As India continues to grow by leaps and bounds to achieve its economic potential lifting its population to higher income group while keeping its exclusive economic zones in surrounding ocean and land borders secure from potential security threats, Indian aviation industry will expand buoyed by factors such as low-cost carriers, modern airports, foreign investment and advancement in information technology. The aviation industry in India is divided into two parts: – Commercial Aviation and Military Aviation. Each of them is further divided into two subheads i.e. Services and MRO (Maintenance Repair and Overhaul) depending upon the segments they cater and requirements in terms of men, money, and material used.
(a) Civil Aviation
It has been projected that passenger traffic (national and international) and freight traffic (national and international) in commercial aviation sector will touch 269 million and 2,528,000 tonnes by the end of 12th five year plan and there will be a requirement of around 300 business jets, 300 small aircrafts and 250 helicopters in the next five years. In addition to that, there will be a further requirement of 125 Greenfield airports taking total operational airports to 250 to accommodate the growing number of aircraft and to cater to the demand of rising middle-class population fueled by economic growth. But to make India’s civil aviation sector achieve its full potential and become a truly world class in terms of service and maintenance, policy and regulatory constraints affecting both operational and regulation have to be taken care of.
Unlike its western and BRICS counterparts Indian aviation market is nascent with just 0.04 trips per capita per annum and is highly biased and unfavorable to new entrants. A new applicant need to have at least a fleet of five aircrafts worth 50 crores along with a minimum paid up capital guaranteed by a bank or a chartered accountant to get a scheduled operator permit for domestic transport while it needs at least five years of domestic transport experience and a fleet of 20 aircrafts to obtain an international scheduled air transport license. Aviation is a highly capital intensive market with a long gestation period, such anti-competitive rules make business costly and out of bounds for aspiring entrants restricting the whole business to big corporate firms with deep pockets and significant market influence. A business thrives and serves its target customers qualitatively and quantitatively in a competitive market having a level playing field for all, but for the Indian government, a misconception of public good Vs public interest made it feed and promote white elephants like Air India through periodic capital infusions with separate budgetary allocation. Not only that, preferential treatment is given to the domestic carrier in certain international routes to establish its business viability and profitability by restricting access of its contemporaries in the private sector. Apart from that private carriers are made to travel through tier II and tier III routes by reserving quotas ranging from 10%-50% of the seats meant for category-I routes mandatorily for which they incur unwanted losses. For an established player with a positive balance sheet it is not a problem, but for smaller new entrants this is a costly affair. Instead of forcing the rules down the throat government can incentivize air transport operators through exemptions in tax and ATF. There are 449 airports and airstrips in India, 125 airports are managed by AAI (Airport Authority of India) out of which only 68 airports are operational that includes 49 domestic airports, 12 international airports, and 7 custom airports. AAI earns much of its profit from its air navigation services in the Indian airspace and from four PPP (Public Private Partnership) projects. As the market grows it will have to focus on tweaking its business plan by focusing on the development of regional air transport infrastructure in least penetrated areas creating a linkup with other regional and international markets (Airport in Tripura can cater to North East India and South East Asia) while preferring a PPP model for profitable markets including construction of both Greenfield and Brownfield airports. The concept of “aerotropolises” of creating industrial township around airports is an evolving concept along with leasing space in airports to various retail outlets. The examples can be taken from projects like Newtown near Rajarhat along NSBIA (Netaji Subhas Chandra Bose International Airport), Kolkata.
According to DIPP (Department of Industrial Policy and Promotion), the total FDI inflows in air transport from 2000-2015 stands slightly above $500 million and with FDI limit in both Greenfield and Brownfield airport projects being raised to 100% and 74% respectively further investments are expected as market continues to grow by leaps and bounds. But true to its overprotective attitude India has a norm which allows only NRI (Non-Residential Indians) and PIO (People of Indian Origin) to invest 100% in domestic air transport services while clipping foreign investors to just 49%. A new entrant looking to establish its business will certainly look for a partner willing to share the latest technology with the best deal, not any NRI or PIO having nothing to offer. Another soaring point that affects the profitability of new and emerging players in the aviation industry is the price of ATF (Aviation Turbo Fuel) on which tax levied by the state governments varies from 3%-30%.
As India aspires to become 3rd largest aviation market by ferrying more than 250 million (approx.) domestic passengers by 2020, much of the transport will be borne by LCCs (Low-Cost Carriers). With a motive to provide a cost-effective solution through a custom built technology suitable for the Indian market, there are four ongoing civil aircraft projects under different stages of development namely,
1. Regional Transport Aircraft (RTA-70):- A 70 seater aircraft overlooked by CAPAC (Civil Aviation Product Advisory Committee) and HR NCAD (High Power committee on National Civil Aircraft Development) to be jointly designed, developed and manufactured by an SPV (Special Purpose Vehicle) constituted by HAL and NAL has been granted initial funding of 20 crore rupees. Engine configuration (Turboprop or Turbofan) to be decided.
NAL Saras Prototype Vehicle-2
2. NAL SARAS (Multirole Transport Aircraft):- A 14 seater turboprop aircraft designed and developed by NAL (National Aeronautics Limited) first flown in 2004 and then in 2012. Its third prototype is under development.
3. CSIR-NAL-Mahindra CNM-5:- A 5 seater all-metal aircraft designed, developed and manufactured by a consortium led by CSIR(Council of Scientific Industrial Research), NAL(National Aeronautics Laboratories), Mahindra Aerospace(its subsidiary Grippsaero in Australia).
