Indian Logistics Industry Insight-Aviation

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IInnddiiaann LLooggiissttiiccss IInndduussttrryy IInnssiigghhtt

AAvviiaattiioonn

May 2007

Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting & Research (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of the publication or contents

4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India Tel: +91-40-23430303-05, Fax: +91-40-23430201, E-mail: [email protected]

Website: www.cygnusindia.com

© Cygnus Business Consulting & Research 2007

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CONTENTS

1. Executive Summary ................................................................................... 6

2. Highlights ................................................................................................. 10

3. Logistics Industry Structure ..................................................................... 11

3.1 Global Logistics Industry Overview ...............................................................11

3.1.1 Components of Logistics Cost.............................................................. 11

3.2 Indian Logistics Industry Overview ................................................................13

3.2.1 Spending on Logistics in India ............................................................... 14

3.2.2 Cost Component of Indian Logistics Industry ......................................... 14

3.2.3 Infrastructure Development – Boost to Logistics Industry ........................ 15

4. Air Transport System In India.................................................................. 16

4.1 Overview..................................................................................................16

4.2 Air Transport Sector & India’s GDP.............................................................19

4.3 Airports ....................................................................................................19

4.3.1 Airport Infrastructure Status in India ..................................................... 20

4.3.2 Infrastructure Status of Major International Airports ............................... 22

4.4 Air Cargo Market......................................................................................30

4.4.1 Opportunities Galore.......................................................................... 31

4.4.2 Performance of Top 46 Airports........................................................... 32

4.5 Airport Authority of India...........................................................................34

4.5.1 Role of AAI........................................................................................ 34

4.6 Carriers ....................................................................................................36

4.7 Recent Trends............................................................................................38

5. Intermediaries and Support Service Providers......................................... 40

5.1 Reasons to Outsource Logistics Functions .....................................................40

5.2 3PL Market Size ........................................................................................41

5.3 Function of Third Party Logistics ..................................................................41

5.4 State of 3PL in India...................................................................................42


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5.5 Fourth Party Logistics (4PL) .........................................................................43

5.6 Clearing & Forwarding Agents ...................................................................43

5.7 Warehousing............................................................................................44

6. Market Dynamics ..................................................................................... 45

6.3.1 Global Air Cargo Forecast ................................................................... 48

6.3 Growth drivers ..........................................................................................49

6.3.1 Economic growth ............................................................................... 49

6.3.2 Global trade....................................................................................... 49

6.3.3 Corporate Trend................................................................................ 50

6.3.4 Improved infrastructure....................................................................... 51

6.3.5 Growth in the manufacturing sector and retail boom............................... 51

6.3.6 Emergence of global manufacturing networks and increased FDI ............... 51

6.3.7 Information technology........................................................................ 52

6.3.8 Liberalization and Deregulation ............................................................ 52

6.3.9 Development of E-commerce............................................................... 53

7. Technology and Innovation ..................................................................... 54

8. Major Players............................................................................................ 59

Introduction.....................................................................................................59

8.1 Indian (Indian Airlines Ltd) .........................................................................60

8.1.1 Corporate Profile ............................................................................... 60

8.1.2 Business Profile .................................................................................. 60

8.1.3 Physical Performance of Indian.............................................................. 61

8.1.4 Financial performance.......................................................................... 61

8.1.4 Business Strategies .............................................................................. 63

8.2 Air India Ltd..............................................................................................64



8.2.3 Physical Performance of Air India Ltd .................................................... 65

8.2.4 Financial Performance.......................................................................... 66


8.3 Jet Airways ...............................................................................................69


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8.3.3 Cargo Operations............................................................................... 70


8.3.5. Financial Highlights ............................................................................. 71


8.4 Blue Dart ..................................................................................................74




8.4.4 Recent Developments & Business strategies ........................................... 76

9. Cost Structure.......................................................................................... 78

9.1 Cost Drivers ..............................................................................................78

9.1.1 Air Transport System in India ............................................................... 78

10. Issues and Challenges ............................................................................. 80

10.1 Major Indian Airports Running Out of Capacity .........................................80

10.2 High Waiting Time and Congestion in Airports ..........................................80

10.3 High Fuel Cost.........................................................................................81

10.4 Taxation .................................................................................................81

10.5 Aviation Security .....................................................................................82

10.6 Lack of Human Power ..............................................................................83

11. Government Initiatives, Schemes & Regulations .................................... 84

11.1 Introduction.............................................................................................84

11.2 Requirements for Becoming Air Cargo Operator ........................................85

11.3 Guidelines for Foreign Equity Participation in the Domestic Air Transport Sector.............................................................................................................86

11.4 PPP in Airport Infrastructure......................................................................88

11.5 Aviation Growth through Air Cargo..........................................................89

11.6 Initiatives for Safety .................................................................................90

11.7 Regulations .............................................................................................91

11.7.1 Guidelines for the movement of hazardous goods by air transport .......... 91


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12. Outlook .................................................................................................. 94

12.1 Global Air Cargo Market .........................................................................94

12.2 Indian Air Cargo Outlook ........................................................................95

Annexure I: List of Abbreviations................................................................. 97

Annexure II: Bibliography ............................................................................ 99

LIST OF FIGURES

Figure 3.1: Global Logistics Costs as % of GDP, 2005

Figure 3.2: Elements of Logistics Costs

Figure 3.3: Logistics Industry Structure

Figure 3.4: Spending on Logistics in India (Rs bn)

Figure 3.5: Elements of Logistics Costs In India (%)

Figure 4.1: Air Transport System and its share in GDP (%)

Figure 4.2: Air Cargo Market in India (‘000 tonnes)

Figure 4.3: Composition of Airports managed by A.A.I.

Figure 6.1: Industry Size of Air Transport System in India (at 1999-2000 prices)

Figure 6.2: Air Cargo Capacity Utilisation (In percentage)

Figure 6.3: Chart- Market Share in Q1 2006

Figure 6.4: Market Share in Q2 2006


Figure 6.6: India's GDP Growth Rate

Figure 6.7: India's Export-Import Growth Rate

Figure 8.1: Revenues (Rs bn)

Figure 8.2: PAT (Rs bn)

Figure 8.3 : Revenue (Rs bn)

Figure 8.4 Net Profit (Rs bn)

Figure 8.5 operating revenue break-up (2005-06)

Figure 8.6 Total Revenue (Rs bn)

Figure 8.7 PAT (Rs bn)

Figure 8.8: Sales (Rs bn)

Figure 8.9 Profit After Tax (Rs m)


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Figure 9.1: Cost Component of Air Transport in India

Figure 12.1 Global Air Cargo Market (FTKs bn)

Figure 12.2 Indian Air Cargo Market (FTKs bn)

LIST OF TABLES

Table 3.1: Spending on Infrastructure from 2005-06 to 2011-12E (Rs bn)

Table 4.1: Terminal Areas and No. of Counters

Table 4.2: International Terminal

Table 4.3: Domestic Terminal

Table 4.4: Mumbai Airport cargo handling facilities

Table 4.5: Cargo Facilities

Table 4.6: Cargo traffic handled at top 46 airports in India (tonnes)

Table 4.7: Operational Fleet of Indian Airlines/Alliance Air

Table 6.1: Total Cargo Traffic Trends (’000 tonnes

Table 6.2: Global Air Cargo Forecast – 2007-2009

Table 8.1: Financial Highlights

Table 8.2: Physical Performance of Air India Ltd




Table 10.1: Comparative Airport Charges

Table 11.1: Airport Development Programme in India


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1. Executive Summary Logistics Industry The global logistics industry was estimated to be about US$3.5 trillion in 2005, while US

logistics industry size is around US$900 billion, which accounts for more than 25.71% of

the total global logistics industry. Total logistics activities make up 15-20% of finished

product costs. Globally, transportation accounts for 39% of the total logistics costs,

followed by warehousing at 27%, inventory 24%, order processing 6% and

administration 4%.

The Indian economy has been growing at a rate of over 7.5% since the last three years.

The manufacturing sector has registered a growth rate of 9.1% in 2005-06 (at 1999-2000

prices), which further enhances the prospects of the Indian logistics industry. Logistics

costs in India are estimated to be around 13% of GDP, which is Rs4,226.21 billion

(US$94bn) in 2005-06. However, India’s spending on logistics industry is much higher

than that of the developed economies like the US (9.5%) and Japan (10.5%). In India,

transportation accounts for around 35% of the total logistics costs, followed by

inventories 25%, losses 14%, packaging 11%, handling and warehousing 9% and

customers and shopping 6%.

Air Transport Industry in India Today, Indian aviation industry is one of the fastest growing sectors in the country. The

sector contributes 0.2% to the country’s GDP (at 1999-2000 prices). Domestic air cargo

traffic has been growing at CAGR of 12.57% from 2001-02 to 2006-07, whereas

international air cargo traffic has been moving at CAGR of 13% during the same period.

In 2006-07, total air cargo traffic is estimated to be over 1.56m tonnes against 1.4m

tonnes during 2005-06, registering a growth rate of 14.65%. The growth was driven by

buoyant economy, rise in exports of gems and jewellery and special chemicals and high-

value pharmaceuticals.


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Mumbai and Delhi airports together have handled 814,373 tonnes of cargo, accounting

for 58% of the total air cargo handled by all airports in India. Mumbai airport registered a

growth rate of 7.1% in air cargo during 2005-06, whereas Delhi airport witnessed a

growth rate of 11.19% in the same period.

In view of the booming economy and Indian air cargo market, several airline operators

have decided to intensify their air cargo operations in India. These include Air India,

which has decided to convert its two A310 aircrafts into freighter aircrafts by the end of

2007. Cathay Pacific, the Hong Kong-based airline service provider, has also decided to

start six new freighter services in India in view of the growing Indo-US and Indo-China

trade. Besides, FedEx Express, the largest express transportation company in the world,

decided to expand its network in India and to operate 17 flights weekly on Mumbai-Delhi

route. In addition, Flyington Freighters Private Limited, the Secunderabad-based air

cargo company, has placed an order to acquire four Boeing 777F cargo aircrafts for an

estimated cost of US$945m. The acquisition order of cargo aircrafts is one of the biggest

orders so far by an Indian aviation company.

Private airlines continue to dominate the domestic market. In January 2007, private

regular airlines contributed around 48.6% to the total passenger traffic, followed by low-

cost airlines at 32.5%, government-owned airlines at 18.9% against the same period of

the previous year.

Air transport industry (at 1999-2000 constant prices) has been growing at CAGR of 7.6%

from 2001-02 to 2006-07, driven by growing demand for air transport system over the

last five to six years, particularly for passenger segment. In 2005-06, domestic passenger

segment has handled 73.34m passenger traffic, growing at 23.7%, whereas international

passenger traffic was 50.98m, growing at 27.9%.

3PL in India In view of the growing competition, Third Party Logistics (3PL) business is emerging as

a potential segment of the logistics, as companies are increasingly outsourcing their non-

core activities for gaining efficiency. There are some important factors that can be


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attributed to rise in 3PL activities. Emphasizing core competency, improving customer

services, intensifying flexibility of business operations, optimum utilisation of technology

and most importantly, reduction of costs are some of the factors. The adoption of modern

manufacturing practices such as just-in-time and built-to-order, together with the rise of

global manufacturing network, is also driving the demand for 3PL services. Indian 3PL

market was estimated at about US$890.3m in 2005, which is expected to grow at a

CAGR of 21.9% to reach US$3,556.7m by 2012. This is owing to the growing presence

of multinationals and the renewed thrust on exports.

Major Growth Drivers

• Indian economy grew at 9% in 2005-06 and as per advanced estimates; it

witnessed a growth rate of 9.2% in 2006-07, which is one of the major growth

drivers for aviation sector in India. With the economy positioning itself as the

fourth largest economy (in terms of PPP) and second fastest growing economy in

the world, it gives enough scope for the logistics industry to grow.

• The other important growth drivers of the air cargo sector are liberalisation and

deregulation of the economy

• Development of e-commerce industry has also facilitated the air cargo segment.

According to estatsIndia.com, an internet research agency, Indian e-commerce

market was around Rs41 billion in 2005-06. B2C e-commerce market is expected

to touch Rs92.59 billion in 2009, whereas B2B is expected to touch Rs13.55

billion by 2009, leaving enough opportunities for supply-chain management and

logistics companies to grow.

Issues and Challenges Major Indian airports are facing huge capacity constraints in terms of passenger traffic as

well as cargo traffic. On the other hand, smaller Indian airports continue to be

underutilised. According to the Ministry of Civil Aviation, airports at Delhi and Mumbai

are either fully utilised or close to full utilisation. The capacity utilisation at AAI airports

in 2005-06 is more than 140%, which is further increasing.


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In India, there is a rise in congestion and waiting time, especially during peak hours due

to lack of adequate technological development among other factors. As a result, airports

suffer from high waiting time and congestion. Average waiting time for export cargo is

2.11 days (50 hours, 37 minutes) and for import cargo, it is around 7.58 days (182 hours,

32 minutes). At the best of international airports, the average dwell time of exports is

about 12 hours, while the average dwell time of imports is 24 hours. In India, ATC delays

cost the sector immensely. A 5-10% additional flying time cost is around US$80m per

annum.

The ATF in India is around 70% higher than the global figure, resulting in huge losses for

the sector. In India, the ATF prices continue to be much higher than global rates, making

ATF account for 35-40% of operating cost as against global average of 20-25%.

Outlook Global air cargo traffic has gone up at a CAGR of 5.53% during 2001-06. Industry

consulting firm Air Cargo Management Group projected that world air cargo volume

would reach 208 billion Freight Tonne Kilometres (FTKs) by 2009 from the present

175.6 billion FTKs.

The air freight demand is concentrated geographically since it is based on economic

activity. In 2004, more than 96% of world FTKs moved within the three pillars of the

world economy—Asia Pacific, Europe and North America.

Indian aviation industry is emerging as one of the fastest-growing markets in the world,

both in terms of passenger as well as cargo traffic. According to AAI, Indian air cargo

market (in terms of volume) is expected to grow at CAGR of 11.5% from 2007-08 to

2011-12, of which the CAGR of international air cargo is expected to be 12.2% and

domestic air cargo would be 10.15%.


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2. Highlights • The global logistics industry was estimated to be about US$3.5 trillion in 2005, while

US logistics industry size is around US$900 billion, accounts for more than 25.71%

of the total Global Logistics Industry

• Logistics costs in India is estimated to be around 13% of GDP, which is Rs4,226.21

billion in 2005-06 is less than China which is 18.6% of GDP

• Air transport sector contributes over 0.2% to the country’s GDP at constant prices

(1999-2000). Indian GDP grew at 9% in 2005-06 and as per advanced estimates, it is

expected to have increased at 9.2% 2006-07

• During 2005-06, Indian airports have handled total 73.34m passengers, registering a

growth rate of 23.7%. Out of the total passengers handled, domestic passenger traffic

was 50.98m, a growth rate of 27.9% and international passenger traffic went up by

15.1% to 22.36m against the previous year

• Domestic air cargo traffic has been growing at CAGR of 12.57% from 2001-02 to

2006-07, whereas international air cargo traffic has been moving at CAGR of 13%

from 2001-02 to 2006-07. During 2006-07, total air cargo traffic is estimated to be

over 1.56m tonnes against 1.41m tonnes during 2005-06, registering a growth rate of

14.65%

• Mumbai Airports registered a growth rate of 7.1% in air cargo during 2005-06, while

Delhi airport witnessed a growth rate of 11.19% in air cargo in the same period

• Airport Authority of India (AAI) manages 126 airports that include 11 international

airports, 89 domestic airports and 26 civil enclaves at defence airfields

• Indian 3PL market was estimated at about US$890.3m in 2005, which is expected to

grow at a CAGR of 21.9% to reach US$3,556.7m by 2012

• India would spend around Rs400 billion in airport development under several

programmes by 2010


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3. Logistics Industry Structure 3.1 Global Logistics Industry Overview

Logistics evolved into an

independent function thanks to

armed forces. Having realized the

importance of seamless flow of

men and materials, the armed

forces developed logistics into a

specialized field. The application

of logistics in business, meanwhile,

began with the advent of

multinational and multi-locational

corporations. As operations spread

to new geographies, these

corporations used logistics knowledge to manage the flow of materials. The global

logistics industry was estimated to be about US$3.5 trillion in 2005, while US logistics

industry size is around US$900 billion, which accounts for more than 25.71% of the total

Global Logistics Industry. Total logistics activities make up 15-20% of finished product

costs.

3.1.1 Components of Logistics Cost

Now logistics, as a specialized

function covers a range of services

such as transportation,

warehousing, packaging, customs-

clearing, and forwarding, inventory

management, labelling and order

processing (see Figure 3.2).

2422

18.6

13 13 1210.5 9.5

0

5

10

15

20

25

30

Peru

Argentin

aChin

a

German

yInd

ia

Canad

a

Japan

USA

Figure 3.1: Global Logistics Costs as % of GDP, 2005

Source: Edelweiss research, Cygnus Research

39%

27%

24%

6% 4%

Transportation W arehous ingInventory Carry ing Order Process ingAdminis tration

Figure 3.2: Elements of Logistics Costs

Source: World Bank, Cygnus Research


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According to The Council of Logistics Management, USA, Logistics Management is

“that part of supply chain management that plans, implements, and controls the forward

and reverse flow and storage of goods, services and related information between the point

of origin and the point of consumption in order to meet the customers' requirements.” In

other words, logistics helps companies manage the flow of goods, services and

information.

Worldwide, companies have begun to pay as much attention to logistics as they do to

other managerial functions like production and marketing.

