The Aviation Industry has recently seen a beacon of hope, amidst the ongoing global Covid-19 crisis. The maintenance, repair, and overhaul (MRO) segment of the aviation industry is set to get a boost with the recent change in government taxation policy. The Finance Ministry has reduced the Goods and services tax (GST) rate from 18% to 5% with a full input tax credit and also treating MRO services provided to a foreign recipient as part of Indian export. The change in policy decisions was taken in the 39th GST Council Meeting held on March 14, 2021.

Indian MRO Market Current Status

The Indian MRO market is currently estimated to be around $800 million and is growing at the rate of 8% annually, against a 4% world average according to GIBD (Gujrat infrastructure development board). A recent Ernst & Young study reveals that the Indian MRO market growth rate will rise to 15%. With India’s growing aircraft fleet, it is cost-effective for domestic airlines to service their aircraft domestically. The rising age of Indian aircraft, both civil and defense, requires frequent maintenance and repair costs.

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Key Government Initiatives

The government of India has introduced certainly policy initiatives to tap the potential of the MRO business and to keep it in line with the ‘Make in India’ policy. These initiatives include exemption from customs duty for the tools and tool-kits used by the Industry; extensions in the timeline for utilization of duty-free parts from of the one-year to three years, to facilitate businesses in achieving economies of scale and extending permission for foreign aircraft, brought to India for MRO work to stay for the entire period for completion of maintenance or up to six months. Earlier, foreign aircraft were not allowed to stay in India for more than 15 days without a cumbersome approval process. Further, aircraft are now allowed to board with passengers, which was not permitted earlier, leading to losses for the airlines. The reduction of GST on MRO services from 18% to five% is considered great news for MRO in the aviation sector.

Way Ahead for India

The Indian MRO market has great potential for growth as, availability of a low-cost MRO workforce gives India an added advantage over other countries like the USA, Europe, Singapore. An increase in the Indian commercial and business fleet size has been another contributing factor to drive demand for MRO services in the country. Boeing Company has predicted that by 2035, India’s demand for civil aircraft will reach up to 1,740 and will be valued at USD 240 billion.

MRO providers are also moving towards state-of-the-art technology such as automation to offer high-quality maintenance, thus maintaining their competitive edge. India has the growing potential to become a major MRO Hub. Significant manufacturing and MRO facilities in India have already been set up by OEMs in partnerships with domestic firms. Such as Lockheed Martin, Boeing, BAE Systems, Thales, and GE among others.

The Indian air force (IAF) fully supports the localization and setting up of MRO facilities. The government of India must support and facilitate in setting up of MROs, by giving tax benefits to local investors, to make them financially viable.

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