Channel: Industry

Friday, October 08, 2010
Indian Aviation : A New Sunrise Sector
India has put more than a billion faces on the world map with a thud when the prime minister
 
 

India has put more than a billion faces on the world map with a thud when the prime minister of India unveiled the world's eighth largest terminal, T3, at New Delhi airport. The creation of the state of the art infrastructure project of the size of ` 9000 Crore, which was unfathomable hitherto in the Indian infrastructure history, has marked the beginning of a New Sunrise Sector. T3 has announced the arrival of a young India who dares, who dreams big, who looks determined to turn the table as it aspires to reach the top of the pyramid slowly but surely. When western countries are plagued with fiscal deficits, India talks about the "infrastructure deficit". India is plugging the hole of its fiscal deficit by bridging the infrastructure gap, be it telecom sector or aviation sector.

 

T3 boasts of the annual capacity of 34 million passengers against the present capacity of 10 million. It means that this swanky terminal from India will handle more passenger than Singapore's Changi terminal 3, 22 million. The completion of this project in the record time of 37 months will remain exemplary to all PPP models. The partnership of 58 Govt. departments with the private consortium GMR has set up a benchmark for the infrastructure industry which is looking at the infusion of USD 1.7 trillion in this coming decade.

 
India - an international Hub
 
Reality in the making

The advent of this spiraling terminal has incited the talks of New Delhi being an international hub, (like London, Singapore, Hong Kong and Dubai) for South Asia, which till now has only been a dream for India. India does want to snare its first real chance of developing Delhi airport as an international hub with a world class infrastructure in its hand. Presently, the hub for Indian traffic is Singapore or Dubai. Hence, the biggest challenge for the aviation is to create a Hub and Spoke model. Wherein, passengers not only from metro but also from other bigger cities of the world will come to Delhi for their onward journey to the cities like Shanghai, Beijing, and Hong Kong. This will further result into a Snowball effect i.e. the chance of attracting huge investment for other airports as well.

 

India as an international hub looks more of a reality as the US has promised to work with the domestic private sector and Indian government to make the country an aviation hub.

 
Nothing but Hoopla

The other school of thought, after looking at the present scenario, totally sidelines the possibility of India being an international hub at least for a decade. The problems that preclude India from developing itself as an international hub are good infrastructure and more importantly creation of large domestic airlines of the stature of Singapore or Emirates Airlines. The former problem may look like the thing of the past with the advent of T3 but the dependence of New Delhi on its new and shorter runway does not solve the problem of congestion. However, it can be addressed in times to come with infrastructure being the top priority for the government. However, the latter problem stands big time between India and India as a Hub as the development of Indian carriers and their ability of having their hubs in India remains the biggest challenge for the industry.

 

There is a threefold solution to these problems:

  • Connectivity: High speed connectivity between metro and tier two, three cities.
  • Up gradation of Airports: Mumbai needs a second airport as its airport has reached the saturation level.
  • World Class Airline: Airline which can instead of targeting point-to-point passengers can also target transit passengers.

Remarkable potential for Aviation industry

 

Indian aviation industry, as per the Indian PM, has the capacity to absorb a stupendous investment of USD 120b by 2020 with USD 80-85b in aircrafts and USD 30-35b in bridging airport infrastructure deficit. In order to match the huge upsurge in the traffic, India needs a massive fleet of 3000 aircrafts and construction of a huge number of airports - 400. It looks no stopping as Airbus has re-forecasted its market in the country from USD 100b to USD 138b by 2028.

 

The biggest question is whether India will be able to cope up with the expected infusion of this obscene amount of money when the industry still has been marred by so many problems:-

 
Low Vision of Airlines

Indian airlines are not foresighted as all of them are working tirelessly for the shorter vision i.e. market share. In race to be a leader in the world's ninth largest aviation industry of the world they end up deploying more plains while keeping prices at enviable but unviable prices. Excess capacity is the major problem which precludes Indian airlines to book huge profits despite of their presence in the second fastest economy of the world.

 

Solution: They should look for bigger picture i.e. profit attainment via proper capacity utilization.

 

Processes taking eternity has always been India's trademark irrespective of sectors. However, the inclusion of Airport Economic Regulatory Authority (AERA) may solve this problem.

 

When we have a darker side with lots of problems to look at there is also a brighter picture to set focus on. Investments of more than USD 1.02b in 2010 will plug the infrastructure gap for sure which includes development of 24 city-side airports along with 11 Greenfield airports. More importantly, the sector is doing exactly what the doctor has ordered for them i.e. reforms in policies. Indian Aviation sector has come up with AERA which will strengthen the regulation in his sector. Directorate General of Civil Aviation (DGCA) is also mooting over raising the FDI bar.

 

FDI In aviation sector

New sunrise sector has started to look up and that needs certain things Infusion of more capital, technological expertise and cost cutting. These gaps can be taken care of by revamping India's FDI policy. Presently, FDI of 49% is allowed in the domestic aviation. However, foreign airlines are not allowed to invest due to national security reasons. Discussions are going on to allow FDI by foreign airlines, between 26% up to 49%.

 Opportunity for UK

The big aviation players from the UK i.e. British Airways, Virgin Atlantic can prove to be a big asset for Indian airlines. The latter would be getting access to high class technology and infusion of more capital to sustain and improve their operations. A boon for British companies too as they will be entering one of the world's fastest growing markets. Which will witness the domestic traffic to the tune of 160-180 million and international traffic up to 50 million by 2020?

 

There is more opportunities for companies like Thomas cook, who has struck a seven year deal with Delhi International Airport limited (DIAL). They would be providing foreign exchange and travel services in a revenue shared partnership with DIAL.

 

Road Ahead

Looks very impressive!! All the aforementioned initiatives coupled with ever increasing domestic and international traffic, Indian aviation industry set to become a quintessential for others to follow in times to come. According to Mr. Praful Patel, Minister Civil Aviation, there would be 12 surviving carriers flying across the globe by 2050 and three apiece will come from both India and China. The scenario looks more upbeat with lots more foreign investment around the corner:

  • Boeing is about to set up the US$ 100 million proposed Maintenance Repair Overhaul (MRO) facilities in Delhi.
  • Air India along with GE Aviation will jointly invest US$ 90 million to set up a MRO facility in Mumbai.

 

As of now things look very much in control as India is all set to break into the top five aviation market of the world by 2015. Rest time will tell!!

 
 

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