Consider Indian logistics industry. It has three principal components:

• Infrastructure providers

• Key transportation service providers

• Support service providers

While infrastructure providers include airports, ports, roadways and railways, key service

providers include transportation organisations like Airlines, Shippers, and Road carriers.

Support Service Providers are the ones that link customers and Key service providers. Of

late, the number of support service providers are increasing—adding a new dimension to

the Indian logistics industry. The structure of the Indian logistics industry is illustrated in

Figure 3.3.


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Logistics Industry

Key transportation Service Providers Infrastructure Providers

Support Services

Airlines Shippers Road

Carriers Railways Airports Ports Roads

Railways 3PL 4PL

3PL – Third Party Logistics, 4PL –Fourth Party Logistics, C& F agents- Clearing and Forwarding agents Source: Cygnus Research

C&F Agents

Warehousing & Distribution Agents

Multiple Service

Providers

Figure 3.3: Logistics Industry Structure

Independent Logistics Service

Providers

3.2 Indian Logistics Industry Overview

The Indian economy has been growing at a rate of over 7.5% since the last three years.

The manufacturing sector has registered a growth rate of 9.1% in 2005-06 (at 1999-2000

prices), which further enhances the prospects of the Indian logistics industry. The major

logistics functions for the Indian industries include transportation, warehousing, freight

forwarding and other value-added operations like Management Information Systems

(MIS). Of these functions, transportation and freight forwarding have been traditionally

outsourced to external service providers with relevant expertise and infrastructure.

Warehousing and MIS functions have been mostly managed in-house by the industries.


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3.2.1 Spending on Logistics in India

Logistics costs in India are

estimated to be around 13% of

GDP, which is Rs4,226.21 billion

in 2005-06. However, India’s

spending on logistics industry is

much higher than that of the

developed economies like the US

(9.5%) and Japan (10.5%). The

reasons for this high spending

can be attributed to the poor

infrastructure facilities, lack of

implementation of Information

Technology (IT) in logistics and

due to frequent checking points at the national highways which invariably increases the

transportation costs.

3.2.2 Cost Component of Indian Logistics Industry

Basically, the Indian logistics

industry is dominated by the

unorganised market. The major

players of the industry can be

broadly categorised as local

transporters, transporters providing

some kind of value-added services

such as warehousing services, and

completely integrated players

providing 3PL services. The major

elements of logistics cost for

Indian industries include

2730

.24

2944

.90 3314

.24 3712

.71 4226

.21

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2001-02 2002-03 2003-04 2004-05 2005-06

Figure 3.4: Spending on Logistics in India (Rs bn)

Source: MOSPI, Cygnus Research

Cus to mers Sho pping

6%Handling & Wareho us in

g9%

P ackaging11%

Lo s s es14% Invento ries

25%

Trans po rtatio n

35%

Figure 3.5: Elements of Logistics Costs In India (%)

Source: Edelweiss Research, Cygnus Research


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transportation, warehousing, inventory management, and other value-added services like

packaging (See Figure 3.5).

3.2.3 Infrastructure Development – Boost to Logistics Industry

At present, India is spending 13% of its GDP on

logistics. The reason for this huge spending is

inadequate infrastructure, leading to periodic

bottlenecks along the routes. Another major

reason is the regulatory obstacles, which not only

increases the cost of service but also results in

frequent delays and thereby higher logistics

costs. To overcome this situation, the

Government of India is taking initiatives to improve the infrastructure in the country by

spending around Rs14 trillion across the sectors (See Table 3.1).

Table 3.1: Spending on Infrastructurefrom 2005-06 to 2011-12E

(Rs bn) Roads 1,520Power 4,812Railways 1,100Telecom 1,226Aviation 370Ports 800Oil & Gas 2,210Urban Infrastructure 1,974Total 13,973Source: Edelweiss Research


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4. Air Transport System In India 4.1 Overview

Liberalisation of Indian economy has empowered the Indian aviation sector, which has

undergone a sea-change. Today, it is one of the fastest growing sectors in the country.

The Indian government nationalised the aviation industry in 1953 by enacting the Air

Corporations Act. Till the early nineties, Indian aviation industry was dominated by two

government-owned organisations: Indian Airlines (domestic sector) and Air India

(International sector). The government relaxed its hold on the industry after the

liberalisation of Indian economy began in 1991.

The Air Corporation Act of 1994 had started a new era in Indian aviation sector by

allowing private players to operate schedule services in the domestic market. Since 1986

up to the repeal of the Air Corporations Act 1953 in March 1994, private airlines were

allowed to operate charter and non-scheduled services under Air Taxi Scheme under

which it was allowed to operate ‘inter-alia’ i.e. they (private operators) could not publish

time schedules, or issue tickets to passengers. The Air Taxi Scheme was introduced in

1986 to boost tourism and enhance domestic air services. Later on, the Air Taxi Scheme

was further liberalised in March 1994, which removed restrictions on air transport

services for private players. The first lot of new private airlines included Jet Airways, Air

Sahara, Modiluft, Damania Airways, NEPC Airlines and East West Airlines of which

only Jet Airways and Air Sahara survived. In August 2003, Air Deccan joined Jet

Airways and Air Sahara in the private airlines segment. More recently, Kingfisher

Airlines, Go Air, Indigo Airlines, Spicejet and Paramount have started operations in the

domestic sector. The government-owned Indian Airlines and Air India, meanwhile,

continue to operate alongside the private players.

Foreign airlines, on the other hand, have been largely immune to the flip-flops in the

domestic sector. Their operations in the country date back to pre-independence years. The

operations of foreign airlines are governed by the bilateral agreement between India and

the country of their origin.


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Requirements to become a Scheduled Air Transport Operator

• A Scheduled Operator's permit is granted to:

o A citizen of India, or

o A company or a body corporate provided that

It is registered and has its principal place of business within India;

The Chairman and at least two-thirds of its Directors are citizens of

India; and

Its substantial ownership and effective control is vested in Indian

nationals.

• A fleet of minimum five aircrafts with all-up-weight of aircraft more than 5,700kg

each to be acquired in one years' time from the date of securing operators' permit,

if they meet airworthiness, air safety and operational requirements for such

operation, and fulfil the routes dispersal guidelines and all other requirements of a

scheduled operator.

• Not less than Rs300m subscribed equity capital in respect of operators having

aircraft or all-up-weight exceeding 40,000kg and not less than Rs100m for

operators having aircraft of all-up-weight not exceeding 40,000kg

• Not less than three sets of flight crew and cabin crew per aircraft

• An approved maintenance organisation and facilities to carry out maintenance of

aircraft up to 500 hours inspection or Check 'B' for Boeing 737 aircraft

• Approval manuals for operations, training and quality control-cum-maintenance

• The permit is not transferable.

• Cells for pre-flight medical examination of crew, flight planning and dispatch,

reliability analysis of aircraft components and systems, defect investigation,

compliance of service bulletins and modifications and records of major

components

• Security programme approved by Bureau of Civil Aviation Security and trained

security personnel at all operating stations

• Scheduled operators of trunk routes are required to provide certain minimum

capacity on various routes including North-Eastern region, Jammu and Kashmir,

Andaman and Nicobar and Lakshadweep.


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• The validity of No Objection Certificate (NOC) for operating air transport

services is for one year. Extension of validity of NOC is granted up to a period of

six months on merits of each case. These restrictions are applied both in respect of

dry lease and outright purchase of aircraft. However, when the aircraft proposed

to be imported is a new one with a definite delivery schedule, extension of NOC

is allowed for the actual lead time of delivery, even if it exceeds the total period

of one and half year.

• For import of aircraft:

o pressurised aircraft not to exceed 15 years of age or 75% of its designated

economic cycles or 45,000 pressurisation cycles, whichever is less;

o Unpressurised aircraft normally not to be more than 20 years of age;

• Scheduled Operator's permit shall not be transferable.

• A Scheduled Operator's permit shall be renewable every year

Characteristics of Indian aviation sector The Indian aviation sector can be broadly divided into following four categories:

• Domestic airlines run scheduled flights within India besides servicing select

international destinations;

• International airlines operate scheduled international air services to and from India;

• Non-scheduled operators includes charter operators and air taxi operators; and

• Air cargo service operators, who transport cargo and mail


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4.2 Air Transport Sector & India’s GDP

Air transport sector contributes over

0.2% to the country’s GDP at

constant prices (1999-2000 prices)

(See Figure 4.1). Transport sector’s

contribution to the GDP has been

firming up over the last couple of

years, mostly because of the

growing economic activities in the

country, especially the road

transport sector. Although air

transport sector’s contribution’s to

the GDP remains constant over the

last couple of years, the sector is

emerging and gaining significance in country’s overall economic development due to rise

in economic activities.

4.3 Airports

The airport infrastructure plays a decisive role in shaping a nation’s competitiveness and

the inflow of foreign investment. It is also significant in the country’s booming economic

growth. The structure of Indian airport infrastructure is shown in map below. Currently,

the number of airports/airstrips in the country is 449.

5.8

3.8

8.57.5

9 9.2

5.8 6.1 6.2 6.4 6.6 6.9

0.2 0.2 0.2 0.2 0.2 0.20123456789

10

2001-02 2002-03 2003-04 2004-05 2005-06* 2006-07**

GDP Transport Sector Air Transport

*Quick Estimates, ** Advanced Estimates Source: Planning Commission, MOSPI

Figure 4.1: Air Transport System and its share in GDP (%)


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4.3.1 Airport Infrastructure Status in India

Airport Authority of India (AAI) manages 126 airports that include 11 international

airports, 89 domestic airports and 26 civil enclaves at defence airfields. The premier

authority also provides Air Traffic Management Services over the entire Indian air space

and adjoining oceanic areas with ground installations at all airports and 25 other locations

to ensure the safety of aircraft operations.

Map of Airports in India

Source: Airports Authority of India


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Significantly, the Government of India aims to attract private investment in aviation

infrastructure. Thus, the Ministry of Civil Aviation decided to lease out, on global tender

basis, the four most important airports in the country viz. Delhi, Mumbai, Kolkata and

Chennai airports primarily aiming to upgrade these to follow the international standards.

Privatisation of the Delhi and Mumbai airports is in progress. Concessions have already

been awarded and it is expected that there would be an investment of about Rs157.00

billion (US$3.5bn) for both the projects. In addition, the new international airports at

Bangalore and Hyderabad are being built by private consortia with a total investment of

about Rs40.00 billion and 25 other city airports are being considered for private

investment.

International Airports: There are 12 international airports in the country namely,

Mumbai, Delhi, Chennai, Kolkata, Thiruvananthapuram, Cochin, Hyderabad, Bangalore,

Guwahati, Goa, Amritsar and Ahmedabad, which serve as a base for international

services of domestic and foreign carriers.

Custom Airports: This category includes domestic airports with customs and

immigration facilities for a limited range of international services. Such custom airports

are located in Jaipur, Agra, Lucknow, Varanasi, Patna, Gaya, Kozhikode, Coimbatore

and Tiruchirapalli.

Model Airports: The model airports are located in Bhubaneshwar, Nagpur, Vadodara,

Imphal and Indore. This category includes domestic airports with a minimum runway

length of 7,500 feet and terminal capacity to handle an Airbus 320. These airports can

handle international services, if necessary.

Civil Enclaves in Defence Airfields: There are 28 civil enclaves in Defence Airfields.

Other Domestic Airports: The remaining airports in the country, not included in the

above-mentioned category, fall in this category.


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Airport Hubs

The airports at Delhi and Mumbai serve as hubs of India’s airport network. Other major

airports that have the potential to emerge as hubs include airports at Chennai, Kolkata

and Bangalore. In 2005-06, Delhi, Mumbai and Chennai airports together handled over

73% of the total air cargo in the country.

4.3.2 Infrastructure Status of Major International Airports Indira Gandhi International Airport, Delhi

Indira Gandhi International (IGI) Airport is one of the busiest and most important airports

in India. It acts as a crucial linkage between the country’s capital and rest of the world.

The airport currently operates one international and three domestic terminals.

The international airport co-ordinates flights of 35 airlines, connecting India to different

major cities of the world. Three domestic terminals include Terminal 1A, Terminal 1B

and Domestic Arrival Terminal. Terminal 1A is dedicated to serve the domestic flights of

Indian Airlines and its subsidiary, Alliance Air. Flights of different scheduled private

airlines operate from Terminal 1B along with other executive aircraft/private aviation

activities.

Indira Gandhi International Airport is well equipped with state-of-the-art technology to

operate even in dense foggy weather. It utilises the IIIA landing system. It handles nearly

13,100 domestic and 9,500 international passengers everyday.

The Delhi airport handled 273,410 tonnes of international cargo during 2005-06, a

growth of 14.92% over the previous year. The airport handled 16.24m passengers during

2005-06 out of which, international passengers account for 35.31% of the total

passengers.


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Airport Facilities

Table 4.1: Terminal Areas and No. of Counters

Terminal Area In sq metres No. of counters

Check In Immigration Customs Security Check

1-A 8,090 33 Nil Nil At the entrance of the security hold area

1-B 11,700 17 Nil Nil At the entrance of security hold area

Terminal -II (Departure + (Arrival)

64,000

81 Nil

28 28

02 Red & Green channels are available

At the entrance of security hold area. No checks after clearance from customs

Table 4.2: International Terminal Parking Bays Runway Lights Type of Bay Total Bays Runway No. Edge Lights Centre Line Lighting

In contact 9 (41 - 49) - Elevated High Bi-directional Remote 12 (81-92) RWY 28 Intensity 200W Cargo 6 (98-103) Bi-directional Halogen Lamps

Table 4.3: Domestic Terminal Parking Bays Runway Lights Type of Bay Total Bays Runway No. Edge Lights Centre Line Lighting

In contact Nil - 204 W Lamp - Power in Power Out 55 10 -do- -do- Power in Push back 01 - - - Hydrant Available Rwy 10 Available N.A. Refuelling only at Intl. - - - System Apron Rwy 09 Available N.A.


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Cargo Information

• IGI cargo terminal area is 27 acres

• Y2k Compliant Online Integrated Cargo Mgt. system for data processing

• Elevated Transfer Vehicle with 350 stacking slots for 3 Level Storage of ULD's

• Pick and carry cranes, forklifts, high reach stackers

• Electronic/mechanical weighing scales, cargo trolleys, power pallet trucks

• Idle ULD parking area, truck - Doc 84 Nos and auction hall for disposal of

unclaimed cargo

Special facilities offered by Delhi Airport

• Strong rooms for valuable cargo

• Centre for perishable cargo/cold room (3 Chambers, 0-12°C)

• Hazardous cargo shed

• Live animal shed

Chhatrapati Shivaji International Airport, Mumbai

The ISO 9001: 2000 certified Chhatrapati Shivaji International Airport is the busiest

airport in the country. Located in Mumbai, which is the financial capital of India and the

capital of Maharashtra, it is the major gateway to international traffic into India. The

airport manages around 469 aircraft movements, 50,000 passengers and 892 tonnes of

cargo everyday on an average basis, resulting in handling about 37% of India's air traffic.

The airport handles nearly 45 landings and take-offs per hour. The international terminals

of the airport co-ordinate the flights of 36 airlines from different parts of the world. It

currently has two modules Terminal- 2A and Terminal-2C.

The domestic airport has two terminals i.e. Terminal-1A and Terminal-1B. Terminal-1A

serves the Indian Airlines and its subsidiary Alliance Air, and Terminal-1B is dedicated

to private airways and other private aviation activities. The airport carried 17.66m

passengers and handled the movement of over 490,000 tonnes of cargo in 2005-06.


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Present status and facilities available at Mumbai Airport

The international arrival area is equipped

with exchange counters, hotel bookings and

pre-paid taxi services. Departure counter has

marginally better facilities like shops,

restaurants, snack bars and foreign exchange

counter. The emigration counter is usually

chaotic due to over-loading of traffic.

Mumbai Airport handled total 288,960

metric tonnes of international cargo during

2005-06, which noticed a growth of 5.74%

over the previous year. Nearly 74.3% of the total freight movement from this airport was

carried by different private airlines and the rest by nationalised airlines during August

2006.

General facilities

• Online Integrated Cargo Mgt System for clearance

• X-ray scanning, cargo trollies, forklifts , ULD packing slots

• Auction hall, Truck Dock 33 nos

• 5 cargo bays in cargo apron area

Special facilities offered by Mumbai Airport

• 24 hours clearance facilities for special type of cargo

• Strong rooms for valuable cargo

• Centre for perishable cargo/cold room and walk in type cold storage

• Hazardous cargo shed

• Packer services

Table 4.4: Mumbai Airport cargo handling facilities

EXPORT

Terminal Area (In Sq. metres)

Module 1 Centre for Perishable Cargo FACT Sheds AI Terminals

9,445 2,436 6,783 6,000

IMPORT Module 2 New Cargo Terminal Phase -2 AI Terminal Marol Import Complex

10,402 11,568

7,364 4,500


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Netaji Subhash Chandra Bose International Airport, Kolkata

Kolkata International Airport, now

called Netaji Subhash Chandra Bose

International Airport, is situated at

Dum Dum, about 18km from the city.

It acts as the prime gateway to north-

eastern part of the country. This

IS/ISO 9001:2000 certified airport is

connected directly to all the major

cities in the country. Besides Air India,

international airlines include British

Airways, KLM, Singapore Airlines, Thai Airways, Biman Bangladesh, Druk-Air,

Lufthansa, Royal Brunei Airlines and Royal Jordanian, connecting most of the major

cities in the world.

