Revenue of domestic maintenance, repair and overhaul (MRO) services providers is expected to triple to Rs 5,500 - 6,000 crore by fiscal 2028 from around Rs 1,800 crore currently, piggybacking strong growth in domestic civil aviation, government support, and ongoing MRO capex at airports.

That should help lower costs and improve utilisation, a CRISIL Ratings study of three MRO services providers, accounting for more than 90% of the industry’s revenue, indicates.

Demand for MRO services, which correlates highly with the size of aircraft fleet, will get a shot in the arm from substantial orders that airline operators have placed to purchase aircraft, with domestic fleet expected to be more than 1,000 by 2027 from around 700 as of March 2023.

Consequently, the overall amount spent by Indian airlines on MRO services (both domestic and global) is projected to surpass Rs 25,000 crore by 2028 from around Rs 14,000 crore levels last fiscal.

MRO services¹ play an important role in ensuring airworthiness and availability of aircraft. Opting for domestic MRO services is generally considered cost-effective in terms of fuel and logistics and saves time as well.

Says Ankit Hakhu, Director, CRISIL Ratings: “The domestic MRO industry’s penetration rate is expected to reach 22-24% by fiscal 2028 from ~12% at present, piloted by the less-complex line-maintenance services. The engine and component maintenance segment, where global technical companies are investing to develop local capability, should also see penetration improve.”

Revenue of domestic MRO providers has been minuscule so far. Revenue per domestic aircraft fleet for Indian operators is less than Rs 5 crore against more than Rs 400 crore in Singapore, which caters to demand from other countries, including for aircraft from India.

Says Varun Marwaha, Associate Director, CRISIL Ratings: “The government has introduced several policies over past year to realise its vision of making the country a global MRO hub. The upshot of these will be a 10-20% reduction in the overall cost of MRO services.”

These include reducing Goods and Services Tax on MRO services from 18% to 5%; land lease via open tenders instead of predetermined rates, which should help reduce rental costs; abolishing the 13% royalty charged by government authorities on revenue; and allotting land to MRO service providers for 30 years instead of the current 3-5 years.

Capacity additions have already started. The Delhi and Bengaluru airports have set up dedicated MRO facilities for select private airlines, with more underway.

Plans are also afoot to establish two MRO facilities near the new Jewar airport in Uttar Pradesh. Further, MRO facilities are planned to come up at the Belagavi (Karnataka), Bhopal (Madhya Pradesh) and Tirupati (Andhra Pradesh) airports.

All these developments are expected to lower costs and increase demand for domestic MRO service providers. Due to lack of scale and intense competition from global rivals, their credit quality had been sub-optimal with the interest coverage ratio at 0.5-1.8 times in the five fiscals through 2023. However, with these positive developments, their financial metrics are expected to receive a boost.

That said, macroeconomic uncertainties, timely capex completion, transfer of critical technical knowhow and developments within competing MRO markets will be monitorable.

¹MRO services comprise four key segments: i) line maintenance (relatively less technical tasks that do not require large upfront infrastructure investments), b) component maintenance (inspection of aircraft components in a specialised workshop), c) engine maintenance (repair, service and inspection of aircraft engines), and d) airframe maintenance (occurs in a hangar with specialised tools).