on indian aviation

1. Foreign aviation coming together what it gets for INDIAN aviation
-Prof. Jyotinder Chaddha

3. Road Map for the next 5-10 years
 An established vision and accompanying road map for the next 5-10 years;
 Time
 Money
• 1. The Vision
• - Working with industry, establishing a way forward will be a major aid in
developing what is otherwise in danger of becoming a gridlock system.
The industry is so complex and multi-faceted that it requires a long lead
time for each of the parts to coincide.
- Having a clear and transparent programme to move forward is essential
to removing roadblocks;

4. 2. Time
• -The development of aviation in India is being seriously constrained by drastically
inadequate infrastructure – airport, road access and airways systems.
-Solving this issue is important in time, because every day that is lost in developing
new infrastructure is worth millions of dollars to India’s bottom line;
-The fundamental issue is that the system was allowed to stagnate for decades, so
that when the recent growth surge occurred, there were neither hardware nor
plans in place;
-The government has done wonders in the past two years – moving to privatisation
of airports, merger and restructuring of the once proud national airlines.

5. 3. Money
• For foreign investors, two main problems exist: the restrictive regulations on
investment in the aviation sector and the need for certainty of process and policy
in airport privatisation.
a) The traditional reluctance to admit foreign funds to local entities has had clear
outcomes:
-under-investment in Indian companies;
-dominance by foreign companies in international markets;
-shortage of consumer options; and
-loss of economic opportunities;
b) In a sector where government cannot deliver the large levels of funding
required – and where that shortfall prevents all the flow-on financial opportunities
for tourism and other industries – there is a strong message:
-admit foreign investors;
-permit higher levels of foreign investment in aviation enterprises.

6. Current Scenario of Indian Aviation Industry
 India completed 100 years in aviation sector on 18 February, 2011
 The Indian Aviation Industry is one of the fastest growing aviation
industries in the world
 454 airports and airstrips; 16 designated international airports
 With the liberalization of the Indian aviation sector aviation industry has
undergone rapid transformation
 Being primarily a government-owned industry, Indian aviation now
dominated by privately owned full-service airlines and low cost carriers
 Private airlines account for around 75% share of domestic airline aviation
market
 Airline business growing at 27% per annum: Ministry of Civil Aviation

7. Market Size



India is currently the ninth
largest aviation market in the
world
India's domestic air traffic grew
at a rate, which is the second
highest after Brazil according
to global figures for June
2011, compiled by IATA
Domestic traffic growth 2530% annually and
international traffic 15% in
2010 :CAPA

8. Air Traffic
 The country's domestic traffic grew by 14 per
 Strong domestic passenger growth rate of 22.3 per cent in July 2011
 Passenger traffic has grown at 18 per cent year on year (y-o-y) basis and the
year 2010 closed at 90 million passengers both domestic and international
 In July 2011, airlines in India handled 5 million domestic
passengers, according to data released by the Directorate General Civil
Aviation (DGCA) on 12 September 2011, marking the 11th consecutive
month of double-digit growth

9. Aviation Trends
• Over the past 10 years, the Indian aviation has moved from a
closed, poorly managed and over-regulated industry to a more
open, liberalised, and investor friendly sector. Liberalization of the sector
and entry of low cost carriers have been the main drivers for the growth.
The sector has also witnessed growth in terms of increased airport
infrastructure and increased numbers of operating airlines.
• Earlier all airports were in AAI control
• However, over last five years, airport infrastructure has attracted private
investment
• The Government has increased the FDI limit to 100% in Greenfield airports
and airlines. Larger private sector role in airport infrastructure and
management has led the Government to introduce an Airport Economic
Regulatory Authority Bill to regulate private airport and airline operators
market.

10. •
•
•
•
•
The number of airlines including low cost carriers has increased. This led to
subsequent increase in competition and fare reduction which further fuelled
the air traffic growth.
The sector has witnessed accelerated fleet acquisition activities and present
fleet size of all domestic airlines has exceeded 300 aircrafts. However, present
downturn may slowdown fleet expansion plans
Higher fuel costs, structure of high taxes and higher user charges are leading
to huge margin pressures on airlines, initiating a trend of consolidation
through mergers and acquisitions of airlines.
Demand for backup and supporting industries like Maintenance Repair and
Overhaul, aviation hubs, aviation manpower etc has increased due to the
growth in the aviation sector.
Over the eleventh five year plan period, Rs. 40,880 crores of investment is
envisaged in airport infrastructure. Modernization of metro airports comprise
40% of eleventh plan investment where as 35 non metro airports across the
India will be upgraded at an investment of Rs 6,149 crores. This forms 15% of
non metros investment. However 30% of eleventh plan’s investment is
envisaged in development of several Greenfield airports across the India.
Approximately 75% private sector investment is envisaged in this period
indicating larger role for the private sector.