This is a major airport in the eastern part of the country and currently handles two

terminals—Terminal 1 and Terminal 2—for domestic and international airways. The

international terminal has 36 airlines and operates from two modules Terminal-2A and

Terminal-2C. The domestic airport has two terminals i.e. Terminal-1A and T-1B.

Terminal-1A caters to domestic flights of Indian Airlines and its subsidiary Alliance Air

and Terminal 1B caters to the private airlines.

Present Status

During 2005-06, the airport has handled total 51,560 aircrafts, comprising 42,311

domestic and 9,249 international aircrafts. The airport handled a total of 32,164 tonnes of

international cargo and 42,311 tonnes of domestic cargo during 2005-06, a growth of

only 5.36% and 8.3% respectively over the previous year.

Facilities at NSCBI

• Export cargo (baggage) and export general / perishable cargo facilities

• Registration, processing of shipping bill and pay documentation charges

• Obtain custom exam order on the shipping bill

Table 4.5 : Cargo Facilities EXPORT

Terminal Area (In Sq. meters) Module 1 Centre for Perishable Cargo FACT Sheds AI Terminals

9,445 2,436 6,783 6,000

IMPORT Module 2 New Cargo Terminal Phase -2 AI Terminal Marol Import Complex

10,402 11,568 7,364 4,500


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• Complete exam and obtain "Let Export Order" from Supdt./AO (Custom)

• Unaccompanied baggage (Import) facilities

• Registration and noting of baggage declaration form with customs

• Obtain exam order from Supdt/ACC

• Complete custom exam and assessment of duty

• Pay custom duty

• Obtain out of charge from custom Supdt.

• Obtain clearance from custom gate officer

• Import general cargo facilities

• Declaration, submission/Registration of BOE along with AWB, DO, letter of

authority, invoice, packing list, import licence etc.

• Assessment of duty, audit and issuance

• Collect the print out of appraised BOE from appraisal counter

• Payment of custom duty

Chennai International Airport

Chennai International Airport, first ISO-9001-2000 certified airport of the country, is

located at Tirisulam, about 7km south of Chennai. It has two terminals, Kamraj Domestic

Terminal, handling all domestic flights and Anna International Terminal managing all the

international flights. Kamraj Terminal is used by all domestic airs and Malaysian

Airlines; whereas Anna Terminal is utilised by all international airlines.

Other than Air India, the other flights that operate from this international airport are Air

Mauritius, British Airways, Emirates, Gulf Air, Kuwait Airways, Lufthansa, Malaysia

Airlines, Oman Air, Saudi Arabian Airlines, Singapore Airlines and Sri Lankan Airlines.

Present status and facilities available at Chennai Airport

During 2005-06, Chennai International Airport handled total 47,900 domestic aircrafts,

up from 43,122 in 2004-05 and 21,155 international aircrafts, which increased by 16.8%

from 18,111 in 2004-05. Cargo traffic in 2005-06 has increased to 205,971 tonnes from

185,870 tonnes in 2004-05, out of which international cargo accounts for 81.5% of the


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total air cargo. Passenger traffic has gone up by 20.34% to 6.8m in 2005-06. Domestic

passengers have increased by 29% to 4.17m from 3.23m in 2004-05 and international

passenger traffic has witnessed a growth rate of 8.6% to 2.6m in 2005-06.

The Chennai Airport has two warehouses for export and import cargo. Export cargo has

two AI and AAI warehouses, covering a total area of 5,750sq meters. These warehouses

have one-time holding capacity of 40 tonnes and the temperature is maintained at 2–18

degree centigrade. The import warehouse, covering an area 8,004sq metre, offers the

following facilities:

• Strong room

• Cold storage

• Electronic cargo shed

• Unaccompanied baggage

• Heavy cargo shed

Bangalore Airport

Bangalore Airport, also called ‘HAL Airport’, is one of the busiest in India, with over 70

international and domestic flights flying everyday. The Airport is situated about 6km

from MG Road that is at the centre of the city. This is a major hub in southern part of the

country for domestic, as well as international connectivity. Other than Air India, the other

airlines that operate through this international airport are Air Lanka, British Airways,

Bulgarian Airways, Cathay Pacific, Ethiopian Airlines, Japan Airlines, KLM Airlines,

Kuwait Airways, Malaysian Airlines, Pakistan International Airlines, Quantas, Swiss Air

and Thai Airways.

The airport currently operates two domestic terminals—Terminal 1 and Terminal 2.

Terminal 1 has the departure lounge for all the domestic flights and Terminal 2 handles

arrival of domestic flights. The international terminal manages departures and arrival of

all international flights together. The airport is the premier civil airport with modern ATC

systems equipped for CAT-I IFR operations round-the-clock.


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Present Status

The total aircraft movement from Bangalore Airport has significantly increased by

25.44% to 69,680 during 2005-06. Passenger traffic at Bangalore airport has increased by

37.47% to 5.65m in 2005-06, out of which domestic passenger traffic constitutes around

85% of the total passenger traffic in the airport. Air freight traffic at the airport increased

by 19% to 1,38,852 tonnes in 2005-06 against 1,12,374 tonnes during the previous year,

out of which international cargo constitutes 59% of the total cargo handled by the airport.

Bangalore Airport has one export cargo terminal, covering an area of 41,000 sq m. It has

X-ray baggage handling facility, provided by MSIL. Lufthansa and Singapore Airlines

operate through this terminal.

Warehousing Facilities at the Airport

JWG-JACC has been formed as a joint working arrangement of Hindustan Aeronautics

Ltd (HAL), Container Corporation of India Ltd., (CONCOR) and Mysore Sales

International Ltd (MSIL) with a view to augmenting and providing state-of-the-art

warehousing and handling facility for air cargo at Bangalore airport. The warehousing

complex is named as Joint Air Cargo complex (JACC).

Following facilities are available JACC:

• Facilities for processing of import, export, transshipment cargo and unaccompanied

baggage with a total ground storage area of 28,000sq ft.

• Full-fledged customs facilities and EDI connectivity for processing of customs

documents

• Adequate handling equipment and systems

• Online Integrated Cargo Management System for on line data processing

• Special facilities for valuable cargo and dangerous / hazardous cargo

• Well-trained customer-friendly personnel

• Facilities like photocopying, canteen, public telephone, packer services, public

waiting area and business centre


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4.4 Air Cargo Market

Indian aviation industry has been experiencing an exceptional growth rate over the last

five years, driven by booming

Indian economy, flourishing

trade (both export and import)

and the pharmaceutical industry.

Both domestic and international

air cargo traffic at all Indian

airports have registered an

exponential growth rate over the

last 5–6 years. Domestic air

cargo traffic has been growing at

CAGR of 12.57% from 2001-02

to 2006-07, whereas

international air cargo traffic has

been moving at CAGR of 13%

from 2001-02 to 2006-07.

During 2006-07, total air cargo traffic is estimated to be over 1.56m tonnes against 1.4m

tonnes during 2005-06, registering a growth rate of 14.65% (See Figure 4.2).

According to Planning Commission, India’s air cargo movements would grow at over

CAGR of 11.5% from 2007-08 to 2011-12. Riding high on export of gems and jewellery,

special chemicals and high value pharmaceuticals, international air cargo traffic at all

Indian airports has been growing rapidly. Increasing economic activities have fostered

Indian aviation industry, which has attracted many foreign logistics as well as airline

service providers to plan their air cargo operations in India such as Cathay Pacific, DHL,

FedEx, TNT and many Indian companies have also decided to start exclusive air cargo

movements in India such as Air India, Indian Airlines, Secunderabad-based Flyington

Freighters Private Limited and Jet Airways.

*2006-07- Planning Commission Estimates Source: Airport Authority of India

Figure 4.2: Air Cargo Market in India (‘000 tonnes)

294.

05

333.

222

375.

436

456.

662

483.

79

531.

64

560.

226

646.

137

693.

223

823.

608

920.

15

1028

.66

0

200

400

600

800

1000

1200

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07*

Domestic International


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4.4.1 Opportunities Galore In view of the present boom in air cargo segments in India, several domestic as well as

international air carriers have decided to start air cargo operations in India and some of

them have already started flying freighter aircrafts in the country. Besides the state-

owned carriers Indian Airlines and Air India, new players such as Jet Airways, GoAir and

Kingfisher Airlines have also decided to venture into air freight market and play a bigger

role in the booming aviation sector.

• Air India, the public sector airline operator, which has leased belly space on Falcon

Aviation to fulfil the demand on the Kerala-Gulf and the India-Germany sectors, is in

the process of converting two of its A310 aircraft into freighter aircraft by September

2007. In addition, the airline is expecting addition of some new fleet for the quarter

ended December 2006. This is likely to enhance its cargo capacity.

• Last Year, Blue Dart Aviation Ltd (BDAL) added two leased Boeing 757 freighters to

their fleet. The new aircrafts will be positioned at Chennai and Kolkata. The freighters

will increase the capacity of the BDAL’s regular night flights to 250 tonnes from 166

tonnes. With the two new freighter aircrafts, BDAL’s total freighter aircraft fleet will

reach seven.

• Cathay Pacific Cargo, the Hong Kong-based airline, decided to start six new freighter

services in India in view of the growing Indo-US and Indo-China trade. The new

freighters will be B747-400 Extended Range Freighters. Cathay Pacific currently lifts

155 tonnes of cargo per month.

• FedEx Express, the largest express transportation company in the world, decided to

expand its network in India and to operate 17 flights weekly on Mumbai-Delhi route.

• Flyington Freighters Private Limited, the Secunderabad-based air cargo company, has

placed an order to acquire four Boeing 777F cargo aircrafts for an estimated cost of

US$945m. The acquisition of cargo aircraft is one of the biggest orders so far by an

Indian aviation company. The deliveries of the Boeing 777-200 freighters would start

in the end of 2009. The company is expected to start its air cargo operation with three

leased aircrafts by April 2007.

• Great Wall Airlines, a Sino-Singaporean joint venture, is planning to launch a

freighter service connecting Shanghai with Mumbai and Chennai. The services will be


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the first and only direct scheduled freighter services between China and India. Great

Wall Airlines has a fleet of two Boeing 747-400 freighters.

• In addition, Indian Airlines is also looking at converting five of its Boeing 737-200

passenger aircrafts into freighters.

• Jet Airways, India’s largest passenger private sector airlines, has plans to start a

domestic cargo airline. The airliner has mooted a feasibility study for this purpose.

The company would initially convert its old passenger aircraft into freighters to cater

to the booming domestic air cargo market.

• Another important feature of ecstatic growth of Indian aviation industry is aircraft

maintenance, repair and overhaul (MRO) industry.

4.4.2 Performance of Top 46 Airports The major international airports accounted for a majority of domestic cargo traffic

between 2002-03 and 2003-04. The domestic cargo traffic at major international airports

is given in Table 11. The quantum of international cargo traffic handled was concentrated

in the major internal hubs ie Mumbai, Delhi, Chennai and Bangalore.

Table 4.6 : Cargo traffic handled at top 46 airports in India (tonnes) Domestic International

Airport 2004-05 2005-06 Percentage

Change 2004-05 2005-06 Percentage Change

Mumbai 129,450 142,361 10.0 273,265 288,960 5.7Delhi 106,578 109,642 2.9 237,923 273,410 14.9Chennai 39,427 38,118 -3.3 146,443 167,853 14.6Bangalore 47,941 56,861 18.6 64,433 81,991 27.3Kolkata 39,099 42,335 8.3 30,529 32,164 5.4Hyderabad 20,083 19,572 -2.5 13,924 16,949 21.7Ahmedabad 14,157 13,273 -6.2 2,535 3,615 42.6Goa 3,623 3,812 5.2 1,233 1,356 10Thiruvananthapuram 1,368 1,300 -5.0 22,287 23,280 4.5Kozhikode 1,178 1,437 22.0 9,411 9,193 -2.3Guwahati 4,308 4,342 0.8 2 140 6,900.00Srinagar 2,172 2,665 22.0 0 0 Amritsar 34 68 100 1,278 1,331 4.1Jaipur 1,531 1,853 21.0 240 509 112.1Nagpur 2,780 3,180 14.4 0 0 -Cochin 3,965 5,031 26.9 18,210 16,206 -11.00


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Table 4.6 : Cargo traffic handled at top 46 airports in India (tonnes) Domestic International

Airport 2004-05 2005-06 Percentage

Change 2004-05 2005-06 Percentage Change

Pune 8,791 8,666 -1.4 0 0 -Lucknow 1,962 2,040 4.0 626 552 -11.8Coimbatore 3,720 3,345 -10.1 965 1,949 102.0Varanasi 627 574 -8.5 0 0 -Patna 1,035 1,420 37.2 0 0 -Trichurapalli 31 21 -32.3 301 692 129.9Gaya 0 0 - 0 0 -Vadodara 3,265 3,435 5.2 0 0 -Indore 2,925 2,349 -19.7 0 0 -Mangalore 233 270 15.9 0 0 -Jammu 944 1,017 7.7 0 0 -Agartala 2,868 2,948 2.8 0 0 -Udaipur 1 15 650.0 0 0 -Bhubaneswar 945 875 -7.4 0 0 -Visakhapatnam 670 504 -24.8 0 0 -Port Blair 1,736 1,442 -16.9 0 0 -Bagdogra 420 567 35.0 0 0 -Madurai 429 361 -15.9 0 0 -Rajkot 1,031 825 -20 0 0 -Leh 827 716 -13.4 0 0 -Juhu 395 239 -39.5 0 0 -Aurangabad 1,064 1,063 -0.1 0 0 -Imphal 1,517 1,599 5.4 0 0 -Bhopal 323 308 -4.6 0 0 -Chandigarh 440 477 8.4 0 0 -Jodhpur 74 43 -41.9 0 0 -Dibrugarh 503 593 17.9 0 0 -Raipur 865 905 4.6 0 0 -Silchar 247 275 11.3 0 0 -Ranchi 237 247 4.2 0 0 -Others 842 805 -4.4 0 0 -Total 456,662 483,794 5.9 823,608 920,150 11.7Source: Airport Authority of India


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4.5 Airport Authority of India

The Airport Authority of India

(AAI) is the nodal agency for

managing airports in India and

provides air traffic control

services over the entire Indian

airspace and adjoining oceanic

areas. At present, it manages

126 airports, which include 11

international airports, 89

domestic airports and 26 civil

enclaves at Defence Airfields

(See Figure 4.3). Although the

AAI continues to be a major provider of airport infrastructure in the country, the

government has permitted private sector companies to take up Greenfield projects such as

Hyderabad International Airport and Bangalore International Airport.

4.5.1 Role of AAI

The Airports Authority of India was set up in 1995 to develop airport infrastructure in the

country. AAI looks after the development, expansion and modernisation of operational,

terminal and cargo facilities at the airports. The AAI is also responsible for managing the

entire Indian airspace and provides air traffic control services over the Indian airspace

and adjoining oceanic areas.

The Airports Authority of India owns and manages most airports in India. It also looks

after terminal-building facilities at military airports for civilian aircraft. The scheduled

clearances of such civilian aircrafts, however, come under the purview of Defence

authorities.

Domestic 70.63%

International

8.73%

Civil Enclaves20.63%

Figure 4.3: Composition of Airports managed by A.A.I.

Note: Total may not add upto 100 due to rounding off Source: Airport Authority of India


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Other functions of AAI

• To design, construct, operate and maintain international airports, domestic

airports and civil enclaves at Defence Airports

• Development and management of international cargo terminals

• Vigilance

• Provisioning of passenger facilitation and information system

• Expansion and strengthening of operational areas such as runways, apron and

taxiways

• Providing communication and navigational aids such as Instrument Landing

System and Doppler Very High Frequency Omni-Directional Range (DVOR).

• Providing visual aids

The AAI provides facilities and services to airlines for a fee. For example, the AAI

provides parking bays and the space for setting up facilities such as administration offices

and dispatch centres. In addition, AAI provides services such as route navigation and X-

ray baggage.


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4.6 Carriers

The Indian aviation sector is witnessing rapid development since deregulation as a

number of private players started up their operations in domestic market. Private airlines

continue to dominate the domestic market. In January 2007, private regular airlines

contributed around 48.6% to the total passenger traffic, followed by low-cost airlines at

32.5%, government-owned airlines at 18.9% against the same period of the previous year.

In terms of cargo traffic, regular airlines’ share was 72.9% followed by government-

owned airlines at 26.4% and low-cost airlines at only 0.7% against the same period

previous year. In recent times, the domestic sector has experienced stiff competition due

to the entry of low-cost airline service providers such as Air Deccan, Spice Jet, Indigo

Airlines, Paramount Airways, Go Air and Indus Air.

The international sector comprises 45 carrier run services to and from India. Some of the

prominent ones include British Airways United Airlines, Qantas, Lufthansa, Aeroflot, Air

France and Japan Airlines.

Competition

The competition in domestic sector is fierce with the major players being Indian Airlines,

Jet Airways, Air Sahara and Air Deccan, Kingfisher Airlines and Spice Jet. The domestic

sector excludes “on carriage” services provided by government-owned Air India. Due to

rise in competition, state owned airline service providers share has been eaten up by the

private players.

• Indian Airlines & Air India

The Indian Airlines and Air India are fully-owned by the Indian Government. The

Indian Airlines primarily serves the domestic market though its services extend to

about 17 international destinations. Air India, on the other hand, primarily serves the

international sector though it also services the domestic sector in a small way. The

fleet size of Indian Airlines and Air India is given in Table 4.6.


