Event Round Up

An expo-nential week

The Airport and Airline Expo 2008, part of the second Civil Aviation Week held in New Delhi, addressed topics pertaining to infrastructure, cargo and general aviation in the country besides doing business, which proved to be extremely successful. By Chetan Kapoor

Indian aviation has grabbed the world's attention and there is no reason why suppliers shouldn't jump onto the bandwagon. After all, the economic growth rate, coupled with liberal policies in the aviation sector, such as the open skies and increased foreign direct investments, has resulted in an increased passenger and cargo movement. This growth needs to be supported by not only adequate infrastructure but also other elements like that of skilled work force, technology and continued governmental support. The Airport and Airline Expo 2008, part of the second Civil Aviation Week held at Pragati Maidan, New Delhi brought buyers and sellers under one roof not only to do business, but also to discuss the key events and future prospects of the Indian aviation sector.

According to Dr K Ramalingam, chairman, Airports Authority of India (AAI), "Infrastructure is the need of the hour, but challenges such as airport capacity constraints still exist, as the demand for flying and public awareness is on the rise. Efficiency can be measured only by the level of service provided and ATCs can't do wonders unless physical infrastructure is provided." The GMR Delhi International Airport (DIAL) is in the process of adding a third runway (to be completed by June and become operational by August-September 2008) and increasing its efficiency from the present 40 ATMs per hour to 60 ATMs per hour. Furthermore, the AAI is also undertaking the modernisation of 35 non-metro airports by 2010. He further added, "This is a mandate given to us and infrastructure will undergo a sea change. Airport management and development is a challenging job and we will do the best in a time-bound manner so that the services improve."

Modernisation of airports has also attracted private investments but it has not been an easy ride. As per B Shantaraju, CEO, DIAL, "While we have modernised one brownfield airport (DIAL), and built a greenfield airport (at Hyderabad), 990 amendments were needed in policies to allow private participation." With the Indian passenger traffic projected to grow by 20 per cent due to the LCC boom, new aircraft technologies and increased air rights, even Australian-based Macquarie Airports is evaluating the options of investing in the country. Says Kerrie Mather, CEO, Macquarie Airports, "An airport is a capital investment business and we are committed to long term investments and profit-making growth by working responsibly with the staff. The 21st century airport will be competitive and lay emphasis on productivity and efficiency. We are excited about opportunities in this market."

View from the top

Edward T Smith Senior vice president, International Affairs, GAMA

H S Bains Member, (Personnel and Administration), AAI

With much talk about developing infrastructure, the question to be asked is - will the airport be ready on time for investors to put their money in this market and get appropriate return on investments - for example, by implementing user-development fees (UDF) and other non-aeronautical revenues which differ from airport to airport? "It is possible to have UDF if one brings in private enterprises. However, the Centre is in the final process of having a regulatory body to oversee economic activities of the airports to decide appropriate user-charges. The process is evolutionary and the framework of model concession agreement is open to the public," revealed Ashok Chawla, secretary to the Government of India, Ministry of Civil Aviation.

But do the non-aeronautical revenues exceed aeronautical revenues? Kapil Kaul, CEO (Indian Subcontinent & Middle East), CAPA, commented, "Globally, everyone makes money except for the airlines and the contribution of the non-aeronautical revenues through UDF, housing and parking fees, etc will take few years to surpass aeronautical revenues. Our projections reveal that 2008 will be a highly negative year for the industry." And this is coming true. High ATF costs when LCCs grew at a fast pace resulted in them facing losses despite high load factors and inadequate skilled human resources added to the consequences faced by the airlines. He added, "The drivers for consolidation was to have control on supply but we're afraid that nobody's getting that benefit. It will take another six to eight months as cost structure is increasing and demand is reducing."

Agreed Kuljit Singh, partner, Ernst & Young, "The consolidation hasn't been sufficient as airlines continue to bleed and with the turmoil in the financial markets, the airlines will not attract funding." In spite of these turbulences, the ministry is of the opinion that the industry will witness another "double growth" in the next four-five years.

Let's talk

Donald Spruston Director-General, IBAC

Rubi Arya Assistant vice president, (Human Resources), Kingfisher Airlines

Communicating is vital and more so when one is dealing with flying over restricted territories or gaining access to land in case of emergencies. "Airspace is a limited resource and needs to be allocated according to priorities of civil and defence," said Brandon Chapman, director, NSL, NATS, "We are in talks with both, the AAI and the Indian Air Force for an airspace management cell, like in the UK. Collaborative Decision Making (CDM) - exchange of data and information leads to efficiency in operations, but there are issues involved such as commercial sensitivities, queues at runways and aerodrome holdings as airports have great influence over ATC and one should invest in getting database and having greater predictability for support services."

General aviation - unparalleled potential

There is no doubt that civil aviation in India has reached beyond the skies and continues to grow tremendously. At the same time, air congestion has also resulted in demand for charters particularly from business houses and large corporations - over 27,000 turbine aircraft are operated by 15,000 companies worldwide. Referring to its growth, Donald Spruston, director-general, International Business Aviation Council, mentioned, "Business aviation is growing in leaps and bounds and is the fastest growing sector of aviation today. Even the regulators can't keep up with drastic change of pace in the industry with regard to technology, growth and expertise." The business aviation segment is predicted to witness an unprecedented growth over the next decade, with over 50 per cent of deliveries outside the US, while Asia's contribution includes 15 per cent of the sales over the next five years.

