The civil aviation industry in India has emerged as one of the fastest growing industries in the country during the last three years. India is currently considered the third largest domestic civil aviation market in the world.
According to International Air Transport Association IATA, India will displace the UK for the third place in 2026.
The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity.
- Currently India is ninth largest civil aviation market.
- Total passenger traffic stood at 224 million during 2016.
- India is expected to have 60 million international passengers by 2017.
- 81 international airlines connecting over 40 countries.
- India is projected to be the third largest aviation market by 2020.
- Indian carriers are expected to have possessions of 800 aircrafts by 2020.
Domestic air traffic rose nearly 16 per cent in August 2017, continuing its double digit growth, according to the civil aviation regulator Directorate General of Civil Aviation (DGCA). About 9.69 million passengers flew in August, up from 8.38 million a year earlier. Passengers carried by domestic airlines during January-August 2017 were 75.411 million as against 64.468 million during the corresponding period of previous year, thereby registering a growth of 16.97 per cent, as per the DGCA.
As against 395 aircrafts in the fleet of Indian carriers, there are 496 aircrafts in operation today, and another 654 are under purchase.
- Domestic Passenger traffic Compound Annual Growth Rate (CAGR) – 10.1% (FY 2006-16).
- International Passenger traffic CAGR – 8.8% (FY 2006-16).
- Total freight compared to International air freight traffic CAGR in Domestic Sector – 7.6% (FY 2006-16) and in International Sector 4.8% (FY 2006-16)
- India has more than 86 scheduled international airlines constituted of 5 Indian carriers and 81 Foreign carriers. Currently India has air connectivity with 55 countries through more than 300 routes.
- Passenger traffic is growing at 20% per annum in the last 2 years.
- Five international airports (Delhi, Mumbai, Cochin, Hyderabad, Bengaluru) have been completed and are operational under Public Private Partnership (PPP) mode.
- Greenfield airport at Navi Mumbai, Mopa (Goa) and some brownfield airports of Airports Authority of India (AAI) and 50 airports under the no-frills model would be developed all over the country of which same would be executed under the PPP model.
- Indian aviation is experiencing dramatic growth which includes the emergence of Low Cost Carriers (LCC) / new carriers to a growing middle-class ready to travel by air as well as growth in business and leisure travel.
- Greater focus on infrastructure development; increasing liberalisation – Open Sky Policy; AAI driving modernisation of airports, Air and Navigation Systems.
- Growth in aviation is also increasing demand for MRO (maintenance, repair and overhaul) facilities.
- India is home to large scale collaborations/ Merger & Acquisitions (M&A) deals – Etihad Airways & Jet Airways, Tata Group & Singapore Airlines, Tata Group & AirAsia.
- India plans to increase the number of operational airports to 250 by the year 2020.
- Airport Authority of India (AAI) is responsible for developing, financing, operating, and maintaining all public sector airports. New airports are permitted under the Greenfield Airport Policy 2008. Investment in airports is encouraged under the PPP Policy of the Government of India.
- Regional Air Connectivity Policy offers attractive incentives in the form of exemption of landing, parking and navigation fees to airlines operating at designated airports in non-metro areas.
- The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route.1
- With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route in Brownfield Airport projects.1
- As per the present FDI policy, foreign investment up to 49% is allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. FDI beyond 49% is allowed through Government approval. For Non-Resident Indians (NRIs), 100% FDI will continue to be allowed under automatic route. However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing policy.1
- Up to 100% FDI is permitted in Non-scheduled air transport services under the automatic route.
- Up to 100% FDI is permitted in helicopter services and seaplanes under the automatic route.
- Up to 100% FDI is permitted in MRO for maintenance and repair organisations; flying training institutes; and technical training institutes under the automatic route.
- Up to 100% FDI is permitted in Ground Handling Services subject to sectoral regulations & security clearance under automatic route.
1. – Investments are subject to relevant regulations, approvals from Directorate General of Civil Aviation (DGCA) and security and other conditions.
- Aircraft engines and parts thereof are eligible for duty exemption when imported for servicing, repair or maintenance of aircraft used for scheduled operations.
- The budget envisages the development of new airports in Tier II and Tier III cities.
