indian Aviation

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analysis of the Indian aviation authority and its future aspects

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<ul><li><p>Indian Aviation Scaling New Heights</p></li><li><p>Indian Aviation Scaling New Heights 1</p><p>Contents</p><p>1 Executive summary</p><p>2 Overview Of Indian Aviation</p><p>3 Issues</p><p>4 Opportunities</p><p>5 Scaling New Heights</p><p>6 Abbreviations</p><p>7 Acknowledgements</p><p>8 Bibliography</p></li><li><p>Indian Aviation Scaling New Heights 2</p><p>Global and domestic aircraft manufacturers are upbeat on the aircraft demands from India.</p><p>Aviation sector in India has been transformed from an over regulated and under managed sector to a more open, liberal and investment friendly sector since 2004. Entry of low cost carriers, higher house hold incomes, strong economic growth, increased FDI in ows, surging tourist in ow, increased cargo movement, sustained business growth and supporting government policies are the major drivers for the growth of aviation sector in India. Forecasts by AAI for the next 5 years have projected a sustainable growth rate of 16% for international and 20% for domestic aviation sector. Recognizing the exponential growth of air traf c in India, the Ministry of Civil Aviation has been following a very liberal policy in the exchange of capacity entitlements / traf c rights. Domestic airlines have been allowed to y overseas, forge partnerships with foreign carriers while foreign carriers in turn have been interlining with domestic airlines to access secondary destinations.</p><p>The government has also tried to ensure an environment conducive for growth of all stakeholders associated with Indian aviation segment. With the rise in the number of airlines, growing passenger segment and route expansion, there is however a need for Indian airports to have their infrastructure in place, which unfortunately at present is the weakest link in the chain. Green eld and modernisation projects are being developed on PPP model to develop facilities conforming to international standards and to encourage the domestic operators to shift base, so as to decongest major airports. To monitor the quality of services rendered by various airports and their tariff, an independent regulator, Airport Economic Regulatory Authority (AERA), is proposed to be appointed. To ensure competitive practices in ground handling services, the government has proposed adoption of a new ground handling policy from January 2009.</p><p>Global and domestic aircraft manufacturers are upbeat on the aircraft demands from India. Non scheduled services have also steadily picked up and are growing at a CAGR of 19% primarily driven by a sustained growth in the economy and facilitated by the need of Indian corporate captains to invest in more productive hours everyday. In addition, total cargo traf c of all airports has increased from 10% during 2006-07 to 14% in 2007-08, recording a CAGR of 13% for last six years. With the growth in the passenger and aircraft traf c in India, there has also been a signi cant focus on </p><p>requirement of maintenance, repair and overhaul (MRO) facilities. The Indian MRO market is growing at about 15% annually. However, on the manpower front, currently there is a shortage of quali ed pilots and other technical staff including Aircraft Maintenance Engineers and Air Traf c Controllers.</p><p>While there are a lot of new avenues in aerospace services in the coming decades, the constraints associated need to be addressed to enable the smooth growth of the sector. Some of the issues faced by the sector include mounting losses of the airlines, rising aviation fuel prices, congestion at airports, shortage of quali ed pilots and technical manpower, upgradation of security, land acquisition, high taxation, high airport charges etc. There is a need to study the causes of the issues and address the same thereby paving an unobstructed growth path for the various opportunities.</p><p>1. Executive summary </p></li><li><p>3In times of current US slowdown and fear of recession, the role of developing economies like India assumes greater signi cance. Its thrust for capacity and capabilities enhancement will be the drivers of growth. The Indian government has initiated several reforms and steps to keep the momentum going. Indian aviation </p><p>space offers promising opportunities in the areas of aircraft manufacturing, airport infrastructure, airport and ground support equipment, MRO facilities, ground handling services, trained manpower, air cargo, fuel hedging, aerotropolis along with tapping the potential stream of non aeronautical revenues.</p><p>The need of the hour is to ef ciently utilize the existing resources and at the same time commission the planned infrastructure in a timely manner. In addition, a collaborative effort must be initiated involving all the stakeholders concerned to chalk out a framework detailing the measures, the Indian aviation sector needs to pursue in the next ve to ten years. This framework would act as a platform to scale new heights and make India one of the leaders in the global aviation industry. The framework would require prioritization of various issues on the basis of importance (high, normal or low). This would ensure a focused approach to understand the root cause of the issue and to address the same by taking necessary remedial actions. The framework would also emphasize on the time lines for leveraging the opportunities abound in the sector.