The Hindu Business Line : Flying into a turbocharged 2006

THE year gone by saw some far-reaching developments in the civil aviation sector. Private airlines went in for fleet expansion, a host of new ones took to the skies, and a number of Chief Executive Officers (CEOs) of international airlines visited the country, underscoring India's importance as an emerging aviation hub.

But the most significant and fast-paced progress was made by the Government in a number of areas, including fleet acquisition for the two state-owned airlines and developing infrastructure at airports.

At the same time, realising that passengers from abroad, especially those wanting to travel from some key countries like the US and the UK, were finding it difficult to fly to India, the Government signed liberal bilateral air services agreements, not only with these two countries but with more than 15 other nations as well.

In the UK and the US alone, the agreements saw a manifold increase in the number flights operated. For instance, apart from increasing frequency to cities in South India, British Airways started a double daily service between London and Mumbai. The agreement also saw both Virgin Atlantic and British Midlands start operations to Mumbai. From the Indian side, Air India launched a new flight on the Delhi-Amritsar-Birmingham-Toronto sector and started operating more flights to London. Private airline Jet Airways too started a daily flight to London. And American Airlines and Continental started non-stop flights from the US to India.

Open-sky policy

As in the past, the Government also followed a limited open sky policy during the year. However, in a break from the past, the Government stipulated that the airlines will not only be allowed to operate larger aircraft between November 1, 2005 and March 31, 2006, but they will also be allowed to operate additional flights between December 1, 2005 and January 31, 2006.

The Government finally concluded and announced the 43-Airbus aircraft acquisition proposal of Indian Airlines and the 68 Boeing aircraft deal for Air India. This is good news for both the state-owned airlines as they are in desperate need of aircraft to compete both locally and globally. For Indian Airlines the acquisition announcement ended a more than three-year long wait as the airline board had cleared the project in April 2002. But for Air India the acquisition decision was taken comparatively quickly — the airline had invited requests for proposals from aircraft manufacturers in December 2004 and the deal was wrapped up a year later, in December 2005.

Favourable deals

These fleet acquisition deals also yielded rich dividends for the country. The Government's decision to set up an empowered Group of Ministers headed by Finance Minister, Mr P. Chidambaram, to negotiate one final time with both the European aircraft manufacturer Airbus and the US aircraft manufacturer Boeing meant that in the case of the IA deal, the e-GoM secured a further direct concession of $75 million, amounting to Rs 349 crore. This brought the net cost down from Rs 10,237 crore to Rs 9,890 crore.

Besides, after negotiating with the e-GoM, the counter trade and offset was increased from 30 per cent to 40 per cent, resulting in an increase of trade opportunities worth $145 million for India with France.

Airbus also agreed to set up a modern training centre for pilots here with an investment of $75 million. Similarly, in AI's negotiations with Boeing, the Government was able to secure a monetary discount of more than Rs 1,000 crore on what the airline would pay for acquiring the aircraft.

The acquisition was earlier estimated to cost Rs 37,900 crore.

Boeing and GE further committed investments of $205 million, including putting up four training simulators at a total cost of $75 million, setting up a maintenance, repair and overhauling facility for Boeing aircraft at a cost of $100 million and putting in $10 million for training and other civil aviation requirements.

The e-GoM also secured agreement on `offsets' at 30 per cent of the value of the aircraft that could see the manufacturer pick up goods and services from India worth at least Rs 8,500 crore.

The state-owned airlines, however, were not the only ones that went in for fleet expansion during the year. At the Paris Air Show in the middle of 2005, Kingfisher Airlines announced that it would purchase 15 Airbus planes, including five of the world's largest A380 aircraft and as many A350s and A330s aircraft.

At the same show, the yet to be launched Indigo airline created waves by announcing that it would purchase 100 Airbus aircraft. Later, at the Dubai Air Show, Kingfisher also announced that it would acquire 30 Airbus A-320 aircraft.

Air Deccan too announced that it would buy another 30 Airbus A-320 aircraft.

New airlines

Providing greater variety both in terms of fares and travel options were a host of new airlines that took to the skies during 2005.

The year saw at least five new airlines including the UB group promoted Kingfisher Airlines, the low cost airline SpiceJet, the Wadia group promoted GoAir, Air India Express and Paramount Airways being launched.

