The revenue generated by domestic maintenance, repair, and overhaul (MRO) services providers in India is projected to triple by fiscal 2028, reaching ₹5,500-6,000 crore, according to a recent study conducted by CRISIL Ratings.
This significant growth is attributed to the robust expansion of the domestic civil aviation industry, government support, and ongoing MRO capital expenditures at airports. The study, which analyzed three major MRO services providers accounting for over 90 per cent of the industry’s revenue, also suggests that this growth will lead to cost reduction and improved utilization.
The demand for MRO services is closely linked to the size of the aircraft fleet. With substantial aircraft orders placed by airline operators, the Indian domestic fleet is expected to surpass 1,000 aircraft by 2027, up from approximately 700 as of March 2023. As a result, the overall expenditure by Indian airlines on domestic and global MRO services is projected to exceed ₹25,000 crore by 2028, compared to the levels of around ₹14,000 crore in the previous fiscal year.
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MRO services play a crucial role in ensuring the airworthiness and availability of aircraft. Opting for domestic MRO services is considered cost-effective in terms of fuel and logistics and saves time. Ankit Hakhu, Director at CRISIL Ratings, states that the domestic MRO industry’s penetration rate is expected to reach 22-24 per cent by fiscal 2028, up from the current level of approximately 12 per cent. This growth will primarily be driven by less complex line-maintenance services, while the engine and component maintenance segment, where global technical companies are investing to develop local capabilities, will also witness improved penetration.
Despite the promising outlook, revenue generated by domestic MRO providers has been relatively small compared to international counterparts. The revenue per domestic aircraft fleet for Indian operators is less than ₹ 5 crore, while in Singapore, it exceeds ₹400 crore, catering to demand from various countries, including India.
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Disparity removal
To address this disparity and establish India as a global MRO hub, the government has introduced several policies over the past year. These policies include reducing the Goods and Services Tax on MRO services from 18 per cent to 5 per cent, leasing land through open tenders to reduce rental costs, abolishing the 13 per cent royalty charged by government authorities on revenue, and extending the land allotment period to 30 years from the current 3-5 years.
In line with these developments, dedicated MRO facilities have been set up at Delhi and Bengaluru airports for select private airlines, with more facilities underway. Plans are also underway to establish two MRO facilities near the new Jewar airport in Uttar Pradesh, as well as facilities at the Belagavi (Karnataka), Bhopal (Madhya Pradesh), and Tirupati (Andhra Pradesh) airports.
These initiatives are expected to lower costs and increase demand for domestic MRO service providers. Previously, due to a lack of scale and intense competition from global rivals, their credit quality suffered, with an interest coverage ratio of 0.5-1.8 times in the five fiscal years leading up to 2023. However, with the positive developments in the sector, their financial metrics are expected to receive a significant boost.
Nevertheless, it is important to monitor macroeconomic uncertainties, timely completion of capital expenditures, the transfer of critical technical know-how, and developments within competing MRO markets as potential challenges in the future.
Overall, the projected growth of the domestic MRO industry indicates a positive trajectory for India’s aviation sector and presents lucrative, CRISIL said.