New Airlines
The boom in the aviation sector has attracted several new entrants. Until 2003 there were three main scheduled domestic airlines – Jet Airways, Indian Airlines and Air Sahara. Since August 2003, they have been joined by Air Deccan, Kingfisher Airlines, SpiceJet, Paramount Airways, Go Air and IndiGo.
The industry is now moving towards consolidation with the confirmation of the Air India-Indian merger, Jet Airways, acquisition of Air Sahara, and the controlling stake taken in Air Deccan by the parent of Kingfisher Airlines.
Fleet Expansion
In order to meet the expected traffic growth mentioned above, new and incumbent carriers are placing significant aircraft orders. Indian carriers have approximately 480 aircraft on order for delivery up to 2012, which compares very impressively with a fleet size of 310 aircraft operating in the country today.
Almost 150 aircraft have been added in the last two years alone for scheduled services (at a rate of up to six aircraft a month in the domestic market), with a further growth in excess of 50 aircraft in the general aviation category.
Some of the aircraft on order will be used for replacement rather than expansion. However, India’s fleet will reach approximately 500 to 550 by the end of 2010 and the general aviation fleet will be 300 plus by 2010 compared with 177 today.
Financial Performance
According to industry sources, the combined airlines of India are expected to have posted a loss of approximately $500 million the financial year ended 31 March, 2007. However, the industry has the prospect of returning to profitability in 2008-09.
New Horizons
Domestic airlines meeting certain qualifications (five years of operation and fleet size of at least 20 aircraft) have now been granted permission to operate to international destinations.
International Policy
Government policy in the are of bilateral air services agreement has evolved to one which sees air connectivity as being essential for trade and tourism. As a result, the government has granted increasingly liberal access to foreign carriers to operate services to India. Existing carriers have been increasing services and a number of airlines have entered the market for the first time in the last couple of years.
Total seat entitlements under bilateral agreements between India and all countries have increased 123% between Summer 2003 and Summer 2006 to reach 46.48 million seats per annum. The frequency entitlements, for example, between India and Europe (including the UK) has increased from 70 flights per week to 204 flights during the same period.
On the India-US route, annual traffic has increased from 447,000 in 2003-04 to 827,000 in 2006-07, an increase of 85% in just three years.
International air services agreements will increasingly be driven by India’s strategic, economic and political interests. The government has removed the need for mandatory commercial agreements with the national carrier for any additional operations by foreign airlines. Existing commercial agreements will only remain in force until 2009, India has taken a decision to incorporate multiple designation in bilateral agreements.
India has been following an open-sky for policy for all cargo services since 1993, under which designated foreign airlines are permitted to operate unlimited air services, to/through any point in India via any intermediate point, to any beyond point and vie-versa, utilizing any aircraft type, with full traffic rights except cabotage.
The government has also taken an in-principle decision to accede to the Cape Town Montreal conventions.
Foreign Direct Investment
Under current regulations, the foreign direct investment (FDI) limit in domestic airlines is 49% through the automatic route, although foreign airlines are not permitted to hold equity. Non-resident Indians may invest up to 100%. The Ministry of Civil Aviation is reviewing a proposal to increase the foreign direct investment limit to 74% in the non-scheduled and ancillary sector. Some of the highlights of the investment policy are as follows:-
For Greenfield airport projects, 100% FDI is permitted through the automatic route;
For existing airport facilities, there is 100% FDI, with the Foreign Investment Promotion Board’s approval required for FDI beyond 74%;
For air transport services, there is an FDI cap of 49% through the automatic route and 100% for Non-Resident Indian investment through the automatic route;
The Ministry of Civil Aviation proposes to liberalize the FDI policy further in most sectors, details of which are under consideration.
Air India-Indian Airlines Merger
The Government has merged the two state-owned carriers into a new company, which will strengthen their operations. The new airline is the largest in the country, with a fleet size of almost 120 comparable to other airlines in Asia, and a further 111 aircraft on order.
The merged entity will have an integrated national and international footprint, and will enable these two airlines to pool their resources, achieve synergies, face competition and establish new benchmarks for efficiency and reliability. The formal merger of the two airlines has been completed in August 2007 and integration of operations will proceed in a phased manner over the next two years.
The merger is in keeping with the industry trend of moving towards consolidation to achieve synergies and reduce costs. The merged airlines will be able to offer an integrated schedule from interior points in India to various international destinations and vice versa, offering seamless connectivity to passengers.
A larger and stronger public sector national carrier will also increase regional connectivity to hitherto under-serviced and un-serviced destinations.
Pilots
The rapid fleet expansion by airlines is driving a strong demand for pilots. This had led to an increase in salaries and inter-airline poaching. India will require an additional 2,000 pilots by 2010, a requirement which cannot be met by locally trained resources alone. Already, India has 500 foreign pilots. The government has introduced some regulatory measures to attempt to address this issue, e.g. increasing the retirement age from 60-65 and relaxing the process for appointment of foreign pilots, such as increasing permitted contract terms from one to three years, and permitting both the commander and the co-pilot of an aircraft to be foreigners.
