Mumbai: The Budget is a positive for the civil aviation industry, particularly for the maintenance, repair and overhaul (MRO) sector, say experts.

"Allowing external commercial borrowings (ECB) for working capital requirements of up to USD 1 billion per annum, and reducing the ECB withholding tax from 20 to 5 percent will help airlines access working capital at lower rates. The government has also exempted aircraft spare parts, new and retreaded tires as well as training equipment from basic Customs duty, which will help the country become an MRO hub," PwC India leader for aerospace & defence Dhiraj Mathur said.

KPMG too said that the budget is very good for the MRO industry. "It is a fulfillment of a long-time demand of domestic MRO players. This will help cut down maintenance cost of airlines and help the upcoming MRO industry. The industry was expecting some relief on service tax on MRO as an import substitution measure.

"Today the domestic carriers fly empty aircraft and crew at a high cost to MRO destinations in the Middle East and Southeast Asia primarily because of this tax anomaly," KPMG director for aviation Amber Dubey said.

He said preliminary estimates are that this move may help save 150-300 bps on interest on working capital loans for airlines. But the key challenge would be to overcome banks' reluctance to lend to the sector as well as hedging costs, he said.

But across board spike in excise duty will make the aviation turbine fuel and domestic spare parts costlier and the exact impact will need to be worked out, he said.

(Agencies)