Air India Engineering Services Limited (AIESL), which was hived off a year ago, will turn a lucrative arm of Air India by 2017. “AIESL was hived off to create a profit-making entity which is not bogged down by the challenges faced by the parent airline”, a senior official of the national carrier told FE.
By current calculations, the subsidiary should break even within two financial years, and turn in a profit in 2016-17. The strategy is to broad-base the services of the maintenance, repair, overhaul (MRO) unit, which now exclusively serves Air India, by taking up contracts from other major domestic and international carriers.
The MRO unit services a fleet of 125 aircraft of Air India. It has recently been approved by civil aviation regulators abroad to certify airlines like Etihad Airways, Qatar Airways, Mihin Lanka, Silk Air, Singapore Airlines and Sri Lankan Airlines.
The official said AIESL, which expects revenues in excess of R500 crore this year, aims to ratchet up the top line to R800-900 crore by FY17.
In the recent past, various foreign airlines, especially the Middle Eastern carriers like Etihad, Emirates, and Qatar Airways, have increased their flight frequencies to India. In addition, the entry of Air India into the 27-member Star Alliance is expected to mount more such flights into the country.
“The idea is to service foreign airlines as well as government contracts to obtain a bigger market share in the country’s MRO business,” the official added.
On January 1, AIESL received its mandatory DGCA certification to carry out maintenance, repair, overhaul and test of aircraft engines and components at any of its facilities spread across Delhi, Mumbai, Chennai, Kolkata, Hyderabad and Thiruvananthapuram.
In addition, the company’s engine overhaul facility and accessories overhaul facility in Mumbai, the jet engine overhaul centre and the ATEC shop in Delhi, and the avionics overhaul facility in Mumbai are certified to provide maintenance services, which are recognised internationally.
Going ahead, the Make in India campaign is expected to raise the business prospects of the sector. The sector, which has floundered on high costs and taxes, however, is expected to revive when the government cuts taxes.
“AIESL can get a lot of business from airlines if costs can be kept down and contracts offered at a rate lower than what is offered in the neighbouring countries. This is possible only if the government slashes service tax and VAT charges,” the official added.
Air India hived off its engineering and ground handling services into two wholly-owned subsidiaries—Air India Engineering Services Ltd (AIESL) and Air India Transport Services Ltd (AITSL)—as part of its turnaround plan in January 2013.
Indian MRO market, estimated at roughly $800 million in 2011 by Frost & Sullivan , is expected to touch $1.5 billion by 2020.
The global consultancy estimated that airlines in India outsource MRO work of around $700 million to international firms every year. In the global MRO market worth $45 billion, India has a paltry share of just 1%. Several MRO companies like Lufthansa Technik, Hindustan
Aeronautics, Air Works India, Hyderabad Aircraft Maintenance Company and Max Aerospace & Aviation service the market. Besides Airbus and Boeing also have their MRO service centres in India.
