Cap lease rate at 40% upon renewal: MROs

livemint.com:

NEW DELHI : India’s aircraft maintenance, repair, and overhaul (MRO) units have sought a reduction in rental rates at which the government renews their land leases, Mint has learnt. “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