</p></li><li><p>India is one of the fastest growing economies of the world with an average GDP growth of over 8.9 percent in last ve years. For India to sustain its economic growth story it has to strengthen its infrastructure sector and in particular, critically improve its transportation infrastructure. Aviation is an important part of national infrastructure and one of the prime movers for economic growth and an important strategic element of employment generation. Aviation sector in India has been transformed from an over regulated and under managed sector to a more open, liberal and investment friendly sector since 2004. Adoption of global standards has made aviation a safer way to travel.</p><p>Passenger growthGenerally it has observed that the air transport grows at twice the rate of GDP growth. The international passenger growth has been growing at CAGR of over 14% and domestic growth has been an impressive 22% for last 6 years. The passenger growth trends for the past 8 years is indicated in gure 1.</p><p>Cargo growthIndia already has an open sky policy for air cargo. An air cargo hub is being developed at Nagpur by the Ministry of Civil Aviation. The ministry also has plans to build dedicated cargo airports across the country to cater to increasing demand in air cargo traf c.</p><p>During the year 2007-08, the domestic cargo traf c grew by 11% while the international cargo traf c grew by 15%. The domestic cargo is expected to increase at a CAGR of 13% during the period 2007-2010 while the international cargo is expected to grow at a CAGR of 14% over the same period. At present India contributes over 1% of the world air cargo traf c. The growth trends in the air cargo segment is depicited in gure 2.</p><p>2. Overview of Indian aviation </p><p>Figure 1: Passenger Growth Trends</p><p> International Domestic Total</p><p>Source: Airports Authority of India (AAI)</p><p>Pass</p><p>ange</p><p>rs in</p><p> Mill</p><p>ions</p><p>1999-00 2002-03 2005-062000-01 2003-04 2006-072001-02 2004-05 2007-080</p><p>40</p><p>60</p><p>80</p><p>100</p><p>120</p><p>140</p><p>20</p><p>Figure 2: Air-cargo growth trends</p><p> International Domestic Total</p><p>Source: Airports Authority of India (AAI)</p><p>In '0</p><p>00 T</p><p>onne</p><p>s</p><p>1999-00 2002-03 2005-062000-01 2003-04 2006-072001-02 2004-05 2007-080</p><p>400600800</p><p>1000</p><p>1200</p><p>1400</p><p>1600</p><p>1800</p><p>2000</p><p>200</p><p>Indian Aviation Scaling New Heights 4</p></li><li><p>5Growth driversThe factors contributing to the air traf c growth can be broadly classi ed into economic and policy factors. Entry of low cost carriers, higher house hold incomes, strong economic growth, increased FDI in ows, surging tourist in ow, increased cargo movement, strong business growth and supporting government policies are the major drivers for the growth of aviation sector in India. For growth drivers refer the table below:</p><p>Economic Factor Policy Factor</p><p> Liberalisation and economic reforms undertaken by the government Fast expansion of industries in consonance with economic reforms Emergence of service sector Average GDP growth of around 8.9% during the last 5 years Increase in inbound and outbound tourists and medical tourism Over 300 million strong middle class Disposable incomes expected to increase at an average of 8.5% </p><p>p.a. till 2015 Emergence of low cost airlines The organised retail boom that would require the need for timely </p><p>delivery thus contributing to the growth in the air cargo segment Corporate showing increasing preference for private jets and air </p><p>charter services</p><p> Modernisation and setting up new airports across country City side development of non metro airports Providing international airport status to major tier I and tier II cities Open sky policy Policy of license to new scheduled operators Permission to acquire new aircrafts Permission of private operators to operate on international sectors Encouraging private investments in airlines and airport infrastructure Facilitative foreign direct investment norms Liberal bilateral service agreements Emphasis on development through PPP mode</p><p>Year Aircraft Movements(in 000)</p><p>Passenger(in million)</p><p>Cargo(in 000 tones)</p><p>International Domestic International Domestic International Domestic</p><p>2005-06 Base year 190.89 647.4 22.36 50.98 920.15 483.8</p><p>Growth rate (%) 13.2 14.7 15.9 19.9 12.1 10.1</p><p>2006-07 216.14 737.94 25.85 60.91 1028.66 531.64</p><p>2007-08 243.91 843.1 29.85 72.87 1151.05 584.61</p><p>2008-09 275.58 965.54 34.53 87.31 1289.26 643.31</p><p>2009-10 311.74 1108.39 40.01 104.75 1445.5 708.39</p><p>2010-11 353.09 1275.38 46.45 125.84 1622.33 780.6</p><p>2011-12 400.45 1470.99 54.04 151.36 1822.69 860.78</p><p>Growth rate (%) 10.5 9.8 16.2 13.3 12.8 8.4</p><p>2012-13 441.58 1653.63 61.04 175.64 1998.45 931.91</p><p>2013-14 487.36 1862.08 69.05 203.99 2192.47 1009.47</p><p>2014-15 538.38 2100.35 78.23 237.13 2406.81 1094.07</p><p>2015-16 595.29 2373.13 88.78 275.9 2643.73 1186.39</p><p>2016-17 658.89 2685.9 100.93 321.28 2905.79 1287.18</p><p>Table 1 : Growth drivers</p><p>Table 2 : Passenger / Cargo forecast till 2016-17</p><p>Source: Airports Authority of India</p><p>Source: 11th Planning Commission Report and others</p></li><li><p>Indian Aviation Scaling New Heights 6</p><p>AAI forecastForecasts by AAI for the next 5 years have projected a sustainable growth rate of 16% for international and 20% for domestic aviation sector. AAI projects 105 million domestic passengers and 40 million international passengers by end of the year 2010.