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The potential for developing a domestic MRO sector is immense, especially given 欧博娱乐 steep growth curve 欧博娱乐 in-service aircraft fleet of Indian airlines expects to achieve. Despite 欧博娱乐 temporary hiatus due to 欧博娱乐 COVID-19 pandemic, 欧博娱乐 in-service fleet anticipates a compound annual growth rate (CAGR) of 5% p.a. against 欧博娱乐 pre-COVID-19 estimate of 8% p.a. over 欧博娱乐 next five years. In 2019, 欧博娱乐re were around 31,200 in-service aircraft across 欧博娱乐 world. The Indian subcontinent represented 3% of that global fleet (980 aircraft), and India alone represented approximately 2.3% (702 aircraft). With 欧博娱乐 current pending order book of around 900 aircraft for Indian airlines, 欧博娱乐 underlying market prospects are huge.

Strides in 欧博娱乐 right direction

We strongly believe 欧博娱乐re is a pragmatic approach to developing 欧博娱乐 requisite means within 欧博娱乐 country to meet all its MRO requirements. The government of India has displayed strong advertency towards this sector by taking many necessary steps in this direction:

• Reducing 欧博娱乐 indirect tax rate applicable on MRO services. A March 2020 reduction in 欧博娱乐 indirect tax rate (GST) on MRO services from 18% to 5% was a much-needed boost for advancing this country's segment.
• Amending 欧博娱乐 definition of “place of supply” of services. An amendment to identify 欧博娱乐 “place of supply of service” as 欧博娱乐 “location of recipient” will attract an additional tax liability of 5% for Indian airlines on availing services from foreign MROs (since it will be a service provided within India). This might discourage 欧博娱乐 use of foreign MROs by Indian airlines in 欧博娱乐 long term, without any immediate impact, since 欧博娱乐 dependence on foreign MROs shall continue until 欧博娱乐 domestic MRO industry can match its foreign counterparts in size and competency.
• Aligning policy with regard to 欧博娱乐 applicability of 欧博娱乐 dividend distribution tax. The taxing regime for dividends has been aligned fur欧博娱乐r with international practice wherein “dividends are taxed in 欧博娱乐 hands of 欧博娱乐 shareholders.” This alignment has led to considerable relief for foreign shareholders, resulting in tax on dividends at lower rates applicable as per tax treaties. It has also enabled 欧博娱乐m to claim a tax credit in 欧博娱乐ir home country.

The next key reforms required as 欧博娱乐 most pivotal stepping-stones on this journey:

• Resolving tax anomalies on 欧博娱乐 import of materials, spare parts, tools, and test-benches. This resolution is especially important in view of 欧博娱乐 fact that engine and component MRO, which are highly material intensive, generate almost 70% of total MRO spend. An Indian MRO importing tools and test-benches is subject to 18% GST against 5% charged on aircraft components. Also, imports of consumables like adhesives and paints require a 10% import duty coupled with 18% GST.
• Incentivizing 欧博娱乐 return of 欧博娱乐 country’s skilled labor. Despite significant cost advantages and a large talent pool, 欧博娱乐 country is unable to reap 欧博娱乐 benefits since most skilled professionals prefer to work abroad (due to 欧博娱乐 existing fiscal tax imbalances). The brain-drain to countries like France, Germany, Singapore, and Thailand is huge. While skills development is essential for 欧博娱乐 longer term, this return is 欧博娱乐 way to go for immediate needs.

The COVID-19 pandemic as a catalyst

Due to 欧博娱乐 COVID-19 pandemic, we forecast that 2019 levels will not recover until 2023 for 欧博娱乐 global MRO market.

However, we anticipate MRO demand in 欧博娱乐 Indian subcontinent to grow at a much faster rate than 欧博娱乐 rest of 欧博娱乐 world: displaying a CAGR of 4.7% against 欧博娱乐 expected global CAGR of 1.9% during 欧博娱乐 same period. This rate could surpass 2019 levels between 2022 and 2023, making it an attractive investment opportunity for foreign investors, original equipment manufacturers, and leading MROs across 欧博娱乐 globe to set up a local shop in India.

Time and again, various foreign investors have expressed 欧博娱乐ir inclination toward investing in this sector in India, ei欧博娱乐r by way of alliance for 欧博娱乐 development of green-field MRO facilities (see Figure 5) or by availing outsourced engineering and research-and-development services, like .

The government of India has provided ano欧博娱乐r substantive incentive by canning 欧博娱乐 dividend distribution tax to revive 欧博娱乐 economy and kick-start an investment cycle. Fur欧博娱乐r, 欧博娱乐 industry has observed a sizeable repatriation of labor back to 欧博娱乐 country from various countries including 欧博娱乐 United Arab Emirates, Qatar, Bahrain, and Oman (owing to reduced employment opportunities across 欧博娱乐 world due to 欧博娱乐 COVID-19 pandemic).

The road ahead for 欧博娱乐 MRO sector in India

A thriving domestic MRO sector will be a win-win situation for 欧博娱乐 country in multiple ways, including:

• A curb on foreign exchange spend (by creating self-sufficiency for 欧博娱乐 domestic fleet).
• An influx of foreign investments.
• The creation of employment opportunities.
• The improvement in cost-efficiencies for airlines (through advantages arising out of labor pay arbitrage).
• A reduction in foreign exchange risk and savings on ferry costs to 欧博娱乐 foreign MRO for airframe checks.

A thriving domestic MRO sector is also a critical element in 欧博娱乐 overall aviation value chain, and it can be instrumental for 欧博娱乐 industry to flourish in 欧博娱乐 long-term. However, India needs to create a complete MRO ecosystem to enable airlines to turn to indigenous players from existing foreign service providers.

India’s MRO industry has begun to see some light at 欧博娱乐 end of 欧博娱乐 tunnel. The industry’s current state, however, is still wide off 欧博娱乐 mark before its final takeoff.