Air India Engineering in talks with OEMs to grow 3rd-party business

By Anwesha Ganguly

Air India Engineering Services (AIESL), the maintenance, repair and overhaul (MRO) arm of India’s national carrier, is working on a strategy that will help it survive and sustain after the government divests stake in the state-owned airline. The cash-strapped MRO arm, officials said, is unlikely to be sold along with the airline and needs infusion of at least Rs 1,000 crore to compete with international players, sources told FE. The company is in talks with multiple airlines and aircraft component manufactures and original equipment manufacturers (OEMs) to explore joint ventures to sustain itself.

AIESL, which currently has 5000 employees, has approached OEMs, including Safran Aviation of France, for tie-up regarding MRO work on aircraft engines. “Unless we tie up with OEMs, we cannot do business. But, OEMs have their own set-ups and are not keen on partnering with AIESL. Safran is evaluating our offer,” a senior official said. As part of the negotiations, AIESL has offered to absorb 18% GST and other tax expenses, the source said.

The government plans to soon invite expressions of interest (EoIs) to sell 100% stake in Air India. An earlier attempt to sell it did not attract buyers, who were reportedly not keen on the arrangement where the government retains 24% stake. In 2018, the government had transferred around Rs 29,400 crore of Air India’s Rs 59,000-crore debt to a special purpose vehicle, Air India Asset Holdings.

Meanwhile, loss-making AIESL is also unable to upgrade its workshops due to lack of funding, raising concerns regarding the ability of the company to survive. “We require funds to build and upgrade infrastructure. Air India is supposed to have given us Rs 1,000 crore. With that, we could have set up some component workshops in-house, which is currently being serviced outside the country. We need an additional Rs 100 crore for making our Nagpur facility fully functional,” the official said.

Currently, AIESL does the MRO work for Air India’s over 170 aircraft, which fetches revenues of around Rs 3,500 crore annually. The status quo may not remain after the airline’s privatisation.

AIESL only earns 10% of its revenues from third parties, a large chunk of which used to come from now-grounded Jet Airways. The company lost revenues of about Rs 36-40 crore with the grounding of Jet Airways. “From last financial year to this year, we have seen a marginal 5% increase in our third-party business. We are confident that base maintenance of Air India fleet will remain with the company after privatisation. We have also been negotiating with SpiceJet for a comprehensive agreement and are also in talks with IndiGo to compensate for the revenue lost because of Jet. Going forward, we expect 10-12% growth,” the official said.

India’s MRO market, according to analysts, is currently about $1.2-1.3 billion and AIESL is one of the largest players in the Indian market. However, a significant portion of the MRO services for domestic airlines go to neighbouring hubs in Sri Lanka and Singapore.

With the privatisation of Air India and its subsidiaries, AIESL will see expenses soar, while revenues may remain muted. Air India’s MRO arm has so far also benefited from subsidised rental and other costs, being a government-owned entity. After Air India privatisation, airport charges can go up between two and four times for AIESL, an official said.

Source: Financial Express