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Table 4.7 : Operational Fleet of Indian

Airlines/Alliance Air No. of Aircraft Airbus A-300B4 3 Airbus A-320 48 Airbus A-319 06 DO-228 2 Source: DGCA

In view of the booming aviation sector, almost all the airline service providers are

enhancing their fleet strength. Currently, both Jet Airways and Indian Airlines are

leading with 59 aircraft owned/operated, followed by Air Deccan with 41, Air India

Ltd with 38, Air Sahara 28 among others to total 308, which is expected to increase to

415 by 2012.

• Jet Airways

Jet Airways is the largest private domestic airline in India with a fleet of 62

airplanes comprising 28 Boeing737-800s, 13 Boeing737-700s, six B737-400s,

two B737-900s, one A330-200, three S340-300s and eight ATR72-500. The

average age of the fleet is 5.3 years, making the operator maintaining youngest

aircraft fleet in Asia.

• Air Deccan

Air Deccan is the first low-cost airline in India. It was promoted by Air Deccan

Pvt Ltd in 2002. It currently operates five A320s along with its original fleet of 13

ATR42 aircrafts. Air Deccan hopes to add another 30 A320s and possibly 30

ATR42s to its fleet in the next five years. Recently, Air Deccan slashed its fares

on select routes in a bid to attract premium customers of Indian Railways.

Total Fleet Owned Leased B777-200 4 - 4 B747-300 (COMBI) 2 2 - B747-400 8 6 2 B747-400 (COMBI) 1 - 1 A310-300 19 8 11 Total 34 20 14 Source: Air India


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New Low-cost Carriers

• Go-Airways:

• Spice Jet

• Indigo • Paramount 4.7 Recent Trends

US opens skies for India

Till recently, Indian players had limited access to the international airspace. A recent

open skies agreement with the US, however, provides Indian airlines unrestricted access

to key American destinations such as New York and Los Angeles. Indeed the upshot of

open skies agreement is improved air connectivity, higher flight frequency, lower fares

and stronger ties with the US. A closer interaction with Federal Aviation Authority and

other related organisations in the US will lead to an improvement in safety and security

standards as well.

ASEAN

The Indian government has decided to permit designated airlines from ten nations

belonging to the Association of South East Asian Nations (ASEAN) to operate up to

seven services to four metros—New Delhi, Mumbai, Chennai and Kolkata—subject to

receiving equal reciprocal rights. The airlines from ASEAN countries can also operate

unlimited services to 18 other destinations in India, subject to receiving equal reciprocal

rights. For instance, Sri Lanka has been allowed to operate daily services to Delhi,

Mumbai, Chennai, Bangalore, Hyderabad and Kolkata and unspecified number of

services to 18 other destinations in the country.

Private carriers to fly on international routes

From December 2004, the Indian government started allowing private carriers in India to

operate services to select destinations in the South Asian Association for Regional

Cooperation region(SAARC). The government permitted Indian scheduled carriers,

operating continuously for five years and possessing a fleet of 20 aircraft, to provide


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services to other international destinations. However, private carriers are not allowed to

operate services to Middle East destinations such as UAE, Qatar, Oman, Bahrain, Kuwait

and Saudi Arabia as they have been reserved for Air India and Indian Airlines for three

years.

Merger of Air India-Indian (formerly Indian Airlines)

Ministry of Civil Aviation’s proposed merger of Air India and Indian is likely to take

place during the first quarter of 2007-08, which will lend the competitive advantage for

the government-owned airline service provider to improve their market share. The Union

Cabinet has recently cleared the merger of the two national carriers. The combined

revenue in 2004-05 of the two airlines was around Rs130.40 billion, which would place

the merged entity at 35th position in the world ranking as against the present ranking of

48th in case of Air India and 70th in case of Indian Airlines. The ranking of the merged

entity would further improve to 20th with induction of new fleet. The market power that

would accrue from the financial muscle would fortify the ability of the merged unit to

take on competition even in the international market, which has been witnessing

increasing dominance of global airlines alliances.

Jet Airways acquires Air Sahara

Jet Airways, India’s largest private sector airline service provider has acquired Air Sahara

in all cash deal for Rs14.50 billion, 40% less than the price Rs23.00 billion that Jet

Airways had agreed to pay for the acquisition of Air Sahara in January 2006. The

acquisition is the largest deal in Indian aviation industry. With the acquisition, Jet-Sahara

would change the Indian aviation industry business scenario in the coming years.


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5. Intermediaries and Support Service Providers With the rapid changes in the business environment, logistics has emerged into a separate

function. Presently, most of the companies understand the importance of logistics in the

overall cost structure and competitiveness. A large number of companies have already

gone ahead and set up a separate department for handling the logistics functions. Now

such companies, if they choose to, can outsource their logistics function thanks to the

emergence of third party logistics (3PL) service companies. The third party logistics

involves hiring of outside specialists to handle the logistics function. This option enables

companies to focus on their core activities, instead of getting bogged down in non-core

activities. Unlike the outsourcing of other business processes where cost reduction is the

prime driver, the outsourcing of logistics function is motivated by both cost benefits and

efficiency gains in the supply chain management. As the business environment grows

ever more complex and dynamic, the importance of logistics function will increase and so

will the practice of outsourcing logistics function to the 3PL provider.

5.1 Reasons to Outsource Logistics Functions The factors that drive the outsourcing of logistics function to the 3PL provider can be

grouped into three categories: strategic, operational and financial (see box).

1. Strategic Factors • Focus on core competency, delegating supply chain management to

specialists • Improve customer service • Enhance flexibility of business operations

2. Operational Factors • Improved process execution at all levels • Optimum use of technology for improving operations

3. Financial Factors • Significant reduction in costs • Reduction in capital costs


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Services frequently outsourced to 3PLs • Direct Transportation Services • Customs Brokerage • Freight Payment Services • Freight Forwarding • Warehouse Management • Distribution Facilities • Shipment Consolidation

The adoption of modern manufacturing practices such as just-in-time and built-to-order

together with the rise of global manufacturing network is also driving demand for 3PL

services.

5.2 3PL Market Size

With the starting of operations by

multinational companies in the Indian

market, the 3PL market is blooming in

India. Along with their multinational

counterparts, major domestic

companies also started outsourcing

their basic logistics functions.

Realising the significant benefits like

cost reductions and just-in-time delivery gained by these companies, a large numbers of

small and medium companies are also gearing up to use 3PL services in their logistic

functions.

According to Frost & Sullivan’s research report entitled, “Third Party Logistics – the

Way Forward for Indian Logistics Market”, the Indian 3PL market was estimated at

about US$890.3m in 2005, which is expected to grow at a CAGR of 21.9% to reach

US$3,556.7m by 2012. This is owing to the growing presence of multinationals and the

renewed thrust on exports.

5.3 Function of Third Party Logistics

The services of 3PL providers can encompass the entire supply chain or parts of it. If a

company opts for the outsourcing of the transportation process, the 3PL providers extend

services such network design, carrier contracting, shipment optimization, shipment

tracking and freight payments.


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In the distribution sphere, the 3PL providers design the distribution facility and take care

of project management. The 3PL providers undertake core warehousing activities besides

providing value-added services such as kitting and packing. In the overseas trade, the

3PL provider’s co-ordinate global freight movements and handle customs clearance-

freight forwarding.

5.4 State of 3PL in India

The 3PL market in India is relatively still in an emerging stage, with multinational

companies in all industries being the predominant users of these services. According to

Frost & Sullivan’s research, the largest end-user industry for 3PL services in India, as of

2005, is the automobile and auto component industry. This is because multinational

automobile giants like Suzuki, Hyundai, Honda and Ford have set up their manufacturing

bases in India and have been the major users of 3PL services. Other sectors that have

contributed substantially to 3PL market in India include the IT hardware and electronics,

fast moving consumer goods, textiles and retail. The factors that are driving the Indian

logistics industry towards 3PL market are;

Indian governments Value Added Tax - a uniform tax regime that is expected to

drive Indian industries towards using more 3PL services. A full implementation of

this regime would necessitate having centralized large warehouses to achieve best

efficiency in logistics. Since it requires huge investments, most domestic

companies would like to outsource the warehousing function, which creates

immense potential for 3PL service providers.

India’s increased focus on improving logistics infrastructure is expected to have a

huge positive impact on 3PL market in the country. In this context, government

has invested US$17 billion to upgrade highways with the implementation of two

major projects, namely the Golden Quadrilateral Network and the North-South-

East-West (NSEW) Corridor.

Apart from these factors, the entering of multinational companies like BMW,

Flextronics, and Wal-Mart etc in India is expected to fuel the growth of 3PL

market and contribute to considerable growth of 3PL usage in their respective

industry sectors.


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5.5 Fourth Party Logistics (4PL)

Recently, the Indian market is witnessing the emergence of fourth party logistics (4PL)

service providers. The rise of 4PL service represents the next step in the evolution of

supply chain management in India. The 4PL service provider takes over the entire

logistics function, obviating the need to deal with multiple 3PL service providers. The

4PL service providers provide the entire logistics solution on their own or take the help of

multiple 3PL providers.

The 4PL service providers serve as single-point reference for all logistics services. Such

providers have the logistics expertise to provide effective solutions; possess quality

manpower resources to supervise vendors and ensure continuous process improvements;

and information technology skills to network customer systems. In short, the 4PL service

providers extend comprehensive supply chain solutions to clients. In the developed

markets, such 4PL providers procure total supply chain management mandates from

companies and hive them off to multiple 3PL service providers. So far, 3PL service

providers failed to deliver total supply chain management solution. The 4PL service

providers may fare better on this count.

5.6 Clearing & Forwarding Agents To help companies in fulfilling legal formalities of transportation a separate class of

clearing agents or freight forwarders have emerged over the years. The cargo clearing

agents or freight forwarders also acts as a consolidator of shipments.

The freight forwarders deliver most air cargo shipments to airlines in consolidated

bundles. Therefore, the freight forwarder serves in two ways. A freight forwarder is at

once a customer and sales partner of the airlines. The freight forwarders specialize in

routing shipments on scheduled flights even while organizing chartered flights for

shippers. The freight forwarder, meanwhile, organize all-cargo charter flights. The

integrators offer door-to-door services to shippers. An integrator controls the sales

channel and the transportation processes.


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The freight forwarders offer a range of logistics services to the shipper. The Indian

companies involved in freight forwarding business include Patel Roadways, Balmer

Lawrie, Blue Dart, Safe Express, DHL, and Gati Limited.

5.7 Warehousing

The warehousing discharges an important role in business. It creates time utility by

bridging the time gap between production and the consumption of goods. Warehousing

refers to the systematic storing of goods with the goal of making them available on

demand. In other words, warehousing refers to the storing of goods from the time of their

purchase or production to their actual use or sale.

Types of Warehouses The warehouses can be classified into the following categories:

• Private Warehouses

• Public Warehouses

• Government Warehouses

• Bonded Warehouses

• Co-operative Warehouses

Functions of warehouses Warehouses perform the following functions:

• Storage of goods

• Protection of goods

• Bearing risk

• Financing

• Processing

• Grading and branding

• Transportation


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6. Market Dynamics 6.1 Overview of Indian Aviation Industry

Increased competition, economic expansion and capacity augmentation have bolstered

Indian aviation industry. During 2005-06, Indian airports have handled total 73.34m

passengers, registering a growth rate of 23.7%. Out of the total passengers handled,

domestic passenger traffic was 50.98m, a growth rate of 27.9% and international

passenger traffic went up by 15.1% to 22.36m against the previous year, mainly due to

ecstatic growth of IT/ITES, retail and manufacturing, tourism.

Indian air cargo market has also achieved an excellent growth rate over the last couple of

years. During 2005-06, it registered a growth rate of 9.7% to 1.4m tonnes against 1.29m

tonnes in 2004-05, whereas international air cargo registered a growth rate of 11.7% and

domestic air cargo of 5.9%.

6.2 Market Size of Air Transport System in India

Air transport has been emerging as

one of the major mode of transport

system in India. Air transport

industry at constant (1999-2000

prices) has been growing at CAGR

7.6% from 2001-02 to 2006-07,

driven by growing demand for air

transport system over the last five-

six years.

0

10

20

30

40

50

60

2001-02 2002-03 2003-04 2004-05 2005-06*

2006-07*

(In

Rs

bn)

*Cygnus Estimates Source: Planning Commission of India

Figure 6.1: Industry Size of Air Transport System in India (at 1999-2000 prices)


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6.3. Demand-Supply Scenario

The air cargo traffic is currently

limited to low-volume and

high-value products such as

garments and pharmaceuticals

in addition to perishables such

as flowers, vegetables and

fruits. The growth in cargo

traffic, both domestic and

international, has been

encouraging in the last few

years. As the government

strikes new cross-border trade

agreements, the cargo traffic is

bound to rise. The capacity of Indian airports, however, is highly skewed. The major

Indian airports are running out of capacity, whereas minor airports are under-utilised. The

expansion of major airports is easier said than done due to financial constraints and

physical limitations such as availability of land. The implementation of Greenfield

projects in the international segment, however, holds out hope.

The combined air cargo traffic of

five major airports—Delhi,

Mumbai, Chennai, Kolkata and

Bangalore—grew at a CAGR of

9.9% between 2002-03 and 2005-

06. Significantly, Bangalore

International airport has witnessed

the highest CAGR of 14.93%

between 2002-03 and 2005-06,

followed by Chennai International

Airport at 10.15%.

Table 6.1: Total Cargo Traffic Trends (’000 tonnes) Airport Category 2004-05 2005-06 Percentage

Change Fifteen Int'l Airports 1,217.23 1,341.57 10..2

Cochin Int’l Airport (CIAL)

22.17 21.24 -4.2

Seven Custom Airports 18.06 19.26 6.7

Twenty three Domestic Airports

21.96 21.07 -4.0

Other Domestic Airports

0.845 0.805 -4.7

Total 1,280.27 1,403.94 9.7Source: Airport Authority of India

0

20

40

60

80

100

120

140

160

2002-03 2003-04 2004-05 2005-06

Source: Planning Commission & Cygnus Research

Figure 6.2: Air Cargo Capacity Utilisation (In percentage)


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Mumbai International Airport accounts for more than 30.72% of the country’s total air

cargo traffic in 2005-06, followed by Delhi International Airport with 27.28% share. In

India, all the 15 international airports have a significant contribution in India’s booming

air cargo market.

6.4 Market Share

Indian aviation sector has been experiencing rapid expansion in terms of number of

players as well as fleet, location etc. Indian aviation sector has been revolutionised with

the entry of Low Cost Carriers (LCC) in the domestic route, particularly Air Deccan.

Air Deccan’s market share is increasing gradually over the last couple of years due to its

promotional and location activities. Moreover, the LCCs in the domestic route are

Jet Airways, 34.90%

Others, 1.90%Kingfisher,

8.30%

Spice Jet, 6%

Indian Airlines, 23.90%

Sahara, 9.30%

Deccan, 15.20%

Jet Airways, 33.30%

Indian Airlines,

22%

Kingfisher, 7.70%

Spice Jet, 6.90%

Others, 3.20%

Deccan, 19.10%

Sahara, 7.80%

Source: DGCA

Figure 6.3: Chart- Market Share in Q1 Figure 6.4: Market Share in Q2 2006

Jet Airways, 30.40%

Indian Airlines, 21.60%

Sahara, 8.80%

Deccan, 19.30%

Others, 4.20%

Kingfisher, 8.80%

Spice Jet, 6.90%

Source: DGCA



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immensely getting benefited by boom in IT/ITES sector, retail industry and tourism

sector. There has been a sharp shift in market share of Indian Airlines. During first

quarter of 2005, its market share was 34.7%, which came down to 23.9% in first quarter

of 2006. Similarly, Jet Airways’s market share has also come down sharply from 44.1%

in first quarter of 2005 to 34.9% in first quarter of 2006, mainly due to emergence of

LCCs such as Go Air, Paramount, Spice Jet and essentially, Deccan Airlines in the

domestic market. The market share of Deccan Airlines has increased manifold from 7%

in first quarter of 2005 to 15.2% in the corresponding quarter of 2006 due to promotional

fare concessions and location.

6.4.1 Global Air Cargo Forecast

International air cargo traffic is expected to grow at average annual growth rate of 5.8%

between 2007 and 2009, driven by resurgent global economic conditions, booming

international trade and several open sky policies signed between the countries. The Asia-

Pacific region would have the key trade routes for global air freight market, particularly

countries like China and India. In addition, Middle East air freight is also expected to

show strong growth over the next three years.

Table 6.2 : Global Air Cargo Forecast – 2007-2009 Region 2007 2008 2009 AAGR

North Atlantic 4.5% 4.6% 4.4% 4.5% Trans-Pacific 5.6% 5.4% 5.2% 5.4% Europe-Asia Pacific 5.3% 5.1% 5.3% 5.3% Europe- Middle East 4.9% 4.5% 4.0% 4.5% Europe-Africa 4.6% 4.3% 4.2% 4.4% Within Asia Pacific 8.1% 8.7% 8.4% 8.4% N.A. – L.A/Caribbean 3.6% 3.5% 3.5% 3.6% Within Europe 3.7% 3.8% 3.9% 3.8% Within LA/Caribbean 6.4% 7.0% 5.7%% 6.4% Middle East –Asia Pacific 7.3% 7.5% 7.0 7.3% Total International 5.7% 5.8% 5.7% 5.8% Source: IATA


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6.5 Growth drivers 6.5.1 Economic growth

Economic growth drives the

logistics industry. As the

economy grows, spending on

logistics increases. The

transport of goods and

services will increase and so

will passenger traffic. A

surging economy places huge

demands on the air and

surface transport industries.

