“The industry has sought intervention by the civil aviation ministry on lease rentals for the MRO industry. The norms state that a new allotment of Airports Authority of India (AAI) land is approved at 40% of prevailing land lease rates for MRO companies. However, the rates during the renewal of leases are elevated, crossing even 100% of prevailing rates,” an industry executive told Mint, on the condition of anonymity.
Currently, the ministry has fixed the maximum leviable lease rate for MRO companies at 40% of the prevailing price at the time of allocating land through tender.
The industry representatives want that the lease rate be capped at 40% at the time of renewal, the executive added. The heavy lease rentals have become a major concern for MRO companies at airports such as Mumbai, Delhi, Bengaluru, Hyderabad, and Mumbai.
Depending on the location of the airport, lease rentals account for 10–15% of the annual cost of running an MRO unit, industry executives said.
A civil aviation ministry spokesperson said that the issues related to high lease rentals have been raised by the MRO industry, and while rentals are determined based on tendering process at AAI airports, rentals are determined by two private parties—the MRO and the airport operator.
Rent and services constituted 7.8% of the overall revenue of AAI in FY20, which rose to 17.8% in FY21 as total revenue fell due to covid disruptions, before slipping to 4.3% in FY23, when the authority reported a revenue of ₹12,172 crore.
Currently, the MRO industry in India is nascent. It was pegged at $1.7 billion in 2021, and is expected to reach $4 billion by 2031, at a compounded annual growth rate of 8.9%, compared with the expected global average of 5.6%, according to Deloitte.
The industry has also written to the civil aviation ministry on the challenges faced on account of a high integrated goods and services tax (IGST) rate on some items.
To be sure, GST rate on maintenance, repair, and overhaul services in respect of aircraft, aircraft engines, and other aircraft components or parts was reduced to 5% in 2021 from 18% earlier, but it was also specified that the nomenclature of accessories used under MRO services should not be included elsewhere. IGST is levied on interstate supplies of goods and services, and collected by the Centre before being shared with the states involved.
“This results in a high IGST for certain items such as a coffee maker, paint, and lubricants which find usage in non-aviation industry as well. In the aviation sector, these items incur heavy cost for purchase and maintenance and, thus, have a wide gap in the cost structure from non-aviation industries. For example, an aircraft coffee maker can cost around ₹400,000–500,000, while a household one costs ₹5,000–10,000. Hence, the industry ends up paying 12–28% IGST and not 5%,” a top executive at an MRO company said.
Thus, the industry has requested the civil aviation ministry to initiate discussions with other relevant ministries for a classification of such items that are used commercially in the aviation sector, and provide IGST relief.
The civil aviation ministry spokesperson told Mint that the nomenclature issue for classification of aircraft parts under HSN Code 88 or related to aircraft, spacecraft, and parts thereof have been duly taken up with the ministry of finance as IGST issues are decided by the GST Council.
“The price of spares and components occupies a considerably larger share as compared to other cost components such as labour. Thus, minimal GST benefits on spares and components have been a concern for MRO operators. No airline will be willing to pay 20% higher tax compared with destinations such as Dubai and Singapore, which offer zero tax structures and tax holidays for 10 years respectively, to encourage aircraft maintenance activities,” a Niti Aayog report stated.
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Published: 15 Feb 2024, 05:45 AM IST