The Indian business aviation industry is sputtering. Ballooning fuel bills, frail airport infrastructure, rising operational costs, regulatory knots and, more recently, the tumbling rupee have hit the 120-odd business aircraft operators, even as they maintain that domestic demand for short-haul runs and corporate travel continues to have latent potential.
This category of operators is under the general aviation segment, which includes all kinds of aviation, except military and scheduled airlines. It includes business aviation that involves corporate use of airplanes and helicopters.
While facing the same raft of problems that its elder brother, the scheduled airlines, are facing, this segment has an additional set of infrastructure, regulatory and tax woes that are acting as a further drag on its profitability. Having had a good run till about 2009 with an annual growth rate of about 20 per cent, the last two years have been staid for these operators, including in terms of demand generation, fleet expansion and operating margins.
Hiccups
The business aircraft fleet grew from 171 in 2001 to 511 in 2009. Those years, when Indian corporates were riding high on the reforms runway, the business jet segment also expanded its fleet strength growing from 26 to 127 within just five years till 2010. During those years, Hawker Beechcraft, with a share of 28 per cent of the business jet fleet, had made the most of the market, followed by Cessna and Bombardier.
However, the fleet strength only registered timid growth in the last two years, with its current strength being about 750, which includes smaller aircraft and helicopters. While 50 per cent of these are in the four to eight seat category, about 25 per cent has a capacity between 10 and 17 seats.
But, for the first time, the current fiscal may see a negative growth in fleet strength. Reason: the rupee side. The sliding rupee value against the dollar is prompting smaller operators, who own just over a couple of these aircraft, to sell off these assets to bring home higher rupee returns, especially as they have little leg room to revise charter rates.
“We have had reports of some sales (of existing aircraft). It is true, we may see de-growth this fiscal, as operators are in no position to hike rates,” says Rajesh K. Bali, Secretary of the Business Aircraft Operators Association (BAOA).
Indeed, charter rates have not seen major increases in the last two years, with rising competition and slim demand leading to even under-cutting of prices. Today, a seven-seater B2 aircraft charges about Rs 80,000- Rs 85,000 an hour, while a eight-passenger jet hawker and a 15-seater aircraft can get about Rs 2 lakh and Rs 3.5 lakh an hour, respectively.
“Just the variable cost of a jet hawker, for instance, is about Rs 80,000 per hour, including fuel, navigational, landing and parking charges. If you add on the staff, pilot, training and other costs, it would come to another Rs 80,000- Rs 85,000. Take away interest and depreciation, and the operator is left with just about Rs 30,000,” Bali points out.
He goes on to add that the margins would be much stronger if there were better level of utilisations. Today, smaller operators literally have to wait for weeks and even months to bag a single charter flight.
Promise of potential
A positive trend that is evolving in the industry is towards consolidation, as it had happened elsewhere. About 70 per cent of the 120-odd operators just own one or two aircraft and it is this segment that is feeling the maximum margin squeeze. There are indications that five or six of these smaller operators will join hands to become a bigger aircraft management company so that overall costs are slashed and the payback is better.
However, industry players and analysts believe that there is significant untapped potential in this sector and, given the right direction, it could take off. The BAOA feels that India has enough potential to see a doubling of its fleet size from the current 750 in the next five to six years.
CAPA-Centre for Aviation, provider of independent aviation market intelligence and analysis, has projected that the general aviation fleet had the potential to grow to 2,000 by 2020. These include 450-550 business jets, 550-650 helicopters and 400-500 turboprops/pistons. This would require a capital expenditure of about $8.25 to $12.5 billion over the next ten years, with the direct industry revenue exceeding $1 billion.
“The leading 20 business houses are showing interest in corporate fleets to support general transportation requirements between project sites, while Indian corporations with extensive global operations are looking at medium and long-range aircraft for senior executive transport. This alone could drive up to 50 aircraft transactions over the next three to four years,” CAPA said in a report last year.
Poor infrastructure
These figures are, indeed, mind-boggling. But ground realities are different.
Take airport infrastructure for this sector. Operators complain that this sector needed more regional airports and allocation of separate infrastructure at other airports.
The BAOA has been seeking, among other things, special general aviation airports at the four metros with all basic facilities, conversion of the HAL airport at Bengaluru and Begumpet airport in Hyderabad for this sector, activation of the heliport at Rohini (Delhi) and plans for 20 fixed-based operators (FBOs) in tier II and III cities.
“Business aviation, the world over, operates from FBOs with VIP facilities and separate terminals. But India is still to get an airport exclusively for business aviation. Infrastructure has been planned only with commercial airlines in mind, although the BA fleet is twice that of commercial fleet,” says Bali.
Clearly, what is needed is a structured business aviation sector in India, with a separate policy for general aviation and a re-haul of the existing regulatory framework. Politicians and industrialises, who are the primary users of general aviation, should be made aware of the problems, as they can wield influence to raise the priority of this sector on the national agenda.