Demand for shipping is also

dependant on economic

growth.

The Indian economy has been consistently growing over 7% for four consecutive years.

With the economy positioning itself as the fourth largest economy (in terms of PPP) and

2nd fastest growing economy in the world, it gives enough scope for the logistics industry

to grow.

6.5.2 Global trade

The foreign trade of India has been rising over the years though considerable scope for

improvement exists. For instance, India had a 0.98% share of the global trade in 2005.

The major imports include petroleum and petroleum products, uncut gems, machinery,

capital goods, and fertilizer while major import destinations include USA, Belgium,

Australia, China, Switzerland and Germany. India’s imports totaled US$149.17 billion

(Rs 6.6 trillion) in 2005-06 as compared to US$111.52 billion (Rs 5.01 trillion) in 2004-

05.

3.8

8.57.5

9 9.2

0123456789

10

2002-03 2003-04 2004-05 2005-06* 2006-07**

(In P

erce

ntag

e)

*Quick Estimates, ** Advanced Estimates Source: MOSPI

Figure 6.6: India's GDP Growth Rate


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The principal exports include

textiles; leather and leather

goods; finished gems and

jewellery; chemicals and

engineered goods (including

iron and steel) while major

export destinations include

USA, the United Kingdom,

China, Japan, and the European

Union (particularly Germany).

In 2005-06, total exports were

valued at US$103.09 billion (Rs

4.56 trillion) as compared to exports of US$83.54 billion (Rs 3.75 trillion) in 2004-05. As

foreign trade increases, the demand for logistics services will increase.

India’s entry into the WTO and the signing of several ASEAN Free Trade Agreement

(AFTA) and bi-lateral FTAs will increase foreign trade, which in turn will drive demand

for logistics industry upwards.

6.5.3 Corporate Trend

With competitive pressure across the verticals, the companies today are focusing on core

operations to cut down on cost and time. As a result companies preferred to outsource the

logistics activities to 3PL. Moreover the Indian logistics industry is dominated by the

unorganized sector, especially the road transport sector. The road transport sector is being

dominated by truck owners having less than 5 trucks but contributes around 80% of the

revenues. Similarly freight forwarding segment is also being dominated by small players

who generally cater to the local requirement. In response to the present scenario it leaves

a huge opportunity for contract logistics market.

20.29 21.10

30.85

23.4119.45

27.25

42.70

33.76

05

1015202530354045

2002-03 2003-04 2004-05 2005-06(In

Per

cent

age)

Export Grow th Rate Import Grow th Rate

Source: DGFT

Figure 6.7: India's Export-Import Growth Rate


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6.5.4 Improved infrastructure

The Indian Government is stepping up investment in roads, railways, power sector, ports

and airports. The government has undertaken mega projects such as the National

Highways Development Project to improve infrastructure. The government is also

focusing on improving the rail-road-port connectivity. The government, realizing the

enormity of the task, has sought the help of private sector. The strengthening of

infrastructure is a big positive for the logistics industry.

6.5.5 Growth in the manufacturing sector and retail boom

India with its 300m plus middle class and relatively low cost workers with technical skills

backed with positive framework for infrastructure development is poised to becoming a

manufacturing powerhouse in the next 5-10 years.

According to the data published by CSO, GOI India’s manufacturing output increased by

11.6% in January 2007 as compared with same period last year. The Index of Industrial

production (IIP) in December 2006 went up by 11.1% as compared with the same period

previous year. The manufacturing sector which has around 80% weightage in the index

went up by 11.9%.

With estimated investments of US$22 billion over the next five years, the retail sector is

expected to grow 40% to US$427 billion by 2011. Organised retail, which is presently

around 3% of the whole, is expected to grow to US$64 billion by 2015. The growth in

manufacturing sector and retail sector will definitely benefit the logistics sector.

6.5.6 Emergence of global manufacturing networks and increased FDI

The rise of global manufacturing networks will increase demand for logistics services.

Intense competition, pressure on margins and the lowering of trade barriers together with

advances in information technology and global transportation has led to the proliferation

of global manufacturing networks. Now companies worldwide are intent on driving down

costs by harnessing cheaper resources. A company might source components from one


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country, assemble them in another country and sell them across the globe. In addition, an

increasing number of companies are focusing on their core operations and outsourcing

non-core operations. Global manufacturing networks lead to higher productivity, reduced

workforce and lower costs for companies—and increased revenue for logistic companies.

The MNC eying India is very much evident from the fact that the country witnessed a

nearly six-fold increase in Foreign Direct Investment (FDI) inflows in December 2006 at

US$2.04 billion as against US$350m in the same period in 2005. This marked the highest

ever FDI inflow into the country in a single month.

Total FDI inflows during April-December 2006 stood at US$9.3 billion; as compared

with US$3.5 billion in the corresponding period last fiscal. According to certain

estimates, India is likely to receive US$12 billion of FDI during the current financial year

as compared to US$5.5 billion in the previous fiscal

6.5.7 Information technology

Information technology has forced companies to become more customer-oriented and

make their services more efficient. It has reduced both time-to-order and time-to-market.

The information technology is triggering far-reaching changes in the logistics industry as

well. It has played a critical role in the advent of third-party logistics providers (3PLs),

who offer an entire range of services from warehousing to transportation and include

tracking, online order-processing and other value-added services, such as packaging,

labelling and bar coding.

6.5.8 Liberalization and Deregulation

The government initiative is in right direction; electricity act, draft maritime policy, draft

civil aviation policy and liberalization in financing pattern of infrastructure projects

(Public Private Partnership) will add positive framework for infrastructural development.

The government is liberalizing the logistics sector. For instance, the Public Private

partnership (PPP) model in the road sector is likely to hasten the growth and


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modernisation of the roads sector. Better roads will help logistics industry improve the

quality and the speed of services.

The open-sky policy in the aviation sector, meanwhile, will enable domestic airlines to

spread their wings to countries outside India. The government is also mulling over the

corporatisation of airports at Delhi, Mumbai, Chennai, and Calcutta airports to raise

capital for upgrading them to global standards.

Increasing the foreign direct investment limit in aviation sector will improve the capacity

and operational efficiency of airports. Similarly, the corporatisation of railways and ports

will also make them commercially as well as transparent. Recent examples of

corporatisation include Konkan Railway Corporation (KRC) and The Delhi Metro Rail

Corporation, offering urban rail services in Delhi. 6.5.9 Development of E-commerce

The E-commerce Industry in India has come a long way since its early days. Market has

matured and new players have entered the market space. Retail on Internet is witnessing

very positive growth trends and end users are having numerous choices to buy from. In

the present dynamic scenario e-commerce market in the B2C space is growing in demand

as well as in service range. The B2B market on the other hand is also re-inventing new

business models and has already begun to offer end-to-end e-commerce platform for the

entire buy-cycle to business users. At the same time end users are also forcing vendors to

expand their service-mix and to adopt new business models at a very fast pace. User

demands drive the growth patterns for the e-commerce market.

According to estatsIndia.com, an internet research agency, Indian e-commerce market

was around Rs41 billion in 2005-06. B2C e-commerce market is expected to touch

Rs92.59 billion in 2009 whereas B2B is expected to touch Rs13.55 billion by 2009

leaving enough opportunities for supply chain management and logistics companies to

grow.


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7. Technology and Innovation There has been a rapid improvement in technological development in the country, which

has benefited the Air Transport System in India to a great extent. Despite impressive

expansion over the years, the air transport network is characterised by many deficiencies

and a major exercise in expansion of capacity and modernisation is necessary. This will

have to be accompanied by technological upgradation in many critical areas. The need for

new technology acquires greater urgency because the transport sector in India has been

suffering from slow technological development for a long time. This has led to a situation

of high cost, low energy efficiency, and slow movement of passenger and freight traffic.

The magnitude of the task of capacity augmentation and replacement of over-aged assets

offers an opportunity for technological upgradation in air transport system in India.

Some technological developments in Indian aviation sector are given below:

7.1 Air Traffic Management (ATM)

Airport Authority of India has taken various steps to modernise Air Traffic Control

services at Delhi and Mumbai. The modernisation work has almost been completed at a

cost of more than US$100m. Following systems have been provided: Air Route

Surveillance Radars, Monopulse Secondary Surveillance Radars (MSSRs), Airport

Surveillance Radars (ASRs), Airport Surface Detection Equipment, Radar Data

Processing Systems, Flight Data Processing Systems, Automatic Message Switching

Systems (AMSS), Automatic Self Briefing Systems (ASBS), 12 VORs/DVORs with

Remote Monitoring and Maintenance facility co-located with High Power DMEs for uni-

directional airways.

Radar Facilities Covering Major Routes: Besides above, six more ASRs/MSSRs have

been installed one each at Kolkata, Chennai, Thiruvananthapuram, Hyderabad, Guwahati

and Ahmedabad.


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7.2 Communication/Navigation/Surveillance Airport Authority of India has decided for planning, procuring and commissioning of all

Communication, Navigation and Surveillance (CNS) facilities and support systems for air

navigation based on short-term and long-term requirements to synchronise the

organisation’s plan with International Civil Aviation Organisation's (ICAO) approved

plans being managed by CNS Planning Department.

Preparation of qualitative requirements and system specifications in coordination with all

concerned agencies / organisations, preparation of estimates, invitation of tenders, tender

evaluation of technical and commercial bids, placement of orders factory inspection of

equipment and its subsequent installation and commissioning are the responsibilities

discharged by the CNS Planning Department. Conducting site surveys for equipment

location, from technical and operational suitability point of view, coordination with

planning, civil and electrical engineering departments for associated construction

activities for installation and commissioning, post installation performance checks and

organising flight calibration before equipment commissioning are the aspects intrinsically

involved in the process.

To meet the challenges posed by ICAO CNS/ ATM transition plans for SATCOM based

Air Traffic Management, the CNS Planning Department has already accomplished.

Automatic Dependent Surveillance (ADS): A system at Chennai has already been installed

and successfully tested for operations of ADS / CPDLC with FDPS and an additional

system is under testing at Kolkata, both to be commissioned soon.

7.3. Electronic Data Interchange

Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is

the inter-organisational exchange of business documentation in structured, machine-

processable form over computer communication networks. In India, EDI implementation

agencies are Ministry of Civil Aviation and Airport Authority of India.


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• Automation of cargo processing activities and online data capturing was

introduced in 1999 at four metro airports, viz

Delhi

Mumbai

Kolkata

Chennai

AAI is assisting automation of cargo processing activities at three non-metro airports—

Bangalore, Hyderabad and Thiruvananthapuram.

Benefits of EDI

The latest information and status of import / export cargo will be made available to

the trader on the Internet.

There will be a drastic reduction in the human power deployment by the agencies at

the cargo terminal for processing of their consignments, which will ultimately reduce

the transaction cost of import and export cargo.

The importing/exporting community will be able to know the AAI charges applicable

on a particular consignment at any given time through Internet.

Information about AAI and the regulatory and the facilitating agencies, cargo

handling systems and procedures, facilities available, AAI-prescribed charges/rates,

do’s and don’ts etc. for the information and usage by the users are also available in

the website.

7.4 Advance Passenger Information System (APIS)

The Government of India had issued a notification for implementing INDIA-APIS from

October 1, 2005 due to rise in volume of passenger traffic to India, although immigration

counters and staff have not been increased at the same pace. Moreover, post 9/11, Border

Control Agencies have to be more vigilant due to threat poised by global terrorism. In

addition, inconvenience to passengers due to delays at immigration, customs and security

also needs to be taken care of.


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Operation process of INDIA-APIS

The data in prescribed format captured at check-in time shall be transmitted by

the Airlines within 15 minutes of take off of the aircraft to INDIA-APIS Data

Centre

Data can be transmitted to INDIA-APIS Data Centre in two ways:

o From the Airlines Network to the Service Provider Network

o Web-enabled data transmission, wherever such facility is not available

Data received by the service provider shall be transmitted to Immigration Central

Hub and the Immigration system at the destination airport in India

Data received at the destination airport shall be processed and checked against the

lists maintained by immigration authorities.

Immigration authorities at the destination airport shall be ready to clear the

passengers expeditiously.

Implemented Technologies

Flight Data Processing System (FDPS) have been introduced at Nagpur, Trivandrum,

Ahmedabad and Varanasi Airports to achieve improved automation of air traffic services.

Automatic Dependence System (ADS) with Control Pilot Data Link Communication

(CPDLC) has been installed at Kolkata and Chennai Airports with similar systems also

being installed at Delhi and Mumbai Airports which will further enhance the surveillance

over Indian Air Space.

New Technologies

The following technologies will be deployed for implementation in airport environment.

These technologies are proposed to be taken up during the 11th Five Year Plan for the

development of the Civil Aviation Sector:

IT based system to assess vehicular traffic volume for airport public access

LED based airport lighting and display technology

Intelligent Digital Surveillance

Integration techniques for Information


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Information dissemination and On-line Payments through Internet

Radio Frequency based identification techniques

Wireless information technologies

Smart Card technology

Common Use IT systems

On-line Simulation of terminal congestion

Electronic Perimeter Security System and intrusion prevention

Explosive Detection technology

Satellite based CNS/ATM systems.


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8. Major Players

Introduction

Major players profiled in this section are selected from air transport system of logistics

services in India. Information about these companies is taken from published secondary

sources as well as through primary surveys, wherever needed. Airline companies covered

represent the major ones, with significant presence in the domestic market.

Although a few multinational companies (like AFL, DHL and Fedex) are operating in

India, they are not included in the list, as they are privately incorporated in India and

hence their financial and other performance data is not published.

List of the major players profiled is given below:

• Indian (Indian Airlines) • Air India • Jet Airways • Blue Dart


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8.1 Indian (Indian Airlines Ltd) 8.1.1 Corporate Profile

Subsidiaries

• Alliance Air 8.1.2 Business Profile

Indian (formerly known as Indian Airlines) operates along with its wholly-owned

subsidiary Alliance Air, one of the largest airline service providers in India. Indian

Airlines was set up under the Air Corporation Act 1953 and was fully entrusted to

provide the air transportation facilities in the domestic as well as neighbouring countries.

Indian, today, with its fully-owned subsidiary Alliance Air, has a fleet of 70 aircraft (3

wide-bodied Airbus A300s, 47 fly-by-wire Airbus A320s, three Airbus A319s, 11 Boeing

737s, two Dornier Do-228 aircraft and four ATR-42. The Airlines' network spans from

Kuwait in the west to Singapore in the East and covers 76 destinations—58 within India

and 18 abroad. Along with its subsidiary, Indian Airlines carries over 7.5m passengers

annually.

Cargo Operations

The Indian Airline Cargo covers 63 destinations in India and 17 abroad. It has the largest

cargo capacity amongst the domestic carriers and a network capacity of 1,000 tonnes per

Corporate Address: 113, Gurudwara Rakabganj Road New Delhi-110001 Telephone: 91-11-25675121 Fax : 91-11-23711730 Website: www.indian-airlines.nic.in Year of Incorporation: 1953 Sales Revenue: Rs62.48bn (Year ending 2005-06, anticipated) Fleet Size: 70 Key Activities: Passenger-oriented airlines


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day. During 2004-05, Indian has carried 107,270 tonnes of cargo against 93,287 tonnes

during 2003-04, recording a growth rate of 15%.

8.1.3 Physical Performance of Indian

2002-03 2003-04 2004-05 2005-06 Targets Ach Targets Ach Targets Ach Targets Ach

Available tonne km (m)

1,303.44 1,308.02 1,340.33 1,334.07 1,439.84 1,472.06 2,168.01 1,594.05

Revenue tonne km (m)

842.28 845.1 897.44 877.5 959.78 1,017.3 1,370.21 1,134.56

Overall Load Factor (%)

64.6 64.6 67.0 65.8 66.7 69.1 63.2 71.2

Avail. Seat km (m) 12,913.43 13,063.09 13,478.11 13,500.8 14,645.57 14,891.32 1,9413.86 16256.04

Rev. Pass. km (m) 8,132.46 7,777.69 8,484.8 8,168.04 9,036.1 9,598.2 12,622.97 10,893.73

Pass Load Factor (%) 63 59.5 63 60.5 61.7 64.5 65 67

Source: Planning Commission

8.1.4 Financial performance

For the financial year ending March 31, 2005, operating revenue of Indian Airlines

increased by 14.7% against the same period of the previous year.

For the financial year ending March 31, 2005, Indian Airlines recorded a net profit of

Rs0.66 billion against Rs0.44 billion in 2003-04 (See Figure 8.2), owing to cost

control measures, improved on-time performance, and increased utilisation of aircraft.


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Financial Highlights

Table 8.1 : Financial Highlights Rs m

P&L 2002-03 2003-04 2004-05

Total Revenue 41,735.2 47,256.7 53,625.7

Employee Cost 10,737.6 11,542.9 NA

PBDIT 33,97.4 5,544.6 NA

Depreciation 31,79.4 3,061.8 NA

Interest & Financial Charges 2,129.7 1,953.5 NA

PBT -1,965.6 481.7 716.1

PAT -1,965.6 441.7 656.1

Cash Profit 1,267.7 3,551.1 NA

Balance Sheet

Net Worth -4,469.4 -3,990.5 -3,333.6

Capital Employed 1,071.4 1,071.4 NA

Fixed Assets (Gross Block ) 54,849.4 54,624.2 NA

Total Debt 11,393.3 7,229.6 NA

Net Working Capital -1,941.88 -1,927.16 NA

Key Ratios 2002-03 2003-04 2004-05

Debt-Equity Ratio - - - Current Ratio 0.48 0.45 0.48 Operating Profit Margin (%) -3.28 2.69 1.16 Net Profit Margin (%) -4.69 0.93 1.22

Source:www.moneypore.com

41.7447.26

53.63

0

10

20

30

40

50

60

2002-03 2003-04 2004-05

0.440.66

1.96-2.5

-2

-1.5

-1

-0.5

0

0.5

1

2002-03 2003-04 2004-05

Source: Ministry of Civil Aviation, Annual Report 2005-06, 2004-05

Figure 8.1: Revenues (Rs bn) Figure 8.2: PAT (Rs bn)


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8.1.5 Business Strategies Indian has decided to augment its fleet size in view of robust demand. For the 11th Five

Year Plan (2007-08 to 2011-12), the premier carrier has decided to increase its fleet

strength to another 43 aircrafts with an estimated cost of Rs78.59 billion.

