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An Article on Aviation Sector in India
An Article on Aviation Sector in India - August 15th, 2007
Revolutionised by liberalisation, the aviation sector in India has been marked by fast-paced change in the past few years. From being a service that few could afford, the sector has now graduated to being a fiercely competitive industry with the presence of a number of private and public airlines and several consumer-oriented offerings.
The promise and the potential of the Indian aviation market are awesome. Over 135 aircraft have been added in the last two years alone. By 2010, India's fleet strength will stand at 500-550.
Economic Survey 2006-07 says:
The years 2004-05, 2005-06 and 2006-07 have been years of record growth in air traffic in India. During the period April-September, 2006, international and domestic passengers recorded growth of 15.8 per cent and 44.6 per cent, respectively, leading to an overall growth of 35.5 per cent. During the same period, international and domestic cargo recorded growth of 13.8 per cent and 8.7 per cent, respectively, resulting in an overall growth of 12.0 per cent.
India is the second largest aviation industry of the world
The Indian fleet, which comprised 170 aircraft in May 2005, is now almost twice that now, with 312 units. With the scheduled 2007 additions of 54-55, this number will rise to just under 370 by the end of the year. And growth is expected to continue apace: the Centre estimates that India’s fleet will reach approximately 500-550 aircraft by the end of 2010.
In the same period, the domestic market size will cross 60 million and international traffic 20 million. Aircraft manufacturer Airbus pegs India's demand at 1100 aircraft, worth US$ 105 billion, over the next 20 years. According to Civil Aviation Minister Praful Patel, the country will need 1,500 to 2,000 passenger planes in 10 years, up from 260 now.
India continues to show steady year on year growth, with a 7 per cent increase in the number of flights into and out of India (an additional 835 flights and more than 200,000 seats a month). The number of flights has virtually doubled from 6,800 in May 2001 to 13,200 in May 2007.
In fact, India is in third place in the Top 10 list of countries with the highest number of additional flights in May this year, behind only China and the US.
Investments, revenues, jobs: All set to take off
India's civil aviation passenger growth, at 20 per cent, is among the highest in the world. The sector is slated to cruise far ahead of other Asian giants like China or even strong economies like France and Australia. The number of passengers who will be airborne by 2020 is a whopping 400 million.
Between April and September 2006, however, amid a flurry of new entrants to the sector, domestic traffic growth accelerated to more than 45 per cent. The Centre for Asia Pacific Aviation (CAPA) predicts that domestic traffic will grow at 25 per cent to 30 per cent a year until 2010 and international traffic growth by 15 per cent, taking the overall market to more than 100 million passengers by the end of the decade. Indian carriers have 480 aircraft on order for delivery by 2012, which compares with a fleet size of 310 aircraft operating in the country today.
As pointed out by Minister of Civil Aviation, Praful Patel, presently, the number of air travelers is about 0.8 per cent of the population. By the time even 10 per cent of the population begins to fly, India will need about 5,000 aircraft.
More diverse businesses in non-metropolitan regions are creating new demand for air services. Airlines are bulking up on capacity -- 10 Indian carriers placed orders for 400 aircraft worth US$ 15 billion.
Upgrading Airport Infrastructure
By 2020, Indian airports are estimated to handle:
Several improvements are envisaged to sustain this tremendous growth in the civil aviation sector. The Government’s airport modernisation plan proposes investments of US$ 9 billion by 2010. In January 2006, joint venture companies with 74 per cent private sector participation won contracts to upgrade New Delhi and Mumbai airports. The Airports Authority of India has got the contract to upgrade Kolkata airport and the Government is also planning to upgrade the Chennai airport.
The Government plans to develop around 300 unused airstrips across India - a move that has raised projections for jets required for regional connectivity. Boeing and Airbus, along with Embraer (Brazil), Bombardier (Canada), Sukhoi (Russia), ATR (France) and BAE System (UK) are keen to tap the emerging regional jet market in the country.
International no-frills budget carriers, especially Asian low-cost carriers (LCCs) are also making a beeline for India. Already, Iran’s Jazeera Airways and Sharjah-based Al Arabia have registered their presence here. Other airlines planning to enter the market are: Tiger Air (a joint venture between Temasek Holdings and Singapore Airlines), Thailand-based private carrier Nok Air, Indonesia’s Lion Air, United Arab Emirates’ Ras Al Khaima (RAK) Airlines, Malaysia’s Air Asia and Saudi Arabia’s Sama Airway.
Increased activity in the maintenance and repair operations (MRO) sector has attracted many foreign companies. Lufthansa has tied up with GMR Hyderabad International Airport Limited (GHIAL) to open an MRO facility for which it intends to invest US$ 23 million. Similarly, Boeing intends to invest US$ 100 million in a facility in Nagpur.
With airport infrastructure being upgraded, non-aeronautical revenues (from malls, bookshops and entertainment centres) are expected to contribute almost 50 per cent to revenue of airports.
Of late, the domestic market is witnessing a trend towards consolidation. In a bid to augment capacity and grab market share, the sector is witnessing a consolidation as well as rationalization of resources. Accordingly, Jet Airways has acquired Air Sahara, Air-India and Indian are to merge, Kingfisher Airlines has entered into a strategic relationship with Air Deccan, and Paramount Airways is talking to two airlines for a possible takeover.
With the sector expanding at a fast pace, the number of aircraft being used is on the rise and so is the need for pilots. Not surprisingly, aviation school is the latest buzzword among students as India would require 7,500-8,000 pilots and an equal number or more air cabin crew by 2010. Heavy pay packets are awaiting pilots with a commercial pilot license (CPL).
To take advantage of this situation, several pilot shops are being set up across the country:
Airlines on a buying spree
With such rapidly growth in the sector, manufacturers like Boeing and Airbus are filling their order books fast.
Boeing has received a US$ 1.5 billion order for 10 aircraft from Jet Airways, India's largest private airline. Airbus plans to invest more than US$ 1 billion in the Indian aviation industry in the next 10 years. Bombardier Aerospace, a Canada-based company that manufactures regional aircraft and business jets, is looking to tap the growing regional market in India for flight services. SpiceJet has ordered 10 next-generation Boeing 737-800 aircraft valued at a list price of more than US$ 700 million.
FDI Policy in Indian Aviation:
Paving the way for foreign investment in domestic airline companies, the Reserve Bank of India (RBI) has said that foreign institutional investors (FIIs) can pick up stake in these airlines beyond the sectoral FDI cap of 49 per cent through secondary market purchases.
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