Forward movement for Indian aviation industry in 2013

Barring Air India’s troubles, Indian aviation industry in 2013 gradually started emerging out of a long-drawn crisis with air traffic on an upward growth trajectory and major policy changes in areas like FDI starting to have their impact.

New airlines would start flying on Indian skies in 2014 that would also mark 100 years of commercial aviation to commemorate the first flight by a paying passenger on a scheduled airline that crossed Tampa Bay in Florida (US) in 1914.

The new year would also see new appointees taking over at the top levels in the Civil Aviation Ministry, like the posts of Secretary and chief of the aviation regulator DGCA.

A year after the government changed its policy to allow foreign airlines pick up stake in Indian carriers, tangible results in the form of the Jet-Etihad deal, AirAsia India and Tata-Singapore Airlines joint ventures, were seen in 2013 which are expected to bloom next year.

While AirAsia India may get its air operator’s permit (AOP or flying licence) by January end, the Tata-SIA venture, which has applied for a no-objection certificate from Civil Aviation Ministry, may take a few more months to get its AOP.

However, hiccups like court cases and certain regulatory clearances still remain major hurdles for these projects.

2013 also saw a major policy shift in opening up of six major airports, developed by state-run Airports Authority of India, to private partnership. Though requests for proposals have been issued for private and foreign parties to participate in the process, the concession agreements are yet to be finalised.

Continuing with its liberalisation spree, Civil Aviation Ministry is also considering moving the Union Cabinet to change the rules to allow Indian carriers to fly abroad. Currently, only those airlines are allowed to do so which have operated on domestic routes for five years and have 20 aircraft.

Air India’s troubles seemed to be unending as it saw its entire fleet of newly-acquired Boeing 787 Dreamliners grounded for almost four months since mid-January along with the entire global fleet, due to a battery fault in two of these planes owned by Japanese airlines.

The Dreamliners, which Air India expects would help in a major way in its cost-reduction and turnaround plans, suffered a series of glitches leading Boeing to position technical and engineering teams in India to work with their AI counterparts to repair them and carry out upgrades.

Despite these problems, Air India improved its overall performance, with its revenues showing a positive trend, improvements in passenger traffic and marginal reductions in costs, primarily due to hedging of aviation turbine fuel, inducting the Dreamliners on sale-leaseback basis and selling off five Boeing 777s to Etihad.

Paving the way for Air India’s entry into the largest global airlines’ grouping, Star Alliance unanimously decided to recommence the integration process that was suspended in 2011. Air India was originally accepted as a future member of Star Alliance in December 2007.

While Kingfisher formally closed shop with its flying licence suspended in January leaving many of its unpaid employees in the lurch, the industry saw some signs of improvement in other carriers’ financial bottomlines, though most of them still suffered heavy losses.

No-frill carrier IndiGo was the only carrier which defied market dynamics to announce a hefty profit of over Rs 900 crore.

Tenures of officials holding crucial positions in the Civil Aviation Ministry came to an end this year, with the retirement of Secretary K N Srivastava and DGCA chief Arun Mishra being appointed by the International Civil Aviation Organisation (ICAO) as its Asia-Pacific head.

A question mark also remained over the appointment of a new AAI Chairman, with incumbent V P Agrawal’s tenure ending this month.

The price of aviation turbine fuel (ATF) remained stabilised at a high level, accounting for 45-50% of Indian carriers’ total costs, compared to 30% for major global airlines.

The Civil Aviation Ministry stepped in to urge all state governments to lower the taxes on ATF by arguing that lesser the price of fuel, more flights get attracted to the states and therefore, more economic activity and job creation which would be beneficial for the states.

The argument had its impact and some states like Odisha and West Bengal slashed taxes and experienced almost immediate promises by airlines to enhance the number of flights being operated to these states.

Giving a big boost to air connectivity in Tier-II and III cities, government cleared a wide-ranging policy aimed at creating international and regional aviation hubs in the country. An Inter-Ministerial Committee was also set up to ensure establishment of facilities like immigration, customs, provisions for visa-on-arrival and foreign exchange, involving various Ministries.

Ankur Bhatia, Executive Director of Bird Group and CII’s aviation panel chairman, said that the Indian aviation industry has felt the brunt of aggressive price cuts, rising costs, growing jet fuel price, depreciating rupee value and high interest payment.

“In my opinion, improving the infrastructural constraints will bring down the high aviation cost and help stimulate overall growth of the industry,” he said, adding that there was an urgent need for strong regional infrastructure which foreign airlines will look for before investing.

Another industry expert, Amber Dubey, head of consultancy firm KPMG’s Aerospace and Defense division, said the new year would be marked by the launch or expansion of operations by Etihad, AirAsia, Singapore Airlines (SIA) and Tiger Airways ? along with their Indian partners.

“We also expect one more FDI deal in an existing airlines… We also expect systemic reforms in the area of ATF and MRO taxes and in promotion of regional no-frills airports,” he said.

Forward movement for Indian aviation industry in 2013