In a major development in MRO, Indian, formerly Indian Airlines signed an agreement

with the Bangalore-based Jupiter Aviation and Logistics for the latter to set up an MRO

facility for its aircraft airframe maintenance. Aircraft manufacturer Airbus/EADS will

provide necessary support. EADS had signed an MoU with Jupiter Aviation and

Logistics. A strategic MoU was signed for setting up the facility, initially to cover Airbus

A320 family aircraft. Indian is a major operator of Airbus aircraft and is all set to induct

43 new Airbus A320 family aircrafts into its fleet. Currently, it operates 48 A320s, six

A319 and three A300 aircrafts. The MRO facility will be extended to Airbus aircraft of

other airlines and also to aircraft other than Airbus family.

Cargo Promotion and Marketing

• Indian has signed an agreement to automate its cargo processes

• Indian has also signed Special Prorate Agreement (Cargo) with British Midland,

UPS, Virgin Atlantic and Austrian Airlines and renewed the agreement with

Federal Express, Kuwait Airways and Cathay Pacific

• Strategic tie ups with M/s European Cargo Services (Asia Pte Ltd), M/s EAS

International Transportation (Singapore Pte Ltd) and M/s GATI on

Singapore/India route were executed

• Special ‘on board courier’ rates ex-Indian and International stations and Indian

network

• Tender for conversion of five B-737-200 aircraft into freighter has already been

released


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8.2 Air India Ltd 8.2.1 Corporate Profile

Air India is India's national flag carrier. Tata Airlines, as Air India was earlier known,

consisted of one Puss Moth, one Leopard Moth, one palm-thatched shed, one whole time

pilot assisted by Tata and Vincent, one part-time engineer, two apprentice-mechanics and

unlimited optimism.

In 1933, the first full year of its operations, Tata Airlines flew 160,000 miles, carried 155

passengers and 10.71 tonnes of mail. Tata Airlines was converted into a public company

under the name of Air India in July 29, 1946. In 1947, it had submitted a plan to the

Government of India for the formation of Air India International Ltd with Government

participation to operate international route and finally in 1948, Air India International

launched its first service to London via Cairo and Geneva on June 08, 1948. In 1952, the

Government of India nationalised the air transport industry on the recommendation of

Planning Commission, which created two nationalised corporations viz Air India

International Ltd for international route and Indian Airlines to operate domestic services.

In May 1992, Air India Ltd was incorporated as public limited company under the

Companies Act, 1956.

8.2.2 Business Profile

Air India Ltd, the state-owned carrier, has fleet of 34 aircrafts, comprising eight B747-

400 including two aircrafts on lease, one B747-400 (COMBI) on dry lease, two B747-

Corporate Address: Air India Building Nariman Point, Mumbai Telephone: 91-22-2279 6666 WebSite: www.airindia.com Year of Incorporation: 1932 Sales Revenue: Rs93.45bn (2005-06,) Fleet Size: 34 Key Activities: Passenger-oriented airlines


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300 (COMBI), four B777-200 on dry lease and 19 A310-300 and 11 of total 19 Airbus

aircrafts are on lease. In addition, Air India Express, the wholly-owned/operated

subsidiary of Air India Ltd owns 13 B737-800 out of which, seven aircrafts are on dry

lease.

Air India started with three destinations during the time of nationalisation; today it covers

44 destinations by operating services with its own aircraft and through code-shared

flights.

Cargo Operations

Air India has the infrastructure and the network to ensure smooth transportation and

delivery of cargo across the world. In India, it serves 13-city networks, which provide

hassle-free and direct customs clearance to both export and import cargo. In India, it

operates to Mumbai, Delhi, Chennai, Thiruvananthapuram, Hyderabad, Bangalore,

Kolkata, Ahmedabad, Goa, Kochi, Kozhikode and Lucknow. Internationally, Air India

has tied up with various foreign airlines and trucking companies for smooth operation of

air cargo.

8.2.3 Physical Performance of Air India Ltd

Table 8.2: Physical Performance of Air India Ltd 2002-03 2003-04 2004-05 2005-06 Targets Ach Targets Ach Targets Ach Targets Ach

Available tonne km (m) 2393.9 2415.9 2759.8 2897.5 3317.3 3600.4 2126.1 4191.4

Revenue tonne km (m) 1481.2 1561.0 1712.4 1774.0 2025.9 2218.0 1320.8 2369.5

Overall Load Factor (%) 61.9 64.6 62 61.2 61.1 61.6 62.1 58.5

Avail. Seat km (m) 17714.6 18093.

2 20256.3 21624.6 24435.2 27137.6 15602.4 30973.4

Rev. Pass. km (m) 12145.2 12962.

7 14278.9 15249.9 17351.0 18950.0 11121.3 20558.6

Pass Load Factor (%) 68.6 71.6 70.5 70.5 71.0 69.8 71.3 66.4

Source: Planning Commission


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8.2.4 Financial Performance

Revenue up by 19.27% in FY06

For the financial year ending March

31, 2006, the total revenue of the

company consisting of passenger,

excess baggage, mail, cargo, charter

and handling /services/miscellaneous

was Rs93.45 billion, grew by 19.27%

against the same period previous year

(See Figure 8.3).

PAT declines in FY06

For the financial year ending March

31, 2006, Air India recorded a net

profit of Rs0.15 billion against Rs0.96

billion, sharp fall in net profit due to

rise in international fuel prices as well

rise in other operational charges,

particularly landing charges, rise in

employee cost etc (See Figure 8.4).

Figure 8.3 : Revenue (Rs bn)

63.41

78.35

93.46

0102030405060708090

100

2003-04 2004-05 2005-06

Source: www.moneypore.com

Figure 8.4 Net Profit (Rs bn)

0.93 0.96

0.15

0

0.2

0.4

0.6

0.8

1

1.2

2003-04 2004-05 2005-06


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Table 8.3: Financial Highlights Rs m

P&L 2003-04 2004-05 2005-06 Total Revenue 63411.7 78352.2 93455.1 Employee Cost 11130.4 11821.4 12443.7 PBDIT 5766.1 5549.5 5050.1 Depreciation 4433.1 4260.3 4061.9 Interest & Financial Charges 396.3 323.8 838.8 PBT 936.7 965.4 149.4 PAT 925.3 963.6 149.4 Cash Profit 5358.4 5223.9 4211.3 Balance Sheet Net Worth 2458.5 3249.6 3398.0 Capital Employed 1538.4 1538.4 1538.4 Fixed Assets (Gross Block ) 71166.3 71397.2 82885.9 Total Debt 14785.7 12619.6 36228.2 Net Working Capital 23805.2 26016.0 36984.2

8.2.5 Business Strategies

Air India, the public sector airline operator, which currently has leased belly space on

Falcon Aviation to fulfil the demand on the Kerala-Gulf and the India-Germany sectors,

is in the process of converting two of its A310 aircrafts into freighter aircrafts by

September 2007. In addition, the airline is expecting addition of some new fleet for the

quarter ended December 2006. This is likely to enhance its cargo capacity.

India is emerging as a major air cargo hub in Asia. Air India Ltd has recently formed a

joint venture with Singapore Airport Terminal Services Ltd (SATS). The cargo-handling

facility of AI-SATS will have two warehouse floors with a gross floor area of 18,000sq

m. In addition, it will have a design capacity to handle more than 150,000 tonnes of

Key Ratios 2003-04 2004-05 2005-06

Debt-Equity Ratio 9.13 4.80 7.35 Current Ratio 0.76 0.82 1.34 Operating Profit Margin (%) 9.38 7.31 5.58 Net Profit Margin (%) 1.51 1.27 0.03



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cargo. Both the entities will jointly invest more than Rs800m in the development of this

project.

Merger of Air India and Indian

The Ministry of Civil Aviation has decided to merge the state-owned two air carriers, Air

India and Indian; the merger has been under consideration for quite sometime. The

merger would be in the interest of both Air India and Indian Airlines and the advantages

that are likely to follow are as under:

• Competitive Strength: The combined revenue of the two airlines was around

Rs130.4 billion in 2004-05 and that would place the merged entity at 35 in the world

ranking as against the present ranking of 48 in case of Air India and 70 in case of

Indian Airlines. The ranking would further improve to 20 with induction of new fleet,

which would help the merged entity to be more competitive in the international

market.

• Controlling Cost: High operating cost in airline business is an important

characteristic and smaller or inefficient airlines often find difficult to control cost.

The merged entity would help in eliminating number of common costs such as

marketing, advertisement etc and that will help them to control the cost and stay

competitive

• Improving Market Share: There has been a sharp fall in the market share of both

Air India and Indian, which has declined from 24.5% and 100% respectively in 1990

to 19.5% and 31% in 2005, mainly due to rising competition from private players.

Both the airlines have been competing with each other in some of the sectors and

eroding market share. Therefore, the merger will eliminate this kind of unproductive

competition and would definitely help in improving combined market share.


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8.3 Jet Airways 8.3.1 Corporate Profile


Jet Airways (India) Limited was

established by Mr. Naresh Goyal. It

started its commercial operation on

May 05, 1993. It started off with a

fleet of four aircrafts and grew to

become India's largest airline

service provider with a market share

of 34.9% at end of December 2006.

It has a fleet of 62 planes. Total

fleet comprises 13 Boeing 737-

700s, 28 Boeing 737-800s, six

Boeing 737-400s, two Boeing 737-

900s, two Airbus 330-200s, three

Airbus 340-300E, and eight ATR

Corporate Address: Jet Airways (India) Ltd. SM Centre, Andheri Kurla road, Andheri (East) Mumbai – 400059, India Fax: +91 22 2920 13 13 Phone: +91 22 4019 10 00 Website: www.jetairways.com Year of Incorporation: 1992 Sales Revenue: Rs61.35bn (Year ending Mar 31, 2006) Fleet Size: 62 Key Activities:

1. Domestic Aviation 2. Cargo 3. Recently started

International Aviation

Management Naresh Goyal, Chairman Ali Ismail Ghandour, Director Victoriano P Dungca, Director Javed Akhtar, Director IM Kadri, Director Charles A Adams, Director PRS Oberoi, Director Aman Mehta, Director Vijay Laxman Kelkar, Director Satyan G Pitroda, Director Saroj K Datta, Executive Director

Passenger, 92.54%

Others, 1.18%

Cargo, 5.39%

Extra Baggage,

0.89%

Source: Jet Airways Annual Report 2005-06

Figure 8.5 operating revenue break-up (2005-06)


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72-500. Jet Airways operates over 330 flights daily to 44 destinations across India and to

six international destinations including London (Heathrow), Kuala Lumpur, Singapore,

Bangkok, Colombo and Kathmandu. The company has nosed ahead of state-owned

Indian Airlines, which for decades dominated the domestic air services.

8.3.3 Cargo Operations

Jet Airways with its fleet of 62 modern and next generation aircraft offers seamless

connection throughout the world on its own and with its partner airline network.

Revenues from carriage of cargo increased by 65.2% from Rs1,856m in 2004-05 to

Rs3,067m in 2005-06, primarily because tonnage carried increased from 98,840 tonnes in

2004-05 to 115,715 tonnes in 2005-06. This increase in tonnage was largely due to the

commencement of long-haul international operations to London using wide-body aircraft,

which have significantly higher cargo-carrying capacity than other aircraft in the fleet.

8.3.4 Financial Performance

Riding high on the booming

economy, and growing IT/ITES and

tourism sectors, total revenue for Jet

Airways in 2005-06 witnessed an

outstanding growth rate of 38.8% to

reach Rs61.35 billion against Rs44.2

billion in 2004-05 (See Figure 8.6).

The unprecedented growth was

achieved due to operational

efficiency, higher load factors and

rise in fleet capacity with available

seat kilometres (ASKMs), which has

gone up by 35.6% in 2005-06 against the same period of the previous year. In addition,

rise in fare has attributed to this excellent growth in total revenues of Jet Airways.

35.6644.2

61.35

0

10

20

30

40

50

60

70

2003-04 2004-05 2005-06


Figure 8.6 Total Revenue (Rs bn)


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PAT rises by 15.6% in FY06

For the year ending March 31, 2006, Jet

Airways posed a net profit of Rs4.52

billion as compared to Rs3.91 billion in

the corresponding period of the previous

year (See Figure 8.7).

8.3.5. Financial Highlights

Table 8.4: Financial Highlights Rs mn

P&L 2003-04 2004-05 2005-06Sales 35657.4 44201.7 61354.7Employee Cost 2770.9 3669.3 5403.8Selling & Administration Cost 7579.3 8995.3 14178.8PBDIT 9824.0 12927.8 13702.0Depreciation 5151.5 4570.0 4064.1Interest & Financial Charges 2891.4 2536.6 2416.0PBT 1781.1 5820.9 7221.9PAT 1631.1 3919.9 4520.4EPS (Rs) 22.63 44.99 51.52Cash Profit 6781.5 8480 8584.1Balance Sheet Net Worth 4174.1 20101.6 23058.8Capital Employed 27744 38951.1 58014.2Fixed Assets (Gross Block + WIP) 51770 52341.1 70377.3Total Debt 32099.9 29648.4 48956Net Working Capital 2852.5 5457.0 4499.0

Key Ratios 2003-04 2004-05 2005-06 Debt-Equity Ratio 72.01 3.47 2.02 Current Ratio 1.91 3.47 3.06 Interest Cover Ratio 1.46 3.29 2.65 Debtors Turnover Ratio 14.70 17.19 13.14 Operating Profit Margin (%) 27.16 29.80 18.39 Net Profit Margin (%) 3.51 9.04 4.31 Return on Capital Employed (%) 11.69 20.70 10.90 Return on Net Worth (%) 320.74 42.87 12.60 Source: www.moneypore.com

1 .63

3 .914 .52

00 .5

11 .5

22 .5

33 .5

44 .5

5

2003-04 2004-05 2005-06


Figure 8.7 PAT (Rs bn)


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8.3.6 Business Strategies

Jet Airways, India’s largest private sector airline service provider, acquired Air Sahara in

all cash deal for Rs14.50 billion, of which a sum of Rs5 billion had already been paid to

the selling shareholders in March 2006. The transaction is 40% less than the price

Rs23.00 billion that Jet Airways had agreed to pay for the acquisition of Air Sahara in

January 2006. The acquisition is the largest deal in Indian aviation industry. With the

acquisition, Jet-Sahara would change the scenario of the Indian aviation industry in the

coming years. According to the agreement, Jet Airways is supposed to pay Rs4 billion on

or before April 20, 2007, the balance of Rs5.5 billion will be payable in instalments

commencing from March 2008 and ending in March 2011.

Benefits of Acquisition

• It offers a strong platform and a larger operational base for future growth.

• Achieves a wider and a more effective coverage of the Indian market, giving the two

airlines a very strong position, especially in the metro markets

• Increased primetime departures and frequencies through a subsidiary

• Obtaining access to skilled personnel such as pilots and engineers, for which there is

a significant shortage in India at present.

• Unit cost savings and improved levels of productivity due economies of scale and

common utilisation of facilities and resources, arising particularly from common

maintenance and training facilities, airport-handling facilities, enhanced purchasing

power, finance and administrative set-ups

• Clear value proposition for the customers in the form of wider network coverage,

enhanced and convenient connections and better service levels on a larger scale of

operations.

• Increased availability of airport infrastructure facilities

• Since Sahara Airlines will operate as an independent carrier with its own operating

permit, it will have access to available traffic rights for international operations


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Jet Airways has decided to augment its fleet by adding another 22 aircrafts by March

2009 to increase the total number of aircrafts in its fleet to 84.

Jet Airways has plans to start a domestic cargo airline. The airliner has mooted a

feasibility study for this purpose. The company would initially convert its old passenger

aircraft into freighters to cater to the booming domestic air cargo market.


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8.4 Blue Dart 8.4.1 Corporate Profile

Subsidiaries

• Blue Dart Aviation


Blue Dart Express Limited is a leading courier and integrated air express package

distribution company and premium logistics service provider in the county. In 1983, it

started its operation. It possesses vast integrated infrastructure network. Currently, it

operates 14,400 domestic locations and more than 220 international locations. In pursuit

of sustainable leadership in quality services, the company has evolved an infrastructure

unique in the country today. The main advantages associated with the company are:

State-of-the-art technology, indigenously developed, for Track and Trace, MIS,

ERP, Customer Service, Space Control and Reservations

Blue Dart Aviation, dedicated capacity to support time-definite morning

deliveries through night freighter flight operations.

