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Aviation

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Aviation

August, 2010

The Indian aviation industry is one of the fastest growing aviation industries in the world with private airlines accounting for more than 75 per cent of the sector of the domestic aviation market (as of 2006). The industry is growing at a compound annual growth rate (CAGR) of 18 per cent. The country has 454 airports and airstrips, of which 16 are designated as international airports.

Mr Praful Patel, Union Civil Aviation Minister has stated that the Indian aviation sector will become one of the top five civil aviation markets in the world over the next five years. Currently, India ranks ninth in the global civil aviation market.

Passengers carried by domestic airlines from January-June 2010 stood at 25.71 million as against 21.1 million in the corresponding period of 2009—a growth of 22 per cent—according to data released by the Directorate General of Civil Aviation (DGCA). In terms of market share, private carrier Jet Airways was the market leader with 26.5 per cent share, followed by Kingfisher Airlines with 21 per cent, Air India with 16.9 per cent, Indigo with 16.4 per cent, SpiceJet with 13.3 per cent and GoAir with 5.8 per cent during the month of June 2010.

Leading aircraft manufacturers Airbus and Boeing have expressed optimism over the growth of the civil aviation industry in India. As per Airbus, the country would need 1,032 new aircrafts worth around US$ 138 billion by 2028. On a similar note, Boeing has also predicted that the sector would require 1,150 commercial jets worth US$ 135 billion in the next 20 years.

The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport is being managed by a public-private joint venture of the GMR Group, Malaysia Airports Holdings Berhad and the State Government of Andhra Pradesh along with the Airports Authority of India (AAI).

Timothy J Roemer, the US Ambassador to India has said that the US will work with the Indian government and the domestic private sector to make the country an aviation hub. Speaking at India Aviation 2010, Roemer said that the public-private initiative, US-India Aviation Programme, would work together with the DGCA on helicopter aviation security.

The AAI is set to spend over US$ 1.02 billion in 2010, towards modernisation of non-metro airports. AAI is planning the city-side development of 24 airports, including those at Ahmedabad and Amritsar. Additionally, 11 new greenfield airports have been identified to reduce passenger load on existing airports, according to Praveen Seth, member-operations, AAI.

AAI also plans to spend around US$ 3.07 billion in the next five years for developing, upgrading and modernising metro and non-metro airports.

With the growth in the industry, airport retailing has also gained pace in the recent times. Development of new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus to this segment. The highest margin earners in this segment are food and beverages, beauty product, electronic items, apparel etc. It has been predicted that airports would provide around 300,000-400,000 square feet retail space by 2015. Many companies are also planning to leverage on this growing segment by launching specific products for air travellers. For instance, French premium skincare brand L'Occitane is planning to develop a special range to cater to the airport retailing segment.

Investment Policy

The consolidated document on FDI policy was released on March 31, 2010.

Currently, for the civil aviation sector (Airports):

  • FDI up to 100 per cent is allowed under the automatic route for greenfield projects.
  • For existing projects, FDI up to 100 per cent is allowed; while investment up to 74 per cent under the automatic route and beyond 74 per cent under the government route.

Government initiative

As per a new Civil Aviation Requirement (CAR) issued by the DGCA, airlines would have to mandatorily pay a compensation for delay or cancellation of flights or in case the passengers are denied boarding although possessing a confirmed ticket. The regulation would come into effect from August 15, 2010.

The Road Ahead

Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion towards new aircraft and US$ 30 billion towards the development of airport infrastructure, according to the Investment Commission of India.

GE Aviation and Air India will jointly invest US$ 90 million to set up a maintenance, repair and overhaul (MRO) facility in Mumbai.

Indocopters Private Ltd, distributor for Eurocopter helicopters in India, is planning to set up a helicopter MRO facility in Bhubaneswar, the company’s fourth service centre in the country.