- The Income Tax Act provides presumptive taxation under Section 44AE in respect of assesses who are engaged in the business of plying, hiring or leasing goods carriages. The bill proposes to increase the amount of presumptive income to USD 112 per vehicle for all types of goods carriage vehicles.
- Exemptions under the Income Tax Act for infrastructure development under section 80 IA.
- Basic customs duty exemption is available for parts and testing equipment used for the maintenance, repair and overhaul of aircraft.
- Budgetary support is provided to the Airport Authority of India (AAI) for the development of airport infrastructure in the North-eastern states of India.
According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and March 2017 stood at US$ 1.01 billion.
India is estimated to see an investment of US $25 billion in the next decade in the airports sector, a demand for 935 more planes and traffic growth of 13 per cent, according to Morgan Stanley. According to them, the share of air travel in air and rail travel combined in India will grow to 15.2 per cent by 2027 from 7.9 per cent now.
Capex plans to the tune of Rs 65,000 crore (US$ 10.08 billion) have been finalised by the Airports Authority of India (Rs 17,500 crore (US$ 27.13 billion) for the next five years) and around Rs 22,000 crore (US$ 3.41 billion) for brownfield expansion in Delhi, Mumbai, Hyderabad and Bengaluru by private operators and around Rs 21,000 crore (US$ 32.55 billion) for greenfield airports.
Key investments and developments in India’s aviation industry include:
- The Airports Authority of India (AAI) will undertake new development works at Lucknow, Deoghar, Rajkot and Allahabad airports. The objective is to improve and develop airport infrastructure to meet growing traffic demands. AAI plans to construct new integrated passenger terminal building at Chaudhary Charan Singh International Airport, Lucknow at an estimated cost of Rs. 1230 crore (US$ 190.65 million). The new terminal will be able to handle 4000 passengers during peak hour and 6.35 million passengers per annum.
- State-owned AAI will construct a cargo terminal at Imphal airport at a cost of Rs 16.20 crore (US$ 2.5 million). The proposed terminal is expected to give a boost to the export of handicrafts items and perishable cargo. In addition to this, the EICT will help establish better connectivity with South & Southeast Asia and give a boost to trade between India and the ASEAN countries.
- To meet the demand of increasing air travel in Allahabad, a new civil enclave at will be developed by AAI at an estimated cost of 125.76 crore (US$ 19.49 million). The new terminal is to be made operational before the ‘Ardh Kumbh Mela’ to be held in January 2019.
- Rolls-Royce Holdings Plc, the UK-based aircraft engine manufacturer, has opened a new defence service delivery centre (SDC) in Bengaluru, which would deliver real-time solutions for improving capability and provide faster front-line support to over 750 aircraft engines used by the Indian Air Force, Indian Navy and State-owned Hindustan Aeronautics Ltd (HAL).
- Qatar Airways is planning to start India’s first fully owned foreign airline in partnership with Qatar Government’s investment arm, Qatar Investment Authority, as per Qatar Airways.
- Indian budget airline carriers Indigo and GoAir, plan to expand their network to Gulf cities like Doha, Sharjah and Dammam in 2017, which would likely boost the growth of Indian aviation sector.
- GVK Power & Infrastructure Ltd., which operates the existing airports in Mumbai and Bangalore, has won the right to build Mumbai’s second airport in Navi Mumbai, which will require an investment of Rs 16,000 crore (US$ 2.48 billion) to build the airport with a capacity to handle 10 million passengers annually in the first phase, expected to be operational by 2019 and 60 million passengers a year by 2030.
- In the Union Budget 2017-18, the Civil Aviation Ministry received a substantial increase of over 22 per cent in budgetary allocation at Rs 5,167.60 crore (US$ 775.14 million) for the next financial year.
Some major initiatives undertaken by the government are:
- Constructing 17 highways-cum-airstrips are the government’s priorities and it will start work on them this year, Union Minister Nitin Gadkari has said. The projects are designed in such a fashion that the roads will double up as airstrips and traffic will be stopped when an airplane lands or takes off. The road and air connectivity will also provide better access to remote areas.
- Airport building and modernization projects worth over Rs 19,300 crore (US$ 2.99 billion) have been recommended green clearance, in line with the Government of India’s focus on improvement in regional air connectivity.