Of the existing players, Air Sahara, Air India and Indian Airlines went in for image changeovers. In March, Air Sahara launched its new look by donning the colours of the Indian tricolour — saffron, white and green.

And in December the new name and identity of Indian Airlines — Indian — was launched. The new logo is a contemporary graphic representation inspired by the wheel of the Sun Temple at Konarak.

Many firsts

The year also saw many firsts: Indian Airlines appointed its first women Chairman and Managing Director, Ms Sushma Chawla.

At the same time, Jet Airways came up with an Initial Public Offer (IPO) while a number of airlines including Kingfisher, Air Deccan, Air India and Indian Airlines announced their intentions to do so in 2006.

Air Sahara approached investors for placement of $100 million and SpiceJet Limited raised $80 million through issue of Foreign Currency Convertible Bonds (FCCBs) in the international market. Subscribers to the bond issue include Goldman Sachs and Istithmar, the private equity arm of the Government of Dubai.

In another first of sorts, the Kerala State Government sent a proposal to the Centre requesting permission for setting up an airline to fly between the State and the Gulf region. However, it remains to be seen whether this proposal will be accepted as the current rules cleared by the Union Cabinet only allow an airline that has flown domestically for five years to take to international skies.

Besides, the Cabinet decision allowing private airlines to go abroad had said that only Air India and Indian Airlines will be allowed to fly to the Gulf region for the next three years.

Some other State Governments including Maharashtra too are looking at a tie-up with Indian Airlines to improve intra-connectivity within the State. The proposal envisages IA putting one aircraft solely at the disposal of the State government so it can operate regular flights within the State.

Airport restructuring

While all these developments were taking place in the air, the Government also initiated steps to improve airport infrastructure on the ground, not only in Delhi and Mumbai but also in other non-metro cities.

However, despite its best efforts, the Government could not meet its earlier deadline of announcing the winners of the bid for taking up the restructuring and modernisation of Delhi and Mumbai airports by December 31. All indications are that the process will be wrapped up in January 2006.

The Government also started the process of developing 35 non-metro airports. In Phase I, it is proposed to develop 10 airports — including those at Thiruvananthapuram, Madurai, Mangalore, Ahmedabad, Amritsar, Guwahati, Goa and Lucknow. The cost of developing these 10 non-metro airports in the first phase has been estimated at Rs 1,874 crore.

The 15 airports to be developed during the second phase include Agatti, Coimbatore, Visakhapatnam, Aurangabad, Port Blair and Nagpur. Besides, studies are underway to identify 10 other airports which should be taken up for development

In the meantime steps were also taken to ease air traffic problems at the Delhi and Mumbai airports by, for instance, building rapid exit taxiways that ensure that aircraft spend less time on the runway. All these steps did not come a day too late as the number of passengers travelling by air has been moving northwards.

For instance, during 2004-05, the Airports Authority of India handled more than 40.09 million domestic passengers — up from 32.08 million the previous year. Besides, in the first three years of the Tenth Plan, air transportation has grown at an average of 7 per cent per annum against the Plan estimate of 5 per cent.

Perhaps recognising the significance of all these developments, the year also saw a steady stream of global airline Chief Executives travelling through India.

Visitors

Among the prominent visitors were Sir Richard Branson of the Virgin Group, the Chairman and Chief Executive Officer, Air France KLM Group Mr Jean-Cyril Spinetta, the CEO of British Airways Mr Willie Walsh, the Chairman and Chief Executive Officer of Lufthansa Mr Wolfgang Mayrhuber and the Director General, International Air Transport Association (IATA) Mr Giovanni Bisignani thus reinforcing the importance that these airlines attach to India.

Besides, India got a peek into the capability of the Boeing 777-200 Long Range (LR) when the jetliner that Air India is to purchase first landed in Delhi and then flew to Mumbai. The aircraft stopped here as part of its global tour before taking off on a 16-hour non-stop flight between Mumbai and San Francisco.

While the year was largely accident-free, the rising cost of aviation turbine fuel forced domestic airlines to raise fares twice — the last time in October, by 10 per cent.

But despite these minor hitches, going by the developments in 2005, there are all indications that the party that started last year is going to continue in 2006 and beyond.