7 airports with it, Adanis look to buy stake in key aircraft back-end company

The group is exploring an agreement with shareholders of Mumbai-based Air Works Group to acquire a stake in the 71-year-old aviation firm, sources told The Sunday Express.

Air Works services IndiGo, GoAir and Vistara, in addition to over 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 into Air Works Group,” a source said adding that talks were at an early stage.

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Air Works Group, with a pan-India presence across 27 cities, competes with 50 standalone Indian MRO players including Government-run AI Engineering Services Ltd and GMR Aero Technic.

Billionaire Gautam Adani-run Adani Group 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 the Adani Group’s plan to leverage opportunities arising from the growing Indian civil aviation market and the increasing need for MRO services,” another source, aware of the discussions, told The Indian Express.

Queries sent to the Adani Group and Air Works Group did not elicit a response.

“Adanis have been keen on supplementing their airports portfolio with MRO for some time now. They have an arrangement with Indamer Aviation but that hasn’t really taken off. They have even made some appointments last year to decide on the company’s broader MRO strategy,” said a top executive at an airport development company.

In its annual report for 2020-21, Adani Enterprises noted that the outlook for the company is “underpinned by the fact that India is expected to emerge as the third largest aviation market catalysed by the government’s decision to popularise the public-private partnership model, graduate India into an MRO hub, flexible use of air space and matured regulatory framework with assured returns”.

Experts have pointed out that almost 90% of MRO requirements in India are currently being met through imports so the indigenous MRO sector carries a significant growth potential.

In a report last November, Deloitte noted that the Indian MRO industry’s size is expected to increase from $1.7 billion in 2021 to $4 billion by 2031, at a 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 third largest buyer of commercial passenger planes in the world, only after the US and China. This translates into demand for 200–300 major maintenance checks annually. Replacing aging aircraft in the fleets of several airlines also creates scope for MRO to meet redelivery contracts. India is also poised to become a large defence aircraft market, propelling demand for military MRO capabilities as well,” it added.

In March 2020, the GST rate on domestic MRO services was brought down from 18% to 5% with full input-tax credit — a move that, the MRO industry said, was a huge relief. Because of the cost disadvantage in India due to higher taxes, domestic airlines used to send their aircraft to countries such as Sri Lanka, China, Singapore and the UAE to have them serviced.

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Air Works reported a net loss of Rs 22.64 crore in the year ending March 2021 on a topline of Rs 253.57 crore. In the year ending March 2020, the company had a total income of Rs 340.13 crore, and a net profit of Rs 31.88 crore.

According to filings with the Ministry of Corporate Affairs, the largest shareholder in Air Works Group as of March 31, 2021 was GTI Capital Group, an India-focused investment fund, with 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. Around 15% of the company is currently held by the Menon family, which founded Air Works in 1951. Mails sent to GTI Capital Group and Punj Lloyd went unanswered.

In November 2021, Air Works amended its memorandum of association to increase its authorised share capital and create a new class of Series B equity shares — in what is a tell-tale sign of the company being in the market to raise fresh funds.