11. Entries in the Aviation Industry
•
•
•
•
•
Singapore Airlines Ltd., one of the leading global airline brands, has announced its
entry into India in a joint venture with the Tata Group, the third foreign airline to
do so after Abu Dhabi’s Etihad Airways and Malaysia’s AirAsia Bhd.
The airlines are taking advantage of a historic decision by the Indian government in
September last year that allowed overseas airlines to invest up to 49% in local
carriers Previously, foreign investors, but not airlines, had been allowed to hold up
to a 49% stake in India’s airlines.
Under the agreement it signed with Tata Group holding company Tata Sons Ltd.,
Singapore Airlines will hold a 49% stake, while Tata will have a 51% in the yet-tobe-named, full service airline in India.
With this deal, Tata will be doubling its bet on the Indian aviation sector. Earlier
this year, the company signed an agreement to start a budget airline in partnership
with AirAsia and the closely held Indian company, Telestra Tradeplace Pvt. Ltd. The
deal is pending approvals.
Etihad was the first to enter the Indian aviation sector with a deal to buy a 24%
stake in Jet Airways, India’s second-largest domestic and international carrier. That
deal is expected to close in the next couple of weeks.

12. Despite this interest, the Indian
aviation sector is still a troubled one.
•
•
•
•
•
•
Indian carriers lost about $1.6 billion in the financial year ended March 31–with most of this
accounted for by Air India and Kingfisher –as a result of increased expenses and declining
passenger traffic, according to a report by the Capa Centre for Aviation in Sydney.
Any new entrant has to to be prepared for several years of losses and a tough domestic market that
is dominated by low cost carriers that hold 65% of the market, Capa said in a separate note on the
Tata-Singapore Airlines deal.
That said, India now has only two full-service domestic airlines–national carrier Air India and Jet
Airways–and without the legacy issues faced by those two, “Tata and Singapore Airlines may be in a
position to establish a more competitive, hybrid business model, offering a high quality product
with a lower cost base than incumbent full service carriers,” Capa said.
The greatest potential may be in international routes as international traffic in and out of
India, unlike domestic traffic, has grown every year in the past decade, including during the
economic slowdown. However, since Indian regulation requires a new airline to operate in the
domestic sector for five years before it can fly international routes, this opportunity is still some
way off.
The more immediate question is how will Tata manage its two competing agreements? While one is
for a new budget carrier and the other is for a new full-service airline, the two will still largely be
playing in the same sandbox, at least until Indian authorities relax their five-year rule on
international flights (and there’s no clarity on when that might happen).
Until then, there might be a lesson in management on how Tata dances with two, competing
partners.

13. •Case
Studies

14. •
•
•
•
•
•
•
•
Etihad deal good for Jet, but not for Indian aviation: experts
Jet Airways' decision to sell a minority stake to Etihad Airways for Rs.2,060 crore may not bode well for the
Indian aviation sector, especially national carrier Air India, experts say.
India's first major aviation investment by a foreign airline after the government eased ownership rules in
September comes close on the heels of Jet seeking a three-fold expansion of air service capacity between
India and Abu Dhabi.
The deal will direct traffic away from major aviation hubs in India, such as Delhi and Mumbai, to Abu
Dhabi, where Etihad Airways is based, the experts add.
Jitendra Bhargava, former executive director at Air India, told NDTV, "The deal would have been
fully, unconditionally welcomed had it taken place three months ago. The very fact it is taking place in the
wake of Jet's request to the government that the seats on the India-Abu Dhabi sector be increased from
13,000 seats to 53,000 seats makes it look like that the valuation has been triggered by such a
development."
Jet is reportedly planning to connect to 23 Indian cities with Abu Dhabi in the long and medium
term, requiring over 41,000 seats per week by 2016.
Under the current bilateral agreement with Abu Dhabi, Indian carriers are jointly allowed to operate
13,300 seats each week on that route, with 2 per cent operational flexibility on this capacity.
Sources told NDTV late on Tuesday that India and Abu Dhabi had agreed to expand their bilateral capacity
to over 53,000 seats per week.

