The Adani Group, which operates seven airports in the country, is seeking to invest in India’s largest independent aircraft maintenance, repair and overhaul (MRO) organization to bolster its civil aviation portfolio.
The group is exploring a deal with shareholders of Mumbai-based Air Works Group to acquire a stake in the 71-year-old aviation company, sources told The Sunday Express.
Air Works flies to IndiGo, GoAir and Vistara, in addition to more than a dozen foreign airlines, including Lufthansa, Turkish Airlines, FlyDubai, Etihad and Virgin Atlantic. It also counts the Indian Navy among its customers and earlier this month partnered with Boeing for heavy maintenance checks on three Indian Navy P-8I long-range maritime patrol aircraft.
“The Adani Group has started its due diligence in the Air Works Group,” a source said, adding that the talks are still in their early stages.
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Air Works Group, with a pan-Indian presence in 27 cities, competes with 50 standalone Indian MRO players, including government-run AI Engineering Services Ltd and GMR Aero Technic.
Adani Group, headed by billionaire Gautam Adani, operates the country’s second largest airport in Mumbai, in addition to airports in Ahmedabad, Lucknow, Thiruvananthapuram, Jaipur, Guwahati and Mangaluru. The company also offers MRO services at its airports in partnership with Mumbai-based Indamer Aviation Pvt Ltd.
“The proposed deal with Air Works is in line with Adani Group’s plan to capitalize on opportunities arising from India’s growing civil aviation market and growing need for MRO services,” another source said. talks, at The Indian Express.
Queries sent to Adani Group and Air Works Group did not elicit a response.
“Adanis has been keen for some time to complement its airport portfolio with MRO. They have an agreement with Indamer Aviation but it hasn’t really taken off. They even made a few appointments last year to decide the broader MRO strategy for the business,” said a senior executive at an airport development company.
Riding the aviation boom
Nearly 90% of India’s MRO (aircraft maintenance, repair and overhaul) needs are currently met by imports. In a report last year, Deloitte estimated that due to the aviation boom, the size of the Indian MRO industry is expected to grow from $1.7 billion in 2021 to $4 billion by 2031, at a compound annual growth rate (CAGR) of 8.9% over the predicted global CAGR. by 5.6%.
In its annual report for 2020-2021, Adani Enterprises noted that the company’s outlook is “supported by the fact that India is expected to become the third largest aviation market catalyzed by the government’s decision to popularize the public-private partnership model, making India an MRO hub, flexible use of airspace and a matured regulatory framework with assured returns”.
Experts have pointed out that nearly 90% of MRO needs in India are currently met by imports, so the indigenous MRO sector has significant growth potential.
In a report last November, Deloitte noted that the size of the Indian MRO industry is expected to grow from $1.7 billion in 2021 to $4 billion by 2031, at compound annual growth rate (CAGR). of 8.9% against the expected global CAGR of 5.6%.
“With more than 1,000 aircraft currently on order, the country is likely to become the world’s third-largest buyer of commercial passenger aircraft, only after the United States and China. This translates into a demand for 200 to 300 major maintenance checks per year. Replacing aging aircraft in the fleets of multiple airlines also enables the MRO to meet delivery contracts. India is also poised to become a major defense aircraft market, also driving demand for military MRO capabilities,” he added.
In March 2020, the GST rate on domestic MRO services was reduced from 18% to 5% with a full input tax credit – a move which the MRO industry says was a huge relief. Due to the cost disadvantage in India due to higher taxes, domestic airlines used to send their planes to countries such as Sri Lanka, China, Singapore and the United Arab Emirates for maintenance. .
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Air Works reported a net loss of Rs 22.64 crore in the year ending March 2021 on a leading line of Rs 253.57 crore. In the year ending March 2020, the company had a total revenue of Rs 340.13 crore and a net profit of Rs 31.88 crore.
According to documents filed with the Ministry of Corporate Affairs, Air Works Group’s largest shareholder as of March 31, 2021 was GTI Capital Group, an India-focused investment fund, with a 25.75% share. This was followed by a 23.24% stake held by Punj Lloyd Aviation, a subsidiary of the now bankrupt Punj Lloyd Ltd. About 15% of the company is currently owned by the Menon family, who founded Air Works in 1951. Emails sent to GTI Capital Group and Punj Lloyd went unanswered.
In November 2021, Air Works amended its memorandum of association to increase its authorized share capital and create a new class of Series B shares – which is a telltale sign that the company is in the market to raise new funds.