities correct the country’s tax imbalance. His own company, Max Aerospace, which provides avionics and components repairs to airlines including KLM-Air France, could expand into high-tech provision in a so-called level playing field, he said. “As workloads increase, so do savings for airlines,” he concluded.