RBI tweaks FEMA rules, gives wings to aircraft recycling
Till now, export of planes in knocked-down condition was not allowed
In April 2019, as Jet Airways went bankrupt and the airline’s lessors scrambled to safely recover their aircraft, they faced a curious problem. Jet had started cannibalising parts from some of these aircraft to keep the others flying. The Ireland-based JIHB DAC, which had leased two Boeing 777s to Jet, found that one of them had been so heavily cannibalised that there was no way the plane could be flown back. So, the company wanted to strip the aircraft down and salvage whatever usable parts it could. But Indian laws wouldn’t allow that.
While Indian Customs laws allowed free import and export of leased aircraft, there was no such provision for dismantled airplane parts.
But the Reserve Bank of India (RBI) has now ironed out this problem by allowing export of leased aircraft, helicopters, engines or other parts — in complete or knocked-down conditions. This small tweak could be the beginning of a vibrant industry for India — one that makes it a hub where retired aircraft are stored, and their parts removed for reuse or resale.
The change effected by the RBI in the Foreign Exchange Management (Export of Goods and Services) Regulations made it possible for JIHB to dismantle the aircraft, the parts of which have now been packed and sold to Alaris Aerospace, a South Florida-based aircraft parts supplier.
“This is a very common problem lessors face across the world. Whenever an airline is financially strained, it tends to skip buying parts and instead takes them from existing aircraft which it doesn’t intend to operate, making it a headache for lessors,” says Vishok Mansingh, CEO at Vman Aero Service, which manages aircraft in India for foreign lessors. “Multiple aircraft of Kingfisher Airlines are still lying around Indian airports because the lessors couldn’t take them back since this provision didn’t exist.”
After their retirement, planes end up in parking lots known as “graveyards”. More often, these aircraft have their parts stripped for reuse or resale before being melted down for scrap. “Lessors were earlier sceptical about storing aircraft in India since there was little chance of getting any value out of the plane if it was not airworthy,” says K V Krishnan, whose team of 30 engineers has successfully dismantled the 247,200 kg JIHB aircraft. “With this change, the government has in one sweep opened up vast opportunities for India’s maintenance, repair and overhaul industry. These players can now market themselves to foreign airlines to retire their aircraft in India,” he adds. Every part of an aircraft is salvageable, he explains. “The primary parts, which we salvaged here, are the engines, landing gear, electronic box, besides some 4,500 items.”
Second-hand aircraft parts are hot commodities. Most still have a lot of life in them, but are much cheaper than ordering new parts from the manufacturer. To put the scale of the industry in perspective: About $4.5 billion worth of salvaged aircraft parts entered the global market between 2018 and 2019 alone.
“We have made substantial progress with this regulation. With Covid-19 forcing airlines to phase out a lot of aircraft, there will be a huge boom in the market where parts are salvaged,” says Venkatraman Shankar, managing partner of Caladrius Aero, an aviation consultancy firm based out of Mumbai that advises aircraft lessors MRO. “Since there is no place in the Asia-pacific region that acts as a graveyard of aircraft, India can be the capital – just like it developed the shipbreaking industry,” he adds.
India is the biggest ship breaking market, with the Alang-sosiya ship breaking yard in Gujarat handling at least 450 ships every year. In 2019, India handled five million tonnage of ship scrap – roughly a quarter of the world’s ship recycling industry. However, the high parking charges of Indian airports can act as a barrier, forcing lessors to choose cheaper destinations such as Spain and Singapore, which incentivise lessors with lower parking charges, says Shankar.
“At Chennai airport, the cheapest in India, the parking fee for a wide-body aircraft is ~81,600 per day, which is a lot,” he says. “The government should bring the charges down to encourage the industry.”