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MRO Strategy for the Airline In-House or Outsource

17th March 2011

Agenda
Indian Aviation Growth MRO Market (World and India) Airline Cost E&M E&M Activites India In-house vs. Outsourcing (Factor to consider) Reasons for current E&M activities in India Comparison of In-house vs. Outsource

Domestic & International air traffic growth India


CAGR FY 06 FY 10 : 17 % Domestic passenger growth CAGR FY 06 FY 10 : 20 % International passenger growth

Passengers in Millions

Source: Published data, research estimates

Passengers in Millions

Domestic traffic volume Forecast

Source :Airbus GMF2010

India fleet - 2010

Total commercial fleet size :411

Source : MRO Prospector

Forecast South Asia & India

Source : Boeing CM0 2010

No: of aircrafts

Source : MRO Prospector

MRO Market forecast


World MR O market

18 16 14 12
USD Billions

10 8 6 4 2 0

Pa ci fic

As ia

2010

2015

2020

M .E as t N .A m er ic a W .E ur op e
Source : MRO Prospector

hi na

a In di

.E ur op

L. A

m er ic a

Af ric a

MRO value by activities

India s MRO market is approximately USD 620 million

Source : MRO Prospector

Value of MRO market in India

USD M illions

Source : MRO Prospector Source : MRO Prospector

Typical Airline major costs

The major cost contributors for the airline are Fuel Personnel Acquisition Cost Airport related cost E&M Cost

E&M Activities

E&M Activites

Labor

Material

Typical

Line Maintenance
Light Scheduled Checks Heavy Scheduled Checks Engine Components APU

High
High High Low Low Low

Low
Low Low High High High

In-house
In-house Outsourced Outsourced Outsourced Outsourced

Landing Gear

Low

High

Outsourced

Current Indian MRO market & Outsourcing locations


Outsourcing locations Malaysia Singapore UAE Jordan China France Germany

% of Work

Source : ACAS

In house or Outsource
The Major factors that dictate the decision to Outsource MRO activity In house

vs. Outsource are: Maintenance Philosophy Economy of scale / sufficient volume Available resource / skilled manpower, facility (or build and plan) Regulatory Economic feasibility Tax impacts Favorable policies / schemes Geographic location Existing Service Providers (in-country and regional)
Each of E&M Activities needs to be evaluated E&M strategy has to be periodically reviewed

E&M Activities
Line Maintenance / Light Maintenance Checks Does not require facility (done within the operating network) More labor intense, less downtime and lower skills Currently it is better to do in-house Heavy Scheduled Checks (Base Maintenance) Mostly outsourced due to shortage of facilities Requires facility More labor intensive, higher ground time and higher skills Has good potential for in-country MROs but there are service tax, sales tax, VAT, customs duty Collaboration model coupled with SEZ benefits. Engines / APU / Components / Landing Gear Outsourced (out of country) Requires sufficient volume for overhaul shops More material intensive, high skill Withholding tax Collaboration model coupled with SEZ benefits for some selective types

In-house vs. Outsourcing


In-house
Sufficient volume Complete control Proactive for uncertainty Third party revenue

Outsource
Quick startup Predictable cost (PBTH model) Contracts Performance & Penalty Flexible to fleet changes Airlines can have mix fleet Reactive to uncertainty Could have exit penalties Taxes: withholding, sales tax,

Long lead time Investment Cost Inflexible to fleet changes Downsizing Inflexible to cater to mix fleet

Thank you
Contact: Haris M. Ansari General Manager - Corporate Projects Planning Jet Airways (India) Limited Mobile: +91 9820507287 Direct (Tel): +91 22 40191205 Email: hansari@jetairways.com Website: www.jetairways.com