Warehouses at 38 locations across the country as well as bonded warehouses at

the six major metros of Bangalore, Chennai, Delhi, Mumbai, Kolkata and

Corporate Address: Blue Dart Centre, Sahar Airport Road Andheri (E), Mumbai - 400099, Maharashtra, India Tel: +91 22 28396444 Fax: +91 22 28244131 Website: www.bluedart.com Year of Incorporation: 1983 Sales Revenue: Rs6.68bn (By the end of Dec 2006) Fleet Size: 7 (Freighter Aircraft) Key Activities:

Courier and integrated air cargo and distribution company

Management Air Marshal SS Ramdas (Retd), Chairman Anil Khanna, Managing Director Malcolm Monteiro, Director Clyde C Cooper, Director Suresh Sheth, Director Greg Tanner, Director Ross Allen, Alternate Director to Mr Greg Tanner


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Hyderabad. It has joined hands with DHL Express besides forming a strategic

partnership with Sri Lankan Airlines and Polar Air.

In 2006, Blue Dart has handled 57m domestic and 630,000 international

shipments weighing 152,000 tonnes.

8.4.3 Financial Performance The company has changed its financial year to calendar year basis from April 1, 2005.

Accordingly, the current accounting period of the company is for the nine months

ended December 31, 2005. During 2006, Blue Dart has leveraged its assets,

infrastructure and investments, resulting in improved productivity and performance.

The operating profits increased owing to higher sales and control over costs.

During 2006, Blue Dart’s net sales grew by 60.93% to Rs6.68 billion over the Rs4.15

billion for nine months period of 2005 (See Figure 8.8). During the same period, net

profit also registered a 15.71% growth rate and touched a record Rs502.3m (See

Figure 8.9).

264.

8

390.

4

434.

1 502.

3

0

100

200

300

400

500

600

2003-04 2004-05 2005 (9) 2006

Figure 8.9 Profit After Tax (Rs m)

Source: www.monyepore.com

3.55

4.58

4.15

6.68

0

1

2

3

4

5

6

7

8

2003-04 2004-05 2005 (9) 2006

Figure 8.8: Sales (Rs bn)

Source: www.monyepore.com


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Table 8.5 : Financial Highlights Rs m

P&L 2003-04 2004-05 2005 (9) 2006 Sales 3548.6 4583.3 4150.9 6680.2Employee Cost 536.6 658.0 573.2 920.3Selling & Administration Cost 290.1 428.5 305.5 470.4PBDIT 558.3 808.1 816.6 1016.6Depreciation 100.1 153.2 131.4 220.1Interest & Financial Charges 45.2 53.6 23.6 17.8PBT 413.0 601.3 661.6 778.7PAT 264.8 390.4 434.1 502.3EPS (Rs) 10.57 16.01 24.08 21.00Cash Profit 364.9 543.6 565.5 722.4Balance Sheet Net Worth 1324.2 1633.4 2027.0 2502.2Capital Employed 237.6 237.6 237.6 237.6Fixed Assets (Gross Block + WIP) 1922.1 2341.7 2417.2 2458.2Total Debt 653.0 538.1 419.7 101.8Net Working Capital 191.0 252.1 464.4 611.9

Key Ratios 2003-04 2004-05 2005 (9Month) 2006 Debt-Equity Ratio 0.47 0.40 0.26 0.12 Current Ratio 2.24 1.76 2.10 2.18 Interest Cover Ratio 10.14 12.22 29.03 44.75 Debtors Turnover Ratio 7.80 8.14 6.19 7.52 Operating Profit Margin (%) 15.73 17.63 19.67 15.22 Net Profit Margin (%) 7.46 8.52 10.46 7.52 Return on Capital Employed (%) 25.07 31.67 39.64 31.57 Return on Net Worth (%) 21.15 26.40 31.62 22.18


8.4.4 Recent Developments & Business strategies

Blue Dart has made the transition from an international express consolidator to a focused

domestic player. It is the only Indian air express company that has invested extensively in

technology infrastructure to create differentiated delivery capabilities, quality services

and customised solutions for the customer. Some of the technology-based business


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offerings are as follows: Internet Dart, Shop Track, Pack Track, Mobile Dart, Ship Dart

and Image Dart.

Blue Dart Aviation Ltd (BDAL) added two leased Boeing 757 freighters to their fleet.

The new aircrafts will be positioned at Chennai and Kolkata. The freighters will increase

the capacity of the BDAL’s regular night flights to 250 tonnes from 166 tonnes. With the

two new freighter aircrafts, BDAL’s total freighter aircraft fleet will reach seven.


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9. Cost Structure 9.1 Cost Drivers

Logistics plays a crucial role in India’s booming economy, trade and manufacturing

sector. Transportation accounts for major share of logistics costs in India. In the entire

logistics market, transport services that play a crucial role are aviation, shipping, road

transport and railways. Some cost components are significant and constitute a major part

of the entire operation. Undoubtedly, fuel cost accounts for the highest in all four

segments and plays a crucial role in terms of profitability.

9.1.1 Air Transport System in India

Aviation Turbine Fuel (ATF) constitutes the highest cost component in air transport

system. The ATF cost has increased dramatically over the last couple of years due to rise

in international crude oil prices. ATF constitutes around 36% of the total cost of aviation

companies (See Figure 9.1). The price of this fuel is linked to international price of crude

oil, which is often influenced by geopolitical issues, various supply and demand factors

including periods of market surplus and shortage and government regulations. During

2005-06, India’s largest private airline operator Jet Airways’s fuel bill was Rs16,789m

against Rs10,517m in 2004-05, up by 59.6%. This clearly indicates that the fuel bill is

eating away the major portion of their income. Percentage share of fuel to total cost for

Air India Ltd has increased from 20.6% in 2002-03 to around 36% in 2005-06.

Rising staff cost is another important feature in Indian aviation industry due to shortages

of skilled technical people in the country as well as rising demand for technical people

which constitutes around 13% of the total cost of the sector. This has increased the

employee attrition rate. Jet Airways’s cost of employees has increased from 8.16% in

2003-04 to 9.91% in 2005-06, which is mainly due to the difference between demand and

supply of human resources for aviation sector in India. Companies are taking several

measures to reduce the attrition in the sector by providing various incentives and bonus to

the employees.


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Repairs and maintenance

cost works out to about

12% for the aviation

companies mainly due to

the high average age of

fleet in India. For instance,

average age of Air India’s

fleet is around 16.23 years,

Indian Airlines is 15.8

years and Jet Airways

average fleet age is 5.3

years.

Aircraft rentals have

relatively declined from

around 11% in 2002-03 to around 7.5% in 2005-06. There has been a dramatic rise in

aircraft rentals for Jet Airways in 2005-06 to around Rs4,340m against Rs1,986m in

2004-05.

Operating expenses like landing charges, route navigation facility charges, terminal

navigation landing charges and aircraft parking bay form 5% of total expenses. These

charges are determined by Airports Authority of India, except for Cochin International

Airport for which charges are determined by Cochin International Airport Limited, a

private organisation.

Financial charges form 10% of total expenses and depreciation expenses amount to

around 4% of total expenses. Insurance expenses constitute around 2% of total expenses.

Other expenses that include advertising and sales promotion activities, general and

administrative expenses amount to 10.6% of total expenses.

36%

13%

10%

4%10.60%

5%

2%

7.40%

12%

Air Turbine Fuel Employees Repairs & Maintenance RentalsInsurance Landing & other related chargesFinancial charges DepreciationOthers

Source: Cygnus Research

Figure 9.1: Cost Component of Air Transport in India


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10. Issues and Challenges 10.1 Major Indian Airports Running Out of Capacity

Major Indian airports are facing huge capacity constraints in terms of passenger traffic as

well as cargo traffic and on the other hand smaller Indian airports continue to be

underutilised. According the Ministry of Civil Aviation, airports at Delhi and Mumbai are

either fully utilised or close to full utilisation. Both airports have parallel runways that

limit aircraft movements and suffer from terminal as well as apron constraints. Indeed,

insufficient cargo bays, inadequate ground-handling facilities and shortage of runways

are resulting in considerable delays. The capacity utilisation at AAI airports in 2005-06 is

more than 140%, which is further increasing.

In India, Mumbai and Delhi airports handle lion share of the country’s passenger and

cargo traffic. Both the airports handle only 30-35 aircraft take offs / landings per hour

compared to 70-75 aircraft per hour in other major international airports.

10.2 High Waiting Time and Congestion in Airports

In India, there is rise in congestion and waiting time, especially during peak hours due to

lack of adequate technological development etc. As a result, airports suffer from high

waiting time and congestion. Average waiting time for export cargo is 2.11 days (50

hours 37 minutes) and for import cargo, it is around 7.58 days (182 hours 32 minutes).

While, at the best of international airports, the average dwell time of exports is about 12

hours, while the average dwell time of imports is 24 hours. In India, ATC delays cost the

sector immensely. The sector is incurring huge losses; 5-10% additional flying time cost

is around US$80m per annum.

Therefore, three areas require immediate attention from the government—upgradation of

technology, simplification of procedures and reduction in waiting time. Growing air

cargo traffic in India has thrown a challenge for existing cargo-handling facilities in the

airports. There are several problems including poor warehousing facilities, complex

procedures, various third-party interferences in cargo processing, improper execution of


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Electronic Data Interchange, outdated handling equipment, lack of improved inventory

system and absence of improved access to the cargo terminals.

The cargo-handling terminals are unable to cope with a surge in volumes. Not

surprisingly, the incumbent airlines with existing slots and parking capacity hold an edge

over new entrants. With a number of new players set to enter the Indian aviation sector in

the near future, the infrastructural constraints at major airports are likely to worsen and

hinder the robust growth of the sector. A multi-pronged approach—involving activation

of dormant airports, augmentation of existing capacity, switching to multiple-airport

concept and the expansion of existing facilities—could relieve the pressure on major

airports.

10.3 High Fuel Cost

High fuel prices in India is one of the major challenges for the aviation industry. It is

eating away the profits of the airline service providers. In India, the ATF prices continue

to be much higher than global rates, making ATF account for 35-40% of operating cost,

as against global average of 20-25%. The ATF in India is around 70% higher than the

global figure, resulting in huge losses for the sector. During 2006-07, it is estimated that

aviation industry losses were around US$500m. ATF cost per kilometre in Delhi is

US$755, in Mumbai it is US$780, while in Singapore, it is US$455 and in Dubai, it is

US$497. 10.4 Taxation

The sales tax on ATF varies from state to state. In some states, the sales tax is as high as

30%. The significance of this issue is underscored by the fact that the fuel bill typically

accounts for around 35% of the operational costs. The Government of India had initially

imposed 10.2% service tax (which has gone up to 12% in April 2006) on landing, airport

and air navigation charges, which add to the total costs. (Comparative airport charges are

given in table 10.1) These will have a negative impact on the country’s air transport


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sector. However, the introduction of value-added tax on a nationwide basis from April 1,

2005 has removed some of these tax anomalies.

Table 10.1 Comparative Airport Charges

Country Landing Charges TNLC* RNFC* Total Average

India 11996 5,749 5,823 23,568 23,568Singapore 17,458 NA NA 17,458 Thailand 5,238 NA 16,108 21,346 Malaysia 5,865 NA 375 6,240 UAE (Dubai) 11,199 NA 230 11,429 UAE (Abu Dhabi) 10,582 NA 230 10,812 Oman 9,305 NA 4,968 14,273 Bangladesh 4,723 NA 798 5,521 Sri Lanka 13,064 NA 4,600 17,664 Nepal 6,726 NA NA 6,726 Qatar 15,164 NA NA 15,164 Bahrain 12,127 NA 2,306 14,433 USA (Miami) 13,906 NA 2,342 16,249 Australia (Melbourne) NA 10,003 4,932 14,935

13,250

Difference 10,318 Difference 78%*RNFC- Route Navigation Facility Charges *TNLC- Terminal Navigation Landing Charges All charges calculated for domestic flights, for a B737-800 with MTOW of 71tonnes. For RNFC calculations, a stage length of 151 nautical miles (Mumbai-Aurangabad) has been used Source: IATA Airport & Air Navigational Charges Manual – March 2006 10.5 Aviation Security

Post 9/11 terrorist attacks, the aviation security has assumed importance worldwide.

Indian airports, besides facing the usual security problems and challenges, are also

confronted with unique problems. Now aviation security has to conform to international

norms, which is a challenge for most Indian airports. An issue that is common to all

Indian airports is the involvement of multiple agencies and lack of clear demarcation of

roles. Now a variety of central and state agencies such as the state police, Central

Industrial Security Force and AAI in addition to airlines themselves are involved in

airport security. The security tasks are neither prioritised nor assigned to a specific

agency, resulting in confusion.


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Moreover, offences relating to aviation are tried under the Indian Penal Code, the Indian

statutory act for criminal offences, which lacks special provisions to address issues

unique to aviation. The Naresh Chandra Committee—appointed by the Indian

government to prepare a road map for the civil aviation sector in July 2003—in its report

submitted in two parts in 2003 and 2004, recommended that the Bureau of Civil Aviation

Security and the security forces, providing aviation-related security, should be granted

special powers.

10.6 Lack of Human Power India’s civil aviation sector has been experiencing acute shortage of human resources,

especially in case of pilots, which is mainly due to unprecedented growth in air traffic

(both passenger and cargo), and in view of the emergence of large number of air carriers

including LCC in the last couple of years. According to Sub-Group on Human Resource

Development for the Civil Aviation Sector, India would need 5,400 pilots by the end of

the 11th Five Year Plan. Thereafter, there would be requirement of at least 150 pilots per

year as replacements for retirements and normal attrition.

Shortage of aircraft maintenance engineers/technicians (AME) in India is another

important bottleneck for air carriers. Though AME institutes produce around 5,000

students every year, they provide only basic Ab Initio training for issuance of basic

licence. However, to meet the DGCA requirements, the trainees need to undergo an

additional minimum one-year experience on heavy airplanes and get a type-rated licence.

No other carriers except public carriers in India have developed an institutionalised

system of training for aviation engineers. With MRO facilities being set up by M/s

Boeing and M/s Airbus as a part of the package negotiated in connection with order of

Air India and Indian Airlines for purchase of aircraft, the requirement of personnel for

aviation engineers and technicians could only rise further.

Air Traffic Control is a critical component of the civil aviation infrastructure. The surge

in air traffic has exponentially increased the aircraft landing and take-offs at India’s

airports and also the over-flights across the Indian skies. According to estimates, India

would need around 1,150 controllers and an additional 1,000 new personnel by 2015 to

keep up with the increasing number of flights and the new airports.


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11. Government Initiatives, Schemes & Regulations

11.1 Introduction

The Government of India, in a historic development, had enacted Air Transportation Act

1953 in order to boost the India’s aviation sector and hence overall economy by allowing

the private players to enter in the domestic market besides the two state-owned airline

service providers (Air India and Indian Airlines). Airports play a crucial role in shaping a

country’s identity and act as a window to the world. Therefore, the Government of India

has emphasized the significance of airport infrastructure in order to meeting the growing

demand for better air transportation facilities and also to complement the increasing

economic activity. The quality of airport infrastructure, which is a vital component of the

overall transportation network, contributes directly to a country's international

competitiveness and the flow of foreign investment.

The Government of India has been taking many positive steps in the post-liberalisation

period to give a boost to the country’s vital infrastructure sector. The steps include

allowing private sector participation in the infrastructure sector, which was in need of

urgent augmentation. Over the past few years, India has also tried to attract Foreign

Direct Investment (FDI) in the infrastructure sector especially in roads, seaports and

airports. The country has reached a situation wherein 100% FDI is now allowed in most

of the infrastructure sectors. Significantly, in the aviation sector, 100% FDI is permissible

for existing airports; FIPB approval is required for FDI beyond 74% and for Greenfield

airports, 100% FDI under automatic route is permissible. Open Sky Policy of the

Government and rapid air traffic growth have resulted in the entry of several new

privately-owned airlines and increased frequency/flights for international airlines. There

is 100% tax exemption for airport projects for a period of ten years.


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11.2 Requirements for Becoming Air Cargo Operator An Air Cargo Operator's (ACO) Permit can be granted to:

1. Citizen of India; or

2. A Non-Resident Indian (NRI); or

3. A company, registered under the Companies Act, 1956, having its principal place of

business within India and with or without foreign equity participation (excluding NRI

equity) limited to 49%; or

4. The Central Government or state government or an Undertaking owned or controlled

by either of the said Governments.

• Air Cargo Operations shall be carriers of cargo, mail. Passengers are not

permissible in cargo operations.

• It can be scheduled or non-scheduled operations.

• Operations would be to destinations within India. For operations outside India,

specific permission of the DGCA would be necessary demonstrating capability

for conducting such operations.

• Before applying of Air Cargo Operators' Permit, an applicant should be in

possession of an aircraft with Certificate of Airworthiness in Normal Goods

category.

• Applicants should either have their own maintenance and repair facilities

approved by the DGCA or should furnish proof of availability of such facilities

and flight crew members and aircraft maintenance engineers, duly licensed by

DGCA.

• An applicant should conduct operations from approved operational and

maintenance bases and should abide by the prescribed operational requirements.

• An applicant should get the security programme approved by Bureau of Civil

Aviation Security before grant of ACO permit.

• The NOC for operating air transport services is valid for one year. Extension of

validity of NOC is granted up to a period of six months on merits of each case.

These period related restrictions apply in respect of dry lease and outright

purchase of aircraft as well. However, when the aircraft, proposed to be


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imported, is a new one with a definite delivery schedule, extension of NOC is

allowed for the actual lead time of delivery, even if it exceeds the total period of

one and half year.

• Air Cargo Operators' Permit is renewable every year.

• Air Cargo Operators' Permit is not transferable.

