Tuesday, January 07, 2020

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

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.
07/01/20 Anwesha Ganguly/Financial Express

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