After publishing the first edition of the Interview of Mr H.R Jagannath, CEO of Air India Engineering services (AIESL), I was compelled to go for the second edition. Mainly, because of the news making rounds about Air India Disinvestment and secondly, where would that take the future of India's biggest MRO - The AIESL.
Finally the date of the Interview was set, and I was called in the CEO's office. Mr H.R Jagannath's office is a bee-hive of activity, with the phone buzzing for engine component part approvals, engines breakdowns and a zillion maintenance issues, engineers flying in and out of office to discuss maintenance issues of India's national carrier.
With about a million tasks lined in front of him, Mr H.R Jagannath took some time out of his extremely busy schedule to talk to us about the pressing problems of MROs in the country, the places where government needs to intervene? and lead a helping hand to the bleeding MRO's in the country and how AIESL is playing its part for the future of MRO sector in India
Below are the excerpts from an Exclusive Interview with the CEO's of one of the biggest MRO's in India, Mr Jagannath. READ ON
Q - Finance Minister has put forward ambitious plans for aviation sector. She has specifically mentioned suitable policy interventions to create a congenial atmosphere for development of MRO in the country. What policy reforms according to you does our country need for more robust MRO growth?
A - Currently, the MRO industry in India is saddled with huge taxes. The GST on goods, services and materials range from 5 to 18 per cent. However, in the neighbouring countries the MRO sector is not that heavily taxed. This adds to our cost when we look at the third party business and we consequently are not able to stand this competitive market.
For an independent MRO, looking for third party work, the high taxation impacts the ability to quote low prices. So, advantage like skilled manpower is totally nullified by these high taxes. In addition to the taxes, we have a counting called royalty. What does the Airport bring for me? Still we have to pay 13 per cent.
Next comes custom duties, we can stock spares for 3 years which is a reasonably good policy decision. But even if we get the aircraft serviced in the SEZ zone, still GST is charged. So, we are not getting the SEZ benefits too...to sum it up
1. The taxes should be reasonable
2. The royalty should be removed
3. The DGCA certification is not acceptable worldwide. So the government should intervene and bring DGCA certification policies to be at par with EASA and FAA
Q. Also, the proposed disinvestment of Air - India will be re-initiated. How will it affect AIESL?
A - Air India is the main customer for AIESL, so if Air India gets privatised, they won't have any obligation to come to AIESL for their maintenance. They are free to go to any third party MRO. AIESL is very competitive in the MRO market, however with the rosy chunk of Air India business moving out, AIESL will have to compete harder in the market
But AIESL is ready for it.
Q - After the fall of Jet Airways, Air India took a big chunk of the airlines wide-body Boeing 777. How did AIESL benefit from the deal?
A - Jet was another one of AIESL's biggest customer. AIESL was one of the MRO's to which Jet Airways were giving their aircraft for maintenance. So, with the fall of Jet, AIESL lost major business.
Air India only took over the passenger traffic of Jet Airways along with the International routes.
Air India being a public PSU, the tendering process of buying aircraft from Jet was very tedious. So, Air India did not take any of the B-777 planes.
Thus, Air India gained in the passenger traffic, but AIESL lost out on the business due to Jet Airways fall.
Q -The Swadeshi Jagran Manch (SJM) has strongly opposed the disinvestment of the wholly-owned subsidiaries of Air India. Along with them there is public pressure against the selling of National carrier. In spite of all the opposition the government has decided to go ahead with the disinvestment process.
A - I will start by stating facts; Air India is an airline competing in the competitive world, on commercial terms. Air India, being a PSU, the decision making process is slower than in the faster cut-throat competitive market. For e.g. - for AIESL to buy a Jet Airways aircraft, we had to go through a tedious process of tendering, government approvals etc., while spice jet took the fleet overnight.
In the commercial field, Air India is not able compete in fast-moving commercial market. Also there is a general feeling that government should be focussed on governing rather than running businesses. Hence it is better for Air India to disinvest. Plus a lot of tax payers' money goes into paying the salaries of Air India employees. Also there are huge debts accumulated on Air India. These are the reasons why government wants to disinvest Air India.
Q - With the launching of UDAN scheme, government has ambitious plans to connect the remote parts of India via smooth air-connectivity. However on the other hand the government is planning to sell of the wholly owned subsidiaries of its national carrier. How will it affect the UDAN scheme eventually?
A - UDAN scheme is an excellent scheme, it's because of this scheme, about 75 new airports have opened up. This will connect the remote corners of the country to Metros and help develop commerce.
The disinvestment of Air India and UDAN scheme are not related in any way. Air India is being disinvested because of its heavy debts and a burden on the tax-payer. However if the debt burden is lifted, then Air India will be able to make terrific impact in the aviation field profits.
The systems in Air India are excellent. E.g. - launching of flights, Air India recently launched Stanford, Nairobi, Canada. With all the constraints Air India is doing it. There are hundreds of departments involved in launching a flight like engineering, commercial, flight operations, getting clearances and flight safety, etc. The decision to launch a flight is taken by the chairman, and the rest of the departments get into position. Capability of the airline is fantastic.