- Indian airline companies like Air India, Air Deccan, SpiceJet, Air Odisha and Turbo Megha, have been awarded with the right to fly to 128 routes across India, requiring them to cap half the seats at nearly 50 per cent of the fare, under the Government of India’s regional aviation scheme named UDAN.
- The Government of India has approved the construction of 18 Greenfield airports in the country, which would be executed and financed by the respective airport promoters, and are estimated to require an investment of Rs 30,000 crore (US$ 4.66 billion).
- The Cabinet Committee on Economic Affairs, Government of India, has approved the proposal to revive 50 un-served and under-served airstrips in three financial years starting from 2017-18 at an estimated cost of Rs 4500 crore (US$ 698.7 million).
- The Government of India has started a new regional connectivity scheme (RCS) called Ude Desh ka Aam Nagrik (UDAN) under which fares will be capped at Rs 2,500 (US$ 37.5) for half the seats in an one-hour flight, as per Mr Jayant Sinha, Minister of State Civil Aviation. The Government of India has also received bids from 11 airlines for the same.
- The Ministry of Civil Aviation along with Airports Authority of India (AAI) plans to develop small airports with frugal facilities, and encourage private airlines to bid for routes connecting these small airports with existing larger airports, thereby increasing regional air traffic.
- AAI plans to increase its capital expenditure for 2017-18 by 25 per cent to Rs 2,500 crore (US$ 375 million), primarily to expand capacity at 12 airports to accommodate rising air traffic, as per Mr Guruprasad Mohapatra, Chairman, AAI.
- The Ministry of Civil Aviation has revised its air services agreement with Netherlands, which would enable air carriers from both the countries to operate up to 28 flights each week, up from current weekly limit of 21 flights, which would benefit regional carriers as well as enhance connectivity between the countries.
- The Executive Development Programme of Rajiv Gandhi National Aviation University in collaboration with Indo US – American Cooperation Program, inaugurated by Mr Ashok Gajapathi Raju, Minister for Civil Aviation, aims to promote skill development of senior leadership and close the gap of increasing demand for trained people in the aviation sector.
India’s aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country’s population, of which nearly 40 per cent is the upwardly mobile middle class.
The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2026.
In the coming 20 years, Indian companies will buy 2,100 new planes worth US$ 290 billion.
- 300 business jets, 300 small aircraft and 250 helicopters are expected to be added to the current fleet of Indian carriers in the next five years.
- Demand for MRO facilities is increasing in India, due to growth in the aviation sector.
- Investment opportunities worth USD 3 billion in greenfield airports under PPP at Navi Mumbai and Mopa (Goa).
- The development of new airports – the Airport Authority of India (AAI) aims to bring around 250 airports under operation across the country by 2020.
- For development of aviation in the North-east region – the AAI plans to develop Guwahati as an inter-regional hub and Agartala, Imphal and Dibrugarh as intra-regional hubs.
- AAI has planned to spend USD 3 billion on non-metro projects between 2016 and 2020, focusing on the modernisation and up-gradation of airports.
- Indian airports are emulating the Special Economic Zone (SEZ) Aerotropolis model to enhance revenues, focus on revenues from retail, advertising and vehicle parking, security equipment and services.
- Airbus (France)
- Boeing International Corporation (USA)
- AirAsia (Malaysia)
- Rolls Royce (UK)
- Frankfurt Airport Services Worldwide (Germany)
- Honeywell Aerospace (USA)
- Malaysia Airports Holdings Berhad (Malaysia)
- GE Aviation (USA)
- Airports Company South Africa Global (South Africa)
- Alcoa Fastening Systems Aerospace (USA)
- Singapore Airlines (Singapore)
- Etihad Airways (UAE)
- Fairfax (London)
- Ministry of Civil Aviation
- Directorate General of Civil Aviation
- Bureau of Civil Aviation Security
- Airports Economic Regulatory Authority of India
- Air India Limited
- Pawan Hans Limited
- Airports Authority of India
Exchange Rate Used: INR 1 = US$ 0.0155 as of October 31, 2017.
References: Media Reports, Press Releases, Press Information Bureau, Directorate General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 2017-18, Boeing
Disclaimer: This information has been collected through secondary research and Kohli & Kohli Law Associates is not responsible for any errors in the same