The Hindu Business Line : ‘Aerospace park could be a win-win situation’

A lot of aerospace players have come back to us and started talking about establishing either manufacturing or service facilities. The one we would like to start with is on the service side.

MR D. RAVINDRAN, VICE-PRESIDENT, STRATEGIC INITIATIVES, GHIAL

Ashwini Phadnis

The operators of the Hyderabad airport are optimistic that the various projects they are taking up will provide opportunities and help cut costs for a host of players connected with the industry. In a free-wheeling interview, Mr Ravindran D, Vice-President, Strategic Initiatives, GMR Hyderabad International Airport Limited (GHIAL), outlines the plans.

Excerpts from the interview:

What steps is Hyderabad airport taking to reduce costs for various industry partners?

We, as airport operators, are sitting on 30 per cent of the total traffic. We dominate quite a bit of the Indian traffic.

We have taken a conscious approach where we have stepped back and looked at the cost base of the airlines. Airport charges are 6-7 per cent of the total cost base for most airlines.

That does not include navigational charges but will include global airport charges wherever they fly. For us as an airport operator, we dominate 30 per cent of the market and we can keep slashing our costs but that will not help the airlines much.

From an airport operator’s stand-point, and the fact that we are sitting on quite a bit of land, we are consciously looking at how we can be a value partner to our major constituents, the airlines.

That is where we are coming from when we talk about the aviation and aero-space park.

We have a unique opportunity, given the fact that we have 250 acres designated as the Special Economic Zone (SEZ), which adjoins the airport. We plan to turn it into a full-fledged aerospace park. This proposal stems from a number of reasons and not just because airlines require additional services.

There is also the fact that India continues to be one of the largest aerospace spenders in the world. India is still buying aerospace-related components; there is still a lot of military spend.

Every time there is a military spend there is an offset clause. A lot of those offsets have not been fulfilled by many of the Original Equipment Manufacturers (OEMs), which are looking for credible partners.

How far has the plan for the aerospace park progressed?

A lot of aerospace players have come back to us and started talking about establishing either manufacturing or service facilities. The one we would like to start with is on the service side.

The minute you buy an aircraft you have to operate it; you can mothball it but you still need to maintain it. So we would like to start with the servicing element.

On that front we have signed a joint venture agreement with Malaysian Airlines.

If we establish base maintenance services, which are heavy maintenance services, in India we can immediately disregard the price we charge the airlines as this would immediately eliminate 20 per cent of their heavy maintenance costs because it costs that much more for Indian carriers to send an aircraft out to Malaysia, Singapore or Jordan to get it serviced.

Of course, given the fact that this is a greenfield facility and we have access to very capable and high value resources we can provide those services at an extremely competitive rate, competing with some global players.

From that stand-point we are seeding this aerospace park with the maintenance, repair and overhaul (MRO) facility. In addition, we have already been approached by, and for the last year have been talking to, CFM International, which is one of the largest engine manufacturers.

We have signed a deal with them where they will be establishing their training facility here. To start with, they will have an engine type training facility that will be based in Hyderabad.

Moreover, we are talking to other engine manufacturers to establish an engine overhaul centre and an aircraft component overhaul centre. Components cover anything from landing gear to flight management computers.

In addition, some Defence manufacturers have approached us to work out some way for them to establish smallish (to start with) assembly facilities for aircraft components.

How will you mesh the requirements of the Defence and the civil aviation sectors?

One is we can do an offset. Two, as a bundle we might be able to offer a much larger opportunity for airlines on landing and parking because we get volumes from the airlines so it will justify our reducing rates as well. So it becomes a win-win situation for us and the airlines.

We create some serious value for them in terms of reducing their costs. We may be able to offer them a revenue offside in case they want to participate and partner with us in some way. I think the immediate opportunity is in cost reduction at today’s rates where most airlines are hurting and are looking for anywhere or any place that can help them reduce their costs significantly.

Today, if you take Jet Airways’ aircraft maintenance, it is anywhere between 7-8 per cent of its total cost base. Heavy maintenance is 60-70 per cent of that.

If we were to take out 20 per cent of the cost it will be 2-3 per cent of their total costs, which is a substantial reduction. And lenders will be happy as well.

Those gains can be passed on to the passengers. In addition, given that, as an airport operator, we will be partnering with airlines to bring aircraft in for servicing we may be able to provide additional services and additional discounts. It becomes a win-win situation.

It will also generate additional revenue for you and possibly also open avenues for cross-subsiding one airport operation with another?

It definitely generates additional revenue for us. This is where the non-aeronautical revenue kicks in because just the air-frame facility is a 50:50 joint venture between us and Malaysian Airlines. Once we have it up and running, it becomes a value generator for us.

For the aerospace park are you in touch with ISRO, DRDO?

At this point we are focused on the civilian side and are not looking at space technology. We would like to crawl first before we start leaping. But, clearly, on the civilian aerospace front there is enough activity that can be generated.

In addition to the park we are trying to develop an airport city. Imagine an electrical circuit, you have a magnet which is the airport and it becomes the first thing that you have to put in place to charge the circuit. But the magnet loses its charge as time goes on, especially in today’s environment, when rates are so highly regulated.

But by having additional ancillary businesses, such as an aerospace park and an MRO in that park, it becomes like a flywheel. It is a dynamo principle. This magnet charges the flywheel which charges itself, recharges the magnet because from the flywheel we should be getting additional aircraft landings. In addition, the flywheel also has an impact on the airport city because of more activity. We envision 10,000-15,000 jobs, high end jobs, to be created in the aerospace park which will generate requirements for the city.

Ten thousand to 15,000 jobs by when and what kind of investment is being talked about?

Investments are on a case-to-case basis so we are still working that out. We hope 10,000-15,000 jobs over the next five years; say 2014-15 as the time-frame.

Has the new airport looked at providing the airline industry the possibility of forming a hub for operations here?

Being a greenfield airport and one year after operations started, we now understand customer or passenger dynamics better. We understand enough about passenger needs to work with the airlines to establish something similar to the Air Sahara model, where they will base more aircraft here. But just basing aircraft here does not make it a hub. In the true sense of the word, a hub is where you move additional assets and reposition assets; not just aircraft assets but others also.

That would include aircraft, people, office infrastructure and other forms of investment in infrastructure. That is really what we are looking to establish. One way of beginning that process is, and again I go back to the aerospace park and the aircraft MRO. By having the hub here the airlines could mount a revenue flight, do the heavy maintenance visit and then immediately mount a revenue service out.

Are you in talks with international airlines to hub out of Hyderabad?

The answer is yes and no. Yes, we have started talking to international legacy carriers as well as low-cost ones. In the current environment an airport operator has to be very careful as to how we go about setting this up. Because going for an international low-cost carrier may not be the right opportunity for us now. In today’s environment the low-cost carrier may eat into the existing legacy carrier market. If they are going to feed Kuala Lumpur to Hyderabad, for example, then that would be eating into the Malaysian Airline pie and may also eat into the Singapore Airlines and Thai Airways pies.

We as the airport operator have to be very careful how we establish this. The models that could work but need to be explored could be ultra long-haul carriers. They could be some of the US carriers that already have fifth freedom rights from India and they may want to explore South-East Asia. It is extremely optimistic. It is not something that we want to look at right now.

Maybe some ultra long-haul European carriers, maybe South African ones but in today’s dynamics these carriers are already hurting. For them to mount ultra long-haul services requires them to get a certain level of yield out of each flight.