The cost of running an airline is very high. The only solution to it is -yield has to increase. There are wafer thin margins in Airline business. Very efficient management of finances is what we look at here.
Air India has Air India Express; it's a legacy LCC with a beautiful chunk of gulf flights which brings it excellent profits. Very close monitoring of yields, strong decision making body who takes prompt decisions and close management of finances is what brings an airline to profit. Even a slight wavering on this and the Airlines profits starts a downward spiral. Extremely efficient management which monitors the bottom line is required.
Q - India has a huge pool of highly skilled AME's of which a great chunk belongs to AIESL. How do you see the future of this talent pool with the disinvestment policy of the government?
A - AIESL has to learn to stand on its own feet. Air India is AIESL's biggest client. We also have other clients, like all other domestic operators. So, even if Air India is sold, AIESL is confident of standing on its own feet. While facing the competition, we have got skilled and talented engineers, we can do it. We are in a position to survive. All the talented engineers will be fully utilised, even if Air India is disinvested.
Another reason is Air India is our biggest client, it will stay with us, because of the services we provide and the large talent pool AIESL has. Besides, AIESL is also branching out to other operators for third party contracts.
Q - What role does AIESL play in building up a pool of future AME's/ technicians? So that highly trained personnel are available to fuel the growth in aviation sector.
A - AIESL is the biggest MRO in India. We have the responsibility to fuel the growth of trained personnel in MRO sector. The civil aviation growth in India is tremendous, every month about 2 to 3 planes are coming to India. Each plane will require 4 to 7 engineers to service it. We are expecting the number of planes will practically double in the next 2 to 3 years. To service and maintain these aircraft, a large number of trained manpower will be required which will be difficult to come by unless we start planning it from today.
AIESL as a government entity has taken this corporate social responsibility very seriously. We have set up training centres all over India. Main base is in Kolkata, Delhi, Mumbai, Hyderabad, and Trivandrum. We have taken classic 320 aircraft, which have finished the desired service goal, from Air India and positioned them in Begumpet, Trivandrum, Mumbai and Delhi to enable effective training.
New trainers have to undergo mandatory 300 hours of on-job training. These students come from CAR 147 basic schools. There are about 50 such schools in India, each school takes about 60 students. We have signed up with practically all the schools. Those students come in batches, they are allowed to work on these aircraft for practical training and then they are taken to the Hangars to observe and watch the actual maintenance work on live aircraft. We have employed highly qualified engineers to supervise this training and certify the course. Currently other MRO's in India can't take up this assignment as they are too small. They don't have the reach that we have; we have a CSR to ensure that future generation has excellent training. Even after the disinvestment, the training process will continue as we have signed up for 3 years and we have taken the planes from Air India specifically for the training purpose. So there is no reason for the process to stop.
Q - What happens to the name AIESL after disinvestment?
A - The name has to be changed, so we are open to any suggestions. We are also having in-house competitions for a new name and a logo for AIESL.
Q -The OEM's are getting into the MRO Business and not obliging third party MRO's by not giving them adequate Training, CMM, software support. How will AIESL cope with this situation?
A - It is a difficult situation, if the OEM's do not support the MROs, with component maintenance manuals, software support and training it will not be possible for an MRO to function. So, it is important that the MROs partner with OEMs or the OEMs take interest in the MROs in India to help in the growth of MROs. Also it will lower the cost of maintaining the planes here, if all our aircraft go out of India for maintenance due to the lack of OEM support, it will be a disaster. This is a dangerous trend. There has to be some legislation in which the government have to tell the OEM's to partner with the local MROs. Government has to intervene at this stage and make it compulsory for the OEM's to support us. Also, when the airlines are purchasing planes, they can insist the OEMs to set up an MRO facility in India.
Q - There is no aircraft manufacturer in India. How does it affect the MRO Business?
A - It is a huge loss to us, that there is no aircraft manufacturer in India. With the aircraft manufacturer here, all the components will be made here, in India, maintenance will be done in India, and we will automatically get respect from all other regulators. So, if India is able to build a plane or in collaboration sell a plane, it will bring down the costs by huge margins.
Q - There is no leasing company in India. Does this affect the MRO BUSINESS?
A - Leasing is one of the most lucrative business and due lack of a leasing facility in India we are already losing out on good business opportunity. All over the world hundreds of planes are leased. All our planes are leased. Air India has taken all the A-320NEO's on lease. Making India a leasing hub is only possible if the taxes are brought down. We can follow the Ireland's model and bring in business to our country.
Q - Most of the lessors who own large number of Aircraft are from Europe and want EASA certification during lease restoration. Does this have an impact on the MRO's in India?
A - Obviously, because now I have to get EASA certification to do the leases return. So, all my engineers who have been trained under DGCA regulations have now to be trained under EASA regulations. Also the setup has to have EASA approvals.
Writer is Swati.Ketkar, Assistant Editor, MRO Business Today