These initiatives will alleviate the situation in the short term. However, the long-term future of the industry will require investment by airlines, aircraft manufacturers and private operators in training academies across the country.
The state-owned Indira Gandhi Rashtriya Uran Academy is planning a $15 million investment, in conjunction with the private sector, to upgrade and expand its capacity. The Airports Authority of India is also planning to establish a world-class flying school at Gondia in Maharashtra. At least five other international operators (including Airbus and Boeing) are evaluating investment opportunities in India.
Freight and Logistics
India’s increasing international trade, combined with a strong domestic economy, will continue to drive demand for airfreight and logistics. Meanwhile, all major international express freight operators are reporting strong growth in the Indian market. New dedicated cargo airlines are planning to launch shortly.
Massive investment plans in the organized retail sector, as well as in high-value manufacturing, will require the support of sophisticated logistics facilities.
India’s economic development will require the support of dedicated freight cities with multi-modal interchanges, state-of-the-art cargo terminals, cold storage facilities, and electronic data interchange systems. The Indian government is shortly expected to grant permission for the development of a major cargo hub in centrally located Nagpur.
General Aviation
The general aviation sector in India, comprising non-scheduled operations, such as business jets and charter, is currently very underdeveloped by international standards, with 177 registered non-scheduled aircraft and approximately 150 private aircraft, compared with at least 150,000 in the US. Rising affluence, record corporate profitability and increasing tourism are all expected to drive growth in this sector. India now has its first fractional ownership corporate jet programme. The number of aircraft in the non-scheduled category is likely to increase to 300 by 2010. A proposal is under review to increase the foreign direct investment limit in the non-scheduled aviation category from 49% to 74%.
MRO
In the light of the significant planned expansion of India’s fleet, opportunities in maintenance, repair and overhaul (MRO) are also emerging. Given low labour costs in India and the significant pool of engineers, efficient world-class MRO operations would have the potential to attract offshore work from across Asia and beyond.
Airbus and Boeing have both confirmed plans to establish MRO facilities in the country. Meanwhile, a number of third-party providers have also expressed interest, e.g. SIA Engineering, ST Aerospace, Lufthansa Technik and AAR, along several major companies keen to enter this sector.
International Policy
Bilateral talks are held at regular intervals, depending upon the growth of traffic, based on the principles of mutual benefit and reciprocity. Diplomatic considerations and the overall economic interest of the country are also taken into account. Some highlights of the development/policy an international aviation are as follows:
India has so far entered into Air Services Agreements with 102 countries.
A total of 64 airlines of 50 countries are presently operating to India, out of which 25 foreign airlines of 25 countries are providing unilateral operations.
The Indian scheduled carriers together operate to 28 countries.
In view of the huge unused bilateral rights which India has access to, it was decided in 2005 to permit private scheduled carriers with five years’ domestic experience and a minimum fleet size of 20 aircraft to operate international routes.
Gulf/West Asia, South-East Asia, UK/Europe and USA are some of the major markets as far as international traffic to/from India is concerned.
Recent years have witnessed a significant growth in air capacity out of India. Our air services arrangements with ASEAN and SAARC countries have been liberalized considerably.
Tourist charter guidelines have also been liberalized by removing all restrictions on frequency, size of aircraft and points of call, subject to availability of immigration and customs facilities for inbound inclusive tour charters.
Liberalization of Air Services
In accordance with the policy of liberalization in the civil aviation sector and with a view to attract more foreign passengers, the government has adopted a liberal approach in the matter of granting traffic rights under bilateral agreements with various foreign countries.
A revised Air Services Agreement was signed with the US to increase cooperation in the aviation sector. Under this agreement, both sides can designate any number of airlines to operate services to any point in the territory of the other country, with full intermediate and beyond traffic rights.
Similarly, traffic rights were enhanced with various other countries also in order to enable greater connectivity to/from India. These countries included Australia, UK, Germany, China, France, the Netherlands, Belgium, Canada, Singapore, Mauritius, New Zealand, UAE, Thailand, Italy, Russia, Taiwan, Finland, Maldives, Tanzania, Japan, Sri Lanka, Kuwait, Italy, Japan, Spain, Oman, Scandinavian countries, Egypt, etc. This will not only lead to increased flights and improved connectivity to/from India, but also provide more commercial opportunities for all operating carriers.
New Air Services Agreement
The signing of a new Air Services Agreement is the first milestone to achieve for the purpose of establishing air connectivity with new countries. Recently, a number of new Air Services Agreements have been initialed/signed based on modern practices in civil aviation sector.
Air Services Agreements with some countries were signed some time back and required updating in view of the changing circumstances and developments in international civil aviation, and with respect to newer standards and recommended practices. These countries include the US, UK, Australia, Brazil, New Zealand, Iceland, Finland, Tunisia and Qatar. 
