India Aviation 2014 began with a bang with the bigticket deal of $4.4 billion by Indian low cost carrier SpiceJet for 42 Boeing 737 Max 8 aircraft. The fourth edition of India Aviation showed a lot of promise, though not many deals were announced. Everyone talked about the enormous potential of the aviation industry in India, despite the major turbulence the sector was going through at the moment. India is set to become the third largest aviation market by 2020. Is it realistic? Yes, it is achievable and there are a number of ifs and buts.

The aviation industry, like all other sectors, is keenly awaiting the outcome of the general elections, hoping that there will be a positive change in the policies in sync with industry aspirations.

Inaugurating India Aviation 2014, the Minister of Civil Aviation, Ajit Singh underlined the need for increasing international collaboration in the aviation sector. The Indian Government envisages an investment of $12.1 billion in the airports sector during the Twelfth Five Year Plan period, of which $9.3 billion is expected to come from the private sector for construction of new airports, expansion and modernisation of existing airports and development of low-cost airports.

FDI, a game changer

Minister Ajit Singh said the move to allow 49 per cent foreign direct investment (FDI) by foreign airlines in Indian carriers was the biggest game changer in attracting FDI and roping in private investment. “The results of this policy are already visible as two new scheduled airlines – AirAsia and Tata-SIA – are in the process of starting their operations in the near future,” he said. Ajit Singh said that this was in addition to the $350 million FDI by Etihad in Jet Airways.

Indian airports are poised to handle 336 million domestic and 85 million international passengers by 2020, making India the third largest aviation market. The commercial fleet size is expected to grow from 400 to 1,000 aircraft by 2020. India, which is currently the ninth largest aviation market, is handling 121 million domestic and 41 million international passengers with more than 85 international airlines flying to India and five Indian carriers connecting over 40 countries.

Noting that air traffic density in India was very low at 72 compared to 282 in China and 2,896 in the US, Ajit Singh said this indicated untapped potential given the projected burgeoning young population and rising disposable income levels in future.

Regional and remote-area connectivity

The government, he said, is looking to expand the sector by promoting regional and remote-area connectivity. It recently announced a policy, which prescribed several financial and other concessions to the operators connecting regional and remote area airports. The Airports Authority of India (AAI) has already initiated work on more than 50 low-cost airports in remote and interior areas.

Ashok Lavasa, Secretary for Civil Aviation, said the passenger and cargo throughput in India registered compounded annual growth rate of 13 and 10 per cent, respectively during 2003-13. The passenger handling capacity of airports rose from 72 million to 233 million during the last five years. By 2020, the overall air traffic is expected to grow at an annual average growth rate of 10.1 per cent. Domestic traffic is expected to grow at 11.4 per cent and international traffic is expected to grow at 9.5 per cent.

Upward revision

All the major aircraft manufacturers – Airbus, Boeing, Embraer and Bombardier – have forecast healthy growth in the near future and they have made upward revisions in aircraft requirements for India. Also the industry body Federation of Indian Chambers of Commerce & Industry (FICCI) and consultants KPMG have forecast that India could be the largest aviation market by 2030 and the third-largest in six years flat or 2020. The next wave of growth, the report said, would come through regional airports, pointing out towards the presence of about 450 used/unused and also abandoned airports/airstrips across the country.

The study has called for relaxing regulations, revising security arrangements, allowing domestic-code sharing and providing free or discounted utilities. Connecting infrastructure too is pertinent since the next big growth is expected to happen in Tier-II and Tier-III cities.

Airbus, Boeing, Embraer and Bombardier forecast

Boeing and Airbus have revised upwards the requirement of new aircraft for the next 20 years with single aisle planes accounting for a majority among them.

Dinesh Keskar, Boeing Vice President, Asia-Pacific & India Sales, put the demand for new aircraft across the world at 35,000 in the next two decades at a market value of $4.8 trillion. With the passenger traffic growth expected to touch an average growth of 8.6, he said India would be requiring 1,600 new aircraft worth $205 billion and 1,330 of them would be single aisle aircraft, followed by 235 wide-bodied ones and a limited number of regional jets.

Marketing Head of Airbus, Asia, Joost van-der Heijden, said that as per the revised forecast of its market outlook for India, there would be a requirement of 1,291 new passenger and freight aircraft valued at $190 billion between now and 2032. He said India’s annual passenger traffic growth rates of 8.6 were well above the regional Asia-Pacific average growth rate of 6.1 per cent and the world average of 4.7 per cent.

About 73 per cent of the new aircraft would be for growth and 27 per cent for replacement. Of the 1,291 required aircraft, 913 would be single aisle ones like A320, 322 twin aisles like A350 XWB and A330 and 56 very large aircraft like A380.

He said the total order book for A380 was 324 and 124 were already delivered to 10 operators. He said the Airbus was expecting a number of routes in India for A380 because of the increasing volumes. Srinivasan Dwarakanath, CEO of Airbus India, said Airbus India Operations had been created as to be a ‘one-stop-shop’ for the growing customer base in India. It was based on six pillars – engineering; training; aerostructure design and build; engineering and information services; research and technology; and other Airbus initiatives. The turnover of works in 2013 in India was about $300 million across the supply chain and this would grow. The A320 Family of planes is now partly ‘Made in India’.

The 20-year forecast of airplane deliveries by airplane types is as follows:

Mild growth for business jets

Embraer Executive Jets has forecast that the business jet market would witness a mild growth in the next 10 years, putting the numbers at 9,250 private jets globally at $250 billion.

The Vice President, Marketing and Sales, Executive Jets, Embraer, Jose Eduardo Costas, said that in the last decade the number of jets sold was over 8,000, with the US accounting for nearly 50 per cent and Asia-Pacific at 20 per cent. In Asia-Pacific, half of the sales was in China. In APAC Embraer had a fleet of 69 jets, 19 being light jets and the rest large jets. Embraer had its first breakthrough six years back and it has sold till date 20 private jets, seven being light jets and 13 large. All the light jets are Phenoms, the latest one acquired by Joy Jets – the Phenom 300. He mentioned that Phenom 300 was the most sold plane last year with 60 units, indicating sale of more than one plane a week.

Bombardier forecast

Over the next 20 years, Bombardier forecasts over 4,740 deliveries in Asia-Pacific (including Greater China and India), with specifically 1,340 business jet deliveries in India. The demand, driven by economic growth, globalisation and the increase in the number of billionaires in those markets, is expected to rise even further.