11.3 Guidelines for Foreign Equity Participation in the Domestic Air Transport Sector

The Domestic Air Transport Policy, approved by the government, provides for foreign

equity participation up to 49% and investment by NRIs up to 100% in the domestic air

transport services. Foreign airlines are, however, not permitted to pick up equity directly

or indirectly.

1. Permission to operate scheduled services will be granted either:

i. to a citizen of India; or

ii. to a company or a body corporate provided that;

• It is registered and has its principal place of business within India;

• Its Chairman and at least two-thirds of its Directors are citizens of India;

and

• Its substantial ownership and effective control is vested in Indian

nationals.

2. Foreign Financial Institutions and other entities that seek to hold equity in the

domestic air transport sector shall not have foreign airlines as their shareholders.

3. An applicant shall be required to furnish full and detailed information with regard to

the shareholding of any airline in the foreign investing institution/entity, if any, and

composition of the Board of Directors and senior management of the said foreign

investing institution/entity.

4. An applicant who seeks permission to operate air transport services in the domestic

sector shall be required to give a declaration that no foreign airline is in financial or

commercial tie up with him/her or has the management/ownership interest in him/her.


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5. While the foreign investing institution/entity, which seeks to hold equity in the

domestic air transport sector, may have representation on the Board of Directors of

the Company, such representation shall not exceed 1/3rd of the total.

6. Any Foreign Financial Institution/entity, which seeks to make investment in the

domestic air transport sector, shall not be a subsidiary of a foreign airline. A leasing

company leasing aircraft to an operator in the domestic air transport sector shall also

not be a part of an airline. However, wet leasing of an aircraft may be allowed from

any source subject to the fulfilment of the guidelines issued by the

Government/DGCA.

7. Domestic sector air transport operators shall not have agreements such as

shareholders agreements etc. with a foreign airline, containing

provisions/arrangements empowering such foreign airlines or others on their behalf to

have effective control in the management of the domestic airline.

8. A domestic air transport operator shall not enter into an agreement with a foreign

airline, which may give such foreign airline the right to interfere in the management

of the domestic operator.

9. A domestic air transport operator may enter into financial arrangements with a bank

and/or other financial institutions for the purpose of lease finance, hire purchase or

other loan arrangements, but such a tie up shall not be permitted with a foreign

airline.

10. Management contract with a foreign airline shall also not be permitted to a domestic

air transport sector operator.

11. Marketing arrangements such as ground handling, general sales agency, code sharing,

interlining will, however, be permitted.

12. A domestic air transport sector operator will also be permitted to get maintenance,

overhaul, repair works done and training of pilots/engineers conducted either at the

facilities available with other airlines or those certified by the Director General of

Civil Aviation on such terms as may be prescribed.

13. A domestic air transport sector operator may be permitted to employ foreign

pilots/engineers till s/he is able to train his own manpower. This shall, however, be


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permitted with the express approval of the competent authority and for such period

and terms as may be prescribed by the said authority.

14. An applicant who seeks permission for domestic air transport operations will be

required to give a declaration that s/he fulfils all the requirements mentioned in the

above guidelines and in case of any change, s/he shall notify the competent authority

within one month of such change. In addition, the applicant will be required to furnish

such a declaration every year.

15. A domestic air transport operator, who furnishes wrong information in respect of any

of the above-prescribed guidelines at any stage, shall be liable for

suspension/cancellation of his/her operating permit.

11.4 PPP in Airport Infrastructure Initiatives

• The Committee on Infrastructure has initiated several policy measures that would

ensure time-bound creation of world-class airports in India. The policy of open skies

has already provided a powerful spurt in traffic growth that has exceeded 20% per

annum during the past two years.

• Greenfield international airports at Bangalore and Hyderabad have been approved and

are currently under construction. These are likely to be commissioned by middle of

2008. Modernisation and expansion of the Delhi and Mumbai airports through PPPs

has been awarded. Other major airports such as Chennai and Kolkata are also

proposed to be taken up for modernisation through the PPP route. Similarly, to ensure

balanced airport development around the country, a comprehensive plan for the

development of other 35 non-metro airports is also under preparation through PPP

route. These measures are expected to bring a total investment of Rs400 billion for

modernisation of the airport infrastructure.

• On the analogy of the highways sector, a Model Concession Agreement is also being

developed for standardising and simplifying the PPP transactions for airports.


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According to Committee on Infrastructure, the airport development programme is given

below.

Table 11.1 Airport Development Programme in India

Particulars Airport Indicative Cost (Rs bn)

Delhi & Mumbai 150.00Restructuring / Modernisation for world-class airports Chennai & Kolkata 50.00Greenfield Airports Bangalore, Hyderabad, Goa, Pune, Navi

Mumbai, Nagpur (Hub) & Greater Noida 100.00

Upgradation 25 selected airports 70..00Modernisation / Improvement 55 airports 30.00Total Investment by 2010 400.00Source: Airport development programme presented to the Committee on Infrastructure (CoI)

11.5 Aviation Growth through Air Cargo

The over utilisation in India’s air cargo traffic has come in the way of exploiting full

potential of air cargo traffic. It is high time to augment the existing airport infrastructure

in order to speed up the handling of air cargo and reduce the dwell time. Moreover, cargo

clearance is also needed on 24-hour basis. In addition, infrastructure relating to cargo

handling such as satellite freight cities with multi-modal transport, cargo terminals, cold

storage, automatic storage and retrieval systems, mechanised transportation of cargo,

computerisation and automation, etc. is required to be set up on top priority basis. Such

facilities will also be provided at non-metro airports as well.

In order to develop India as a Regional Air Cargo hub, the following steps are

recommended:

• ‘Gateway’ status at all international airports

• Cargo Village concept at all major airports

• Forwarders Bonded Terminals at every gateway airport

• Multi-modal connectivity, effectively serving the hinterland

• Enhancing air capacity and connections to international destinations;

• Handling capabilities for new generation aircraft;

• Enhanced technology, handling equipment and information systems


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• Encouraging use of EDI in air cargo, thereby integrating all the players –

Customs, AAI, Regulatory Agencies; Airlines, GHAs; Service Provider; and

Shippers

• E-Freight – the IATA program needs to be integrated in Indian Air Cargo

initiatives

• Compatibility with international laws and conventions; and Ratification of the

Montreal Protocol, 1999

• Customs linked initiatives like simplifying commodity coding; automating

export/import license application and approval;

• Open cargo ground handling contracts to avoid monopoly;

• Specialised cold chain infrastructure and services for perishables, processed

foods, pharmaceuticals;

• Specialised facilities for valuable cargo, including diamonds and jewellery,

bullion, currency etc. 11.6 Initiatives for Safety

Ministry of Civil Aviation has taken several initiatives for 11th Plan for safety of flights:

• Director General of Civil Aviation has directed to all the Scheduled and Non-

Scheduled operators to monitor performance of the crew by analysing DFDR data

for exceedence.

• Computerised monitoring of FDTL, Training, Medical and Licence validity:

All the airlines are supposed to computerise the records pertaining to flight crew

duty time limitation, their training, qualification, medical and licence validity.

• Dedicated and trained safety audit teams of DGCA officers carry out the safety

audit and surveillance inspection of the Indian operators and maintenance

organisations in the country. The deficiencies pointed out in the safety audit

reports are immediately brought to the notice of the management of the operators

for taking necessary remedial actions.

• Establishment of Unidirectional Air Traffic routes in place of bi-directional routes

for enhancement of safety of operations


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• Installation of Airborne Collision Avoidance System

• Installation of Ground Proximity Warning System in order to provide

automatically a timely and distinctive warning to the flight crew when the aircraft

is in potentially hazardous proximity to the earth's surface.

11.7 Regulations 11.7.1 Guidelines for the movement of hazardous goods by air transport

The guidelines related to transport of hazardous goods by air have been laid down by the

Ministry of Civil Aviation under the Aircraft (Carriage of Dangerous Goods) Rules,

2003. The salient points include:

1. To aircraft registered in India or aircraft operated by an operator who has his

principal place of business or permanent place of residence in India, wherever they

may be;

2. To all aircrafts for the time being in or over India; and

3. To persons operating air transport services to, from, within and over India, shippers

of dangerous goods or their agents.

Carriage of dangerous goods by air • Save as otherwise provided in these rules, no person shall carry or cause or permit to

be carried in any aircraft to, from, within or over India or deliver or cause to be

delivered for loading on such aircraft any dangerous goods, except in accordance with

and subject to the terms and conditions of a permission in writing granted by the

Central Government (or by an officer authorised in this behalf by the Central

Government).

• The following classes of dangerous goods may be carried in aircraft subject to

following provisions:

1. Articles and substances, which are required to be aboard the aircraft in accordance

with the pertinent airworthiness requirements and operating regulations or that are

authorised by the State of the operator to meet special requirements.


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2. Such goods as required for the propulsion of the means of transport or the

operation of its specialised equipment during transport (e.g. refrigeration units) or

those that are required in accordance with the operating regulations (e.g. fire

extinguishers).

3. Aerosols, alcoholic beverages, perfumes, colognes, safety matches and liquefied

gas lighters carried aboard a passenger aircraft by the operator for use or sale on

the aircraft during the flight or series of flights, but excluding non-refillable gas

lighters and those lighters liable to leak when exposed to reduced pressure.

4. Dry ice intended for use in food and beverage service on board the aircraft.

5. Such goods as required to provide during flight, medical aid to a person or

veterinary aid or a humane killer for an animal.

6. Such goods as required for dropping in connection with agricultural, horticultural,

forestry or pollution control activities.

7. Such goods as required to provide, during flight, aid in connection with search

and rescue operations.

8. Articles and substances such as small gaseous oxygen or air cylinders required for

medical use, radio isotopic cardiac pacemakers or other devices, wheelchairs or

other battery-powered mobility aids, safety matches or a lighter and non-

radioactive medicinal or toilet articles like medicines containing alcohols, hair

sprays, perfumes and colognes etc. in small quantities as permissible to be carried

by passengers and crew in accordance with the ‘Technical Instructions.’

Note: “Technical Instructions” refer to Technical Instructions for the Safe

Transport of Dangerous Goods by Air” issued by the International Civil Aviation

Organisation.

• Where the carriage of dangerous goods is permitted it shall be the duty of the shipper,

of the operator and of every person concerned with packing, marking, labelling,

acceptance, handling, loading, unloading, storage, transportation or any other process

connected directly or indirectly with carriage of such dangerous goods, to take all

precautions to avoid danger to aircraft or to persons therein or to any other person or

property and in particular to ensure:


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1. That the dangerous goods are so packed, protected and secured as to avoid the

possibility of their being a source of danger.

2. That the dangerous goods are carried so as not be accessible to the passengers on

the aircraft.

3. That the nature of the dangerous goods is plainly and conspicuously marked on

the outside of the package containing them.

4. That all other provisions of the Technical Instructions and the terms and

conditions of the permission granted by the Central Government are strictly

complied with.

Custody of unauthorised dangerous goods

Where any officer authorised by the Central Government for this purpose, has reason to

believe that the provisions of this rule are, or are about to be, contravened, s/he may

cause the dangerous goods in question to be placed under his/her custody pending

detailed examination of the nature of the goods or pending a decision regarding the

action, if any, to be taken in the matter.


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12. Outlook 12.1 Global Air Cargo Market

Global air freight industry has

witnessed a growth rate of 5.1%

in 2006, driven by resurgent

global economic activities.

According to the Boeing

Company, the components of total

air traffic are strongly and

positively correlated with the

world gross domestic product

(GDP). Air cargo accounts for 2%

of international trade by volume

and around 40% by value. Global

air cargo traffic has gone up at

CAGR of 5.53% during 2001-06

(See Figure 12.1). Industry consulting firm Air Cargo Management Group projected that

world air cargo volume would reach 208 billion Freight Tonne Kilometres (FTKs) by

2009 from the present 175.6 billion FTKs.

The air freight demand is concentrated geographically since it is based on the economic

activity. In 2004, more than 96% of world FTKs moved within the three pillars of the

world economy—Asia Pacific, Europe and North America. Due to slower growth in

Intra-Europe and North America, Asia and Intra-Asia are emerging as the prime engines

for growth in the air cargo sector. This is because the Intra-Europe and North American

markets have matured.

According to International Monetary Fund, the global GDP growth is expected to average

at 3% per annum through 2023, after exceeding 2% annual average growth over the last

couple of years. This major driver of international trade growth will help stimulate the

175.6

185.6

196.6

208

150

160

170

180

190

200

210

220

2006 2007E 2008E 2009E

E- Estimated Source: MGI Global Air Freight Flow Model

Figure 12.1 Global Air Cargo Market (FTKs bn)


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global air freight growth rate. Other factors that contribute to the airborne freight growth

rate include the continuous process of globalisation, relative currency strength,

government regulations and national industrial initiatives.

• Economic activity: Economic activity, which is measured in terms of world GDP,

remains the primary growth driver for air cargo industry’s growth.

• Globalisation: At present, about 20% of all manufactured goods cross borders.

According to McKinsey estimates, with the growing trend of globalisation and market

liberalisation, by 2020, around 80% of these good will cross borders. This

development will have a greater impact on the global air cargo sector.

• Growth of Asian Economies: Asian markets are growing; the domestic Chinese and

intra-Asian markets are expanding at average annual rates of 10.1% and 8.5% per

annum, respectively. The growth momentum will continue for the next two decades.

This will be driven by high growth rates of these economies and the increasing

proportion of their GDP, which results from trade growth. Since there is a positive

correlation between GDP growth and growth of air cargo, the momentum would

boost the sector in the Asian region.

12.2 Indian Air Cargo Outlook

Indian aviation industry is emerging

as one of the fastest growing markets

in the world both in terms of

passenger as well as cargo traffic.

According to AAI, Indian air cargo

market (in terms of volume) is

expected to grow at CAGR of 11.5%

from 2007-08 to 2011-12, of which

the CAGR of international air cargo

is expected to be 12.2% and

domestic air cargo would be 10.15%

1151

.05

1289

.26

1445

.5

1622

.33

1822

.69

584.

61

643.

31

708.

39

780.

6

860.

78

0200400600800

100012001400160018002000

2007-08E 2008-09E 2009-10E 2010-11E 2011-12E

International Domestic

E- Estimated Source: Airport Authority of India

Figure 12.2 Indian Air Cargo Market (FTKs bn)


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during the same period (See Figure 12.2).

In view of the forecasted (9%) GDP growth during 11th Five Year Plan, India’s air cargo

market is looking for a big leap forward over the next five years. Since India is emerging

as one of the favourable destinations for manufacturing outsourcing, it provides greater

opportunity to the air cargo industry to airlift the high-value items. At present, although

the base for air cargo movement in the country is low, it is expected to get a major fillip

due to the burgeoning overseas trade, customer service orientation, inventory concern and

E-commerce development.


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Annexure I: List of Abbreviations

3PL Third Party Logistics

4PL Fourth Party Logistics

AAI Airport Authority of India

ACO Air Cargo Operators

ADS Automatic Dependence System

AME Aircraft Maintenance Engineers

AMSS Automatic Message Switching System

APIS Advance Passenger Information System

ASBS Automatic Self Briefing System

ASEAN Association of South East Asian Nations

ASKMs Available Seat Kilometres

ASR Airport Surveillance Radar

ATM Air Traffic Management

AWB Airway Bill

BDAL Blue Dart Aviation Ltd

CAGR Compounded Annual Growth Rate

CNS Communication, Navigation and Surveillance

CPDLC Control Pilot Data Link Communication

CSO Central Statistical Organisation

DGCA Director General of Civil Aviation

DVOR Doppler Very High Frequency Omni-Directional Range

EDI Electronic Data Interchange

FDI Foreign Direct Investment

FDPS Flight Data Processing System

FDTL Flight Time Limitation

FIPB Foreign Investment Promotion Board

FTK Freight Tonne Kilometres

GDP Gross Domestic Product

HAL Hindustan Aeronautics Ltd

ICAO International Civil Aviation Organisation


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IGI Indira Gandhi International

IIP Index of Industrial Production

JACC Joint Air Cargo Complex

KRC Konkan Railway Corporation

LCC Low Cost Carriers

MIS Management Information Systems

MoU Memorandum of Understanding

MRO Maintenance, Repair and Overhaul

MSSR Monopulse Secondary Surveillance Radar

NOC No Objection Certificate

NRI Non Resident Indian

NSEW North-South-East-West

PPP Public Private Partnership

SAARC South Asian Association for Regional Cooperation

SATS Singapore Airport Terminal Services

ULD Unit Load Devices

WTO World Trade Organisation


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Annexure II: Bibliography 1. Air Cargo World 2. Air Deccan 3. Air India 4. Air Sahara 5. Airport Authority of India 6. Bangalore International Airport Ltd 7. Bluedart 8. BSE India 9. Business Standard 10. Chattrapati Shivaji International Airport 11. Chennai Airport 12. Delhi International Airport Pvt Ltd 13. Director General of Civil Aviation 14. Edelweiss Research 15. ICAO 16. Indian Airlines 17. Indiastat.com 18. Indira Gandhi International Airport (IGI 19. International Air Transport Association 20. Jet Airways 21. Ministry of Civil Aviation 22. Ministry of Commerce and Industry, India 23. Planning Commission of India 24. The Economic Times 25. The Hindu Business Line 26. World Bank 27. www.dgft.delhi.nic.in 28. www.infrastructure.gov.in 29. www.mapsofindia.com 30. www.moneypore.com 31. www.mospi.nic.in 32. www.pppinindia.com

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Indian Logistics Industry Insight-Aviation