15. •
•
•
•
•
•
•
•
On why the deal is not a good development for the Indian aviation sector, especially national carrier Air India, Mr Bhargava
said the Indian government's aviation policy is contradictory.
"On the one side you are infusing funds into Air India to keep it afloat and on the other side you are facilitating the taking
away of passengers. The deal cannot be described as being in the interest of the Indian aviation industry," he added.
Air India runs up a staggering operational deficit of Rs. 14 crore every day, according to the Dholakia committee set up to
recommend measures to bring back the ailing airline to profitability.
Kanu Gohain, former director general of civil aviation, told NDTV: "One can read between the lines and say that this deal will
certainly funnel out Indian traffic into Abu Dhabi from where Etihad will mount its flights to Europe and the US at the cost of
other Indian carriers, particularly Air India."
"No doubt there will be some benefits to passengers, and from the connectivity point of view, but one should understand
that if we allow too many concessions and liberty, then after Dubai, Abu Dhabi will become the second hub of connectivity
to the Western hemisphere," Mr Gohain added.
Indian carriers, battling stiff competition and high operating costs, have also sought massive expansion in their weekly
schedules, with IndiGo demanding over 5,000 more flights, SpiceJet 5,936 more and Air India 2,400 additional
services, official sources said.
"It will not end with (the) Abu Dhabi bilaterals. We know Emirates and Qatar Airways are in the queue. There will be no No.
2 left on the India-Abu Dhabi sector," Mr Bhargava said.
"We may say that this will benefit the passengers... You will lose for all times to come the opportunity to develop a hub in
Delhi, Mumbai or Kolkata, he added. Why is it that Indian aviation still does not have a national aviation policy?"

16. Tata-SIA
•
•
•
•
•
•
•
•
Game Changer
Six decades
Investment of $100 million
Expected
Birth of civil aviation in India in 1932
Foiled
Whether the timing for entering the aviation sector is opportune.
Huge debts and mounting losses, not because all of them are inefficient or
the industry is vulnerable to economic ups and downs but because the
Indian market is price-sensitive. An increase in fares instantly impacts
growth
• The domestic market is divided

17. •
•
•
•
As the new entity will have deeper pockets than the promoters of existing airlines
By full-service and low-cost airlines the industry will feel the impact
Well-deliberated policy there would have been rules laying down the number of
airlines that the country could effectively have; and the number of aircraft or seats
that can be gainfully operated for domestic operations. In the absence of a
transparent mechanism, the government is taking decisions on a case-by-case
basis which hasn't helped the industry so far
The other question that begs an answer is whether it is desirable for the Tatas to
be stakeholders in two airlines, ostensibly serving different segments of air
passengers. Will there be a conflict of interest with both Air Asia India and the new
airline operating on the same routes? In the pre-merger era, Indian Airlines always
objected to Air India's domestic operations; and Air India did the same with regard
to Indian Airlines' international flights on the grounds that it was hurting its
commercial interests by charging lower fares.

18. Air Asia – Tata Sons
•
•
•
•
•
•
•
•
AirAsia to tie up with Tata Sons for new airline in India
India's aviation sector has been going through turbulent times because of high
operating costs and fierce competition. Domestic passenger traffic fell six per cent
in the first nine months of 2012 because of a steep rise in fares, Jet Airways, India's
second biggest airline group by market share, said in an analysts' call.
However, the budget carrier has a big advantage over the others: its cost per
passenger kilometre excluding fuel is the lowest in the world at just $2.
SpiceJet is close with $2.2. Experts say IndiGo, Jet Airways, SpiceJet, Air India and
Go Air are likely to come under pressure and drop fares further once the proposed
carrier picks up momentum.
"India, with its low flyerbase, regulatory challenges and high cost structure, cannot
afford more than four strong national airlines."
AirAsia had been waiting in the wings ever since India opened the airlines sector to
investment by foreign carriers about six months ago.
But when Fernandes announced the decision to join hands with the Tatas, many in
the industry were surprised.
The Tata's pioneered civil aviation in India when they set up Tata Airlines in
1932, but the government took over the airline in 1953 and rebranded it Air India.

19. 








The group made some attempts at re-entering the market over the years, but its
plans failed to take off. Now, it is back in the airline business under the Tata group
JP Morgan analyst Corrine Png says in a note that tying up with the Tatas/Telestra
could facilitate access to route rights, accelerate regulatory approvals and provide
a better understanding of the Indian market. She adds domestic airlines will be hit
by AirAsia, which plans to operate out of Chennai.
"We think this is negative for the Indian carriers, especially SpiceJet given its major
presence in Chennai and Tier II/III cities exposure.
" Some industry experts say AirAsia's entry into India's domestic market is aimed at
insulating itself from any downturn in its business from international routes in the
country. It is the 12th largest foreign airline in India with a weekly capacity of
18,720 seats to and from the country.
Its domestic and international routes will now complement each other
Globally, the revenues and profits are higher in international aviation.
Aviation experts say foreign airlines are unlikely to sit idle while international
players such as Etihad Airways and AirAsia sew up partnerships in the country.
They might find it easier to enter the country by picking up a stake in existing
airlines such as SpiceJet, or even Kingfisher, instead of floating a new airline.
"We had estimated that the FDI policy reform would lead to equity deals in two or
three existing airlines and one or two fresh startups," says KPMG's Dubey.