</p><p>Bilateral agreementsIndia has so far entered into Air Services Agreements with around 101 countries. A bilateral Air Transport Agreement (also sometimes called a bilateral Air Service Agreement) is an agreement which two nations sign to allow civil aviation between their territories. Air ServicesAgreement provides the basic legal framework for operation of air services between India and the country concerned. The number of ights/ seats per week to be operated by the designated airlines of India and the contracting foreign country are decided by Government level bilateral talks, which are held at regular interval depending upon growth of traf c based on the principle of mutual bene t and reciprocity. During past ve years as a result of open skies with USA, near open skies with UK/ASEAN/SAARC along with liberal bilateral agreements with other countries there has been huge increase in entitlements/new routes for foreign airlines. Recognizing the exponential growth in air traf c in India, the Ministry of Civil Aviation has been following a very open-minded policy in exchange of capacity entitlements / traf c rights. Domestic airlines have been allowed to y overseas, forge partnerships with foreign carriers while foreign carriers in turn have been interlining with domestic airlines to assess secondary destinations. In addition, the government has also tried to ensure a conducive environment for the growth of all stakeholders associated with Indian aviation segment.</p><p>FDI guidelines in civil aviationThe FDI guidelines in Indian civil aviation are listed in the table below:</p><p>Proposed regulatory authorityThe Ministry of Civil Aviation is planning to establish an Airport Economic Regulatory Authority (AERA). AERA, an independent regulator would be responsible to facilitate the development of the Indian airports. AERA will also look into issues such as tariffs, and monitor the quality of services rendered by various airports. Initially only major airports viz those airports which have </p><p>or are designed to have annual passenger throughput of more than 1.5 million will fall under the purview of AERA. However, if at a later stage it is felt that any other airport with a throughput of less than 1.5 million passengers needs to be brought under AERA, the government will accordingly notify such an airport as a major airport and bring it under the scope of AERA.</p><p>Sector FDI guidelines as on June 30, 2008</p><p>Airports Green eld projects FDI up to 100% is allowed under automatic route</p><p> Existing projects FDI up to 100% is allowed with prior approval of the Govt. for FDI beyond 74%</p><p>Air transport services</p><p> Scheduled Air Transport Service / Domestic Scheduled Passenger Airline - FDI up to 49% and investment by Non-resident Indians (NRI) up to 100% allowed under the automatic route.</p><p> Non-Scheduled Air Transport Service/ Non-Scheduled airlines, Chartered airlines, and Cargo airlines- FDI up to 74% and investment by Non-resident Indians (NRI) up to 100% allowed under the automatic route.</p><p> Helicopter services/seaplane services requiring DGCA approval- FDI up to 100% allowed under the automatic route.</p><p> No foreign airlines would be allowed to participate directly or indirectly in the equity of an Air Transport Undertaking engaged in operating Scheduled, Non-Scheduled, and Chartered airlines.</p><p> Foreign airlines are allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services.</p><p>Ground handling services</p><p> FDI up to 74% and investment by Nonresident Indians (NRI) up to 100% allowed under the automaticroute. This will be subject to sectoral regulations and security clearance.</p><p>Maintenance and Repairs Overhaul</p><p> FDI up to 100% allowed under the automatic route.</p><p>Flying training schools and technical training institutions</p><p> FDI up to 100% allowed under the automatic route.</p><p>However there are certain provisions and guidelines with regards to the entity that is granted permission to operate the above services. These guidelines are promulgated by DGCA and are subject to compliance with applicable regulatory norms / rules.</p><p>Table 3 : FDI guidelines in Indian civil aviation</p><p>Source: DGCA</p></li><li><p>7Present scenario for key aviation areas and stakeholders is described in the section below:</p><p>Domestic airlinesOver the past few years, the number of domestic airlines increased which led to a reduction in fares (till early 2008) facilitating the increase in passenger growth. Launching of the low cost airline model by Air Deccan in 2003, initiated a series of new airlines coming in the aviati...</p></li></ul>