4. India-Russia Multirole Transport Aircraft (MTA):- A 100 seater aircraft jointly designed, developed and manufactured by UAC (United Aircraft Corporation of Russia) and HAL (Hindustan Aircraft Corporation with an initial expenditure of $300 million each. Russia and India will purchase 100 and 45 units respectively while another 100 units will be exported. HAL has plans to manufacture a civil version of the aircraft in its Transport Aircraft Division facility in Kanpur.
The above project fits well into the renewed vigor of the government of India to manufacture high technology products and make India a manufacturing hub under its ‘Make in India” program. Tax incentives and capital support offered under National Manufacturing Policy (revised), 2012 in National Investment Manufacturing Zones or through the creation of sector-specific clusters can be availed by aerospace companies. MSMEs (Micro, Small and Medium Enterprises) willing to manufacture aircraft components can avail funds through Technology Acquisition and Development Fund.
(b) Military Aviation
In military aviation sector HAL (Hindustan Aeronautics Limited) is the only public sector player dominant in the fixed and rotary wing aircraft segment. Private companies like TATA, L&T, Samptel, Mahindra Aerospace provides ancillary services to international aircraft manufacturing companies like Bell, Sikorsky, Augusta Westland, Lockheed Martin by manufacturing key parts which includes aircraft frame to critical avionics and radars. Even though they have no significant contribution to Indian military aerospace sector but they create the required foundation necessary for the development of domestic defense industrial base.
The provision of Buy and Make in joint venture with a global player through ToT (Transfer of Technology) along with the increase in the FDI limit in defense from 26% to 49% through automatic route and 100% through approval in Defense Procurement Policy (DPP), 2012 has become a lucrative deal for both domestic and foreign players to enter into India’s defense market. Recently Indian government has withdrawn the preferential treatment given to the PSUs (Public Sector Units) by shelving the option of nomination and duty-free imports of critical spares and equipment for manufacturing of defense weapons and equipment thereby creating a level playing field for private companies. To break the monopoly of HAL and lay the foundation for domestic manufacturing of military transport aircraft MoD (Ministry of Defense) has recently approved a deal to purchase 56 C295 transport aircraft to be manufactured by a joint venture lead by TATA Advanced Systems Limited and Airbus. Apart from that government is mulling over the option to include private players in manufacturing of India’s first indigenous fighter aircraft LCA Tejas to gradually penetrate high technology manufacturing into domestic defense aerospace industrial base. Private aerospace players can have their own captive airports for carrying out testing and validation of their newly developed or overhauled aircraft.
Maintenance Repair and Overhaul (MRO)
The MRO is divided into four categories: Line maintenance (A):- After 100-150 flying hours, on a hanger. Component MRO (B):- After 500-600 flying hours, every 3 months. Engine Overhaul (C):- After 5000 flying hours, every 12-18 months. Aircraft Heavy Maintenance and Modifications (D):- Comprehensive check, every 4-5 years. India’s civil aviation MRO market stands at $900 million which is just 1% of global MRO market while its BRICS counterpart China has an established MRO market of $2 billion. Indian MRO industry provides category A and B services while for C and D category services aircraft are sent abroad to Europe, UK, and the US. With its 500 million strong skilled and semi-skilled workforce and 55 AMCs (Aeronautical Maintenance Centers), India is perfectly placed to be the next MRO hub in Asia catering both West and South East Asian aviation market.
But certain factors like lack of proper National Civil Aviation policy with defined guidelines, Certification agencies to benchmark and check the quality of spares produced by MSMEs involved in the aerospace sector and high land acquisition costs make it an unviable business even though the market is projected to grow above $4 billion by 2025. MRO industries require latest technologies, certifications from OEMs (Airbus, Sukhoi, Boeing, Bombardier etc) and international safety regulators like FAA(Federal Aviation Authority), EASA(European Aviation Safety Agency) etc apart from domestic safety regulator DGCA(Directorate General of Civil Aviation).
Indian aviation market is as diverse as its population operating over 60 different types of aircraft in commercial aviation and more than 45 different aircraft in military aviation sector with each aircraft having its own set of tools and technicalities requiring specialists. MRO being a technology-intensive industry requires a continuous evolution of methods and tools which requires huge investment with long gestation period. If India wants to evolve as a world-class MRO hub then the government has to incentivize and attract aerospace companies to invest in the development of MRO industry in India. While at the same time any company interested to enter into aviation sector should be encouraged to begin with an MRO unit and be given associated tax holidays and capital support. Industrial Training Institutes(ITI) and polytechnics under state and central government must be encouraged to tie up with MRO units, aerospace OEMs and NSDC(National Skill Development Council) to frame specialized courses and train students so that they can be readily employed in the aerospace sector. Currently, India,s MRO sector has two major players namely, Airworks and Indamer Aviation Pvt. Ltd. Airworks with approvals for 50 different types of aircraft from DGCA, OEMs, and EASA provides services across 15 locations in India while Indamer has approvals for 28 types of aircraft and provides services across 14 locations in India.
In the military aviation sector, MRO is done by IAF(Indian Airforce) in its BRO(Base Repair Depot) while for category C and D services fighters and transport aircraft are either sent abroad or done by HAL in its facilities. With a planned acquisition of aircrafts worth over $20 billion In between IAF is projected to spend $19-22 billion in between 2012-2017 on MRO to keep its birds flying worthy. IAF can tie up its BROs with private MROs to distribute and cut down the maintenance load it has to bear. In that way, it will also help private MROs absorb key tools and technologies that in long run will provide support services to both domestic and regional air forces of friendly countries.
The key to self-sufficiency in aviation sector lies in identifying the bottlenecks, evolving and outlining clear policies, creating proper investment channels and developing human resource diligently. Indian aviation sector will grow further once it expands its open sky policy beyond SAARC region maneuvering through numerous bilateral and multilateral air transport agreements.