Kapil Arora, partner, (Risk Advisory Services), Ernst & Young, agreeing with him commented, "The charter operators in India will either scale up, tie up with global players or witness a consolidation or fall off. General aviation is to be driven by the corporate as a developmental tool. 30 business jets were delivered last year and the number is expected to rise by 50 per cent this year."

While the Cessna's and Bell's have worked their charm over the corporate so far, the Very Light Jets (VLJs) are now making their presence felt with the capacity of 320 aircraft being delivered every year, and besides high net worth individuals, companies realising the productive value aircraft bring to its operations to move teams and equipments, the VLJs could prove to be a successful aircraft, with their capacity of handling 4-8 pax, weight of less than 10,000 pounds at pricing of US$ 1.5 to 4.5 million.

Edward T Smith, senior vice president, International Affairs, General Aviation Manufacturers Association, remarked, "There is a relation between strong economic growth and the aviation industry which will be higher in 2008-09, especially in strong economic markets such as China, Russia and India. Business aviation has been regarded as a productivity tool providing the benefits of scheduling, direct to destination flights, privacy and security." However, the Indian market views general aviation in a separate light. Piyush Joshi, general manager (Planning), AAI commented, "Business aviation is not as successful as commercial airlines and according to estimates, general aviation will grow by 0.4 per cent while the VLJs by 10 per cent. These will need separate terminals and not movements facilitated from existing infrastructure."

GE Aviation also regards VLJs to fulfil unmet needs by driving point to point services and to increase frequencies on thin routes with the high number of over-served and under-served airport/airstrips in the country. Its country director, William Blair, provides an insight, "VLJs are transforming the market and are perfect for India with their composite fuselage, increased cabin volume and their ability to fly about 2,200 nautical miles. The market is ripe for regional connectivity and infrastructure is suitable for smaller aircraft. Thus, it will be the tier I and II cities which will drive the next growth wave." GE Aviation has also entered into a 50:50 joint venture with Honda for its VLJ engines.

However, boom in infrastructure and inducting additional aircraft also means huge investments and with aircraft values being volatile, as well as increased demand from China and India with longer delivery times, John W Leftwich, managing director, Global Asset Management, Asia Pacific Japan India, GE Commercial Finance stated, "The corporate aviation sector in India is to grow in a big way, however the question is whether the price paid for the aircraft is fair and right. Furthermore, if anything goes wrong, how will the lessors recover the investment and when the operating lease is over how will it be valued?" GE predicts used aircraft to devalue by 10-15 per cent and going by the fact that 93 per cent of world's used aircraft are in the Americas and Europe, Indian aircraft will find it difficult to compete for buyers' attention with perceptions of a US 'pedigreed' aircraft being well maintained in hangars, FAA certified, etc as compared to its Indian counterparts.

HR worries

William Blair Country director, GE Aviation

As true as it can get, "The HR problem is not unique to India," mentioned Chawla. While pilot shortage has lead to insanity in salaries imbursement, the ATC has its own problems to look into. The industry is growing at a rapid pace and is doubling every five years. States H S Bains, member, (Personnel and Administration), AAI, "A one per cent rise in aviation growth would mean a 0.5 per cent rise in manpower. In three years we are expecting 1,000 aircraft in the country and there is a need for skilled manpower to match this growth." Nonetheless, recent consolidation in the industry might have brought relief to the carriers with synergies that come with it.

"There is a huge demand for pilots and engineers. The airline industry is a service industry and not just a mode of transportation. The APAC region will account for 31 per cent of the world deliveries, growing faster than North America and Europe. Poaching is a short-term phenomenon and by 2010, we will need 2,700 pilots, 6,800 cabin crew, 11,700 maintenance personnel. Increased salaries of licensed personnel will further put pressure on margins," stated Rubi Arya, assistant vice president, (Human Resources), Kingfisher Airlines. Moreover, cabin crew training revenue is expected to grow from US$ 85 million in 2006 to US$ 344 million in 2010 and the carrier is in the process of opening an aviation training university. Arya remarks that aviation training institutes need a capital expenditure of US$ 230,000, with a return on investment in a year, making it an attractive business.

Also, with the air cargo segment being resurrected due to rise in international trade, further key HR issues arise, such as - talent acquisition, its transformation, development, deployment and retention. "There is not much connect between the training institutes and the industry," feels Tanmay Kapoor, partner, Ernst & Young, "Industry branding is what is needed more than employee branding, just like NASSCOM for the IT industry, and students need to be educated about the industry, attract the right talent at the right age and get the right people to follow them." He further felt a need to create a Civil Aviation Fund for the welfare of the industry and realise challenges years by studying other industries.

And it is just not about recruiting human resources, quality is an integral factor which comes at a price. "Airline pilot training is expensive as it is money well invested. However, in order to be cost effective, one has to get the right people to train and use maximum technology," remarks Mike Langley, director (Commercial and Employment Services), Oxford Aviation Training. However, Rizwan Kadri, founder and chairman of Indian Aviation Academy feels, "We have 1,000 expatriate pilots in the country. Why can't we have locals recruited instead? Are they not capable enough? Also, the gap should be bridged by giving Indian schools an opportunity, and allowing the foreign companies to bring in the technology."

The Indian aviation industry is fast undergoing a huge transformation, much to the benefit of companies - airlines, training schools and manufacturers - who are looking at making the most of this exponential growth. However, issues of global climate change, late deliveries, excessive governmental scrutiny and regulations and lack of adequate infrastructure could turn investors the other way. Nonetheless, India is special and many a times it has the advantage of skipping the learning curve, which hopefully will be the same case in the aviation industry.