20. Future of Aviation Industry due to the
deals

Confidence returning to Indian aviation: Minister Ajit Singh

The increasing interest of international airlines like Etihad, AirAsia and Singapore Airlines into the
Indian passenger carriers signals renewed confidence in the sector, says Civil Aviation Minister Ajit
Singh.

"All airlines-Etihad, AirAsia, Singapore Airlines-are the biggest and most professional companies in
the aviation business. If they are interested in India, this shows a renewed confidence in the sector,"
Singh told IANS in an interview.

"In the long run, there is tremendous potential in the sector to grow."

“The cabinet approval for the Jet-Etihad deal was a positive move, which will help the
industry, bogged down by heavy fuel and interest costs.”

"The alliance between Jet-Etihad is positive for the industry. It will ultimately benefit the passengers
and boost the sector further."

"This will open possibilities of India becoming a hub for international travel. With projections
showing a very rapid growth in passenger numbers and favourable geographic location, India
requires more alliances for servicing passengers needs."

21.  "We are looking into the matter as fuel constitutes nearly 50 percent of
(airline) cost. We have also asked the states to cut the taxes on jet fuel."
 Fuel prices comprise about 50 percent of the operating costs of airlines in
India and have dented the sector as most airlines bleed under the high state
sales tax regime.
 The high state taxes are a legacy of a long-standing perception that jet
fuel, which is a super-refined form of kerosene, should not be subsidised
for air travel.
 However, the Indian government continues to subsidise sensitive products
like diesel, LPG (liquefied petroleum gas) cylinders and kerosene.
 Currently, jet fuel sold in the country is nearly 50-60 percent costlier than
in overseas markets like Bangkok, Singapore and Dubai, as an additional 434 percent state sales tax hikes its price.

22. Thank You

23. • WTO
• GATT

24. WTO
• The World Trade Organization (WTO) is the only global international
organization dealing with the rules of trade between nations.
• At its heart are the WTO agreements, negotiated and signed by the
bulk of the world’s trading nations and ratified in their parliaments.
• The goal is to help producers of goods and services, exporters, and
importers conduct their business.
• Its main function is to ensure that trade flows as
smoothly, predictably and freely as possible.
• By lowering trade barriers, the WTO’s system also breaks down
other barriers between peoples and nations.
• The goal is to improve the welfare of the peoples of the member
countries

25. Air transport services
•
•
•
•
•
•
•
Air transport services are governed by a specific annex of the General Agreement
on Trade in Services (GATS).
The annex excludes from the agreement the largest part of air transport services:
traffic rights and services directly related to traffic.
These services are nevertheless subject to a regular review by the Council of Trade
in Services, with a view to considering the possible further application of the GATS
to the sector.
A first review took place in 2000-2003.
The second review is on-going. In preparation for the second review, the WTO
Secretariat developed the Quantitative Air Services Agreements Review
(QUASAR) database and methodology to assess, on a universal scale, the degree of
liberalization achieved by the air transport sector.
The Secretariat also produced the Air Service Agreements Projector (ASAP), an
analytical tool that allows for the visualisation of elements of the QUASAR
database, notably information on an economy's network of bilateral Air Services
Agreements and correlated traffic flows.
On 16 January 2013, the Secretariat released an update to its ASAP tool, based on
2011 regulatory and traffic data.

26. Plurilateral agreement on trade in civil
aircraft
• This agreement entered into force on 1 January 1980. It now has 31
signatories. Most WTO agreements are multilateral since they are signed
by all WTO members. The agreement on trade in civil aircraft is one of two
plurilateral agreements (with the agreement on government
procurement) signed by a smaller number of WTO members. It eliminates
import duties on all aircraft, other than military aircraft, as well as on all
other products covered by the agreement — civil aircraft engines and
their parts and components, all components and sub-assemblies of civil
aircraft, and flight simulators and their parts and components.

27. General Agreement on Tariffs and
Trade
• The General Agreement on Tariffs and Trade (GATT) was a multilateral
agreement regulating international trade. According to its preamble, its
purpose was the "substantial reduction of tariffs and other trade barriers
and the elimination of preferences, on a reciprocal and mutually
advantageous basis." It was negotiated during the United Nations
Conference on Trade and Employment and was the outcome of the failure
of negotiating governments to create the International Trade Organization
(ITO). GATT was signed in 1947 and lasted until 1994, when it was replaced
by the World Trade Organization in 1995.