Aviation Industry in India: History,

Growth, Challenges, FDI and Future

On June 24, 2015 By Pawan SrivastavCategory: Blog

Aviation Industry in India

Introduction: Aviation is one of the greatest wonders of modern science. There has
been tremendous growth in the field of both civil aviation and military aviation sector.
India is presently among the top 10 civil aviation markets in the world. The airlines
industry of India served over 16 million customers in 2013. According to reports, India
is poised to become one of the top 5 civil aviation markets by 2020.
What is Aviation Industry? Aviation industry (also aviation sector) refers to the
industries and organizations, engaged in the various aspects of aviation, such as
airlines manufacturing, airlines flying, operating, maintenance, ground-handling,
training centers, airports and regulatory bodies.
The possibilities of the development of air traffic during peace-time and the effective
use of aircraft for military purposes became quite clear in the past few years. There
are extensive experiments in India.

History
India has a long history in the field of aviation. The operation of air transport was
entrusted to three Public Undertakings, namely
1.

Air India for international services,

2.

Indian Airlines for domestic services and services to neighboring countries, and

3.

Vayudoot.

Hindustan Aeronautics Limited: The Hindustan Aircraft (now Hindustan

Aeronautics Limited), was founded in 1940. It was started at Bangalore (now
Bengaluru) as a repair, overhauling and assemblage depot, has now grown into an
important manufacturing plant. It has designed and manufactured trainer air-crafts. It
belongs to the aerospace and defence industry. It is managed by Ministry of Defence.

Timeline

1932: Tata Airlines (first commercial airlines of India) was founded by J.R.D.
Tata.

1946: Tata Airlines became Air India.

1953: Indian Airlines Corporation was established and to begin its operation.

1981: Vayudoot was founded as a joint venture between Air India and Indian
Airlines.

1993: Vayudoot was merged into Indian Airlines in 1993.

1996: Alliance Air (now Air India regional) was formed as a subsidiary of Indian
Airlines.

2005: Indian Airlines was re-branded as Indian.

2011: Indian (formerly Indian Airlines) merged with Air India. Post merger,
Alliance Air was renamed as Air India Regional.

List of Major Airlines in India

Air India

Sahara Airlines (now Jetkonnect) became operational in 1993. It was

founded in 1991.

Jet Airways began its operation in 1993.

GoAir started its operation in 2005.

SpiceJet became operational in 2005.

Indigo became operational in 2006.

Air Costa commenced scheduled operation in 2013.

Air Asia India commenced its operation in 2014.

Vistara (joint venture between Tata Sons and Singapore Airlines), Fly Easy,
TruJet, and Air Pegasus became operational in 2015.

Growth and progress of Aviation sector

In the sphere of civil aviation, there has been remarkable progress in India. Both in
respect of speed and carrying capacity modern aircraft are far superior to those in
use even a decade ago. As already mentioned earlier, India is already among the top
10 aviation markets serving over 16 million passengers annually.
The volume of air traffic, both in terms of passenger and goods, is also daily
increasing. Now-a-days very few among those who can afford the cost of air travel
use any other form of conveyance, especially in long-distance journeys.
These improvements that are being daily made may very well further reduce the
time of travel and correspondingly improve the safety and comfort of journeys.

Benefits of Aviation
Civil Aviation in India has shown signs of quick development and is expected to be
more and more popular as its advantages come to be realized.
The benefits and advantages of Aviation has been discussed below:

The expansion of air traffic has made the world look very small, indeed. It is
possible to make a round-the-world trip in a modern aircraft in the course of less
than two days.

One of the obvious results of the progress in aviation has been wider and more
intimate international intercourse.

It is now possible for different peoples of the world to exchange their thought
and ideas in diverse spheres more frequently because of the vastly increased
facilities for contact provided by air communication.

And the greater such facilities are, the closer will be the cultural and
intellectual understanding among the different nations of the world.

Problems/Challenges faced by Aviation

Industry

There is dearth of properly trained pilots and technicians necessary for quick
expansion of aviation services.

Though several centers for the training of pilots and technicians have already
been opened they are patently inadequate to meet the requirements of even
the existing volume of air traffic.

Another difficulty is with regard to aviation petrol. India, having very small
supply of indigenous petroleum, has to depend on foreign sources for fuel,
especially for aviation purposes. Whenever there is any bottleneck in the regular
supply of aviation spirit, even the regular scheduled services, have to be cut off
temporarily.

Besides these hurdles, the general poverty of the masses is a factor to be taken
into account in estimating the possibilities of the expansion of aviation in India.

In India, however, the number of people who can afford air travel is very small,
and they cannot by themselves keep the air-line companies going.

Foreign Direct Investment (FDI) in Aviation

Sector in India
The Government of India has allowed up-to 100% FDI under automatic route in Green
Field Airport projects. There is provision for 74% FDI under automatic route for invest

in existing airport projects. FDIs beyond 75% in existing projects is possible

after Government approval (FIPB and Ministry of Aviation).
For FDI in scheduled domestic airlines, up-to 49% FDI is allowed. Non Residential
Indians (NRI) can invest up-to 100% in scheduled domestic airlines.
FDI is also allowed in helicopters and seaplanes services, ground handling services,
maintenance and repairs services, and flying training services.
Note: All investments are subject to relevant regulations and other conditions. You
are advised to seek expert advise.

Future of Aviation Industry in India

The Future of Indian Aviation Industry is bright. As already mentioned above, India is
set to become one of the top five aviation markets by 2020. The latest report on civil
aviation, reveals an all-round improvement in air traffic. The number of passengers
as also the volume of goods and mails carried by airplanes during the period shows
an appreciable improvement over those of the last decade.
The Aviation sector is expected to witness huge surge in investments from private
sector players. The number of aircraft is expected to touch 800 by 2020. The low
penetration ratio (0.04 per capita/p.a) provides immense opportunity for investment
in aviation sector.
Aviation being not only a very important form of peacetime communication but also a
vital part of the defense organization, the State cannot remain indifferent to its
development along proper lines.
This progressive expansion may be expected to continue, and a time may come, not
at a very distant future, when aeroplanes will be ever more popular, and become, the
normal means of communication. The idea of one world, therefore, may not long
remain an empty slogan but will be a concrete reality in the foreseeable future.

India has to rely on foreign sources for the supply of crude petroleum. If India is to
develop aviation services as also other major industries, she must be self-sufficient in
fuel supply.
In a vast country like India, with very suitable weather conditions all the year round,
the possibilities of aviation are immense and the Government may be expected to
take suitable measures for helping the growth of this important industry, so that it
may play its part in the all-round development which India is planning for her people.

CHARACTERISTICS OF INDIAN CIVIL AVIATION

1. 1. as service sector
2. 2. 1953: Nationalization of Aircraft Industry Consequently, assets of 9 existing companies transferred to
two entities in the aviation sector controlled by the Government in a) Indian Airlines, primarily serving
domestic sectors b) Air India, primarily serving the international sectors Implication Aviation became a
preferred mode of transport for elite class Restricted Growth of Aviation Industry High Cost structure
Underdevelopment of infrastructure 1986: Private Sector Players permitted as Air taxi operators Players
including Jet, Air Sahara, NEPC, East West, Modiluft,etc started service 1994: Private Carriers
permitted to operate scheduled services Six operators granted license however only Jet and Air Sahara
able to service 2003: Entry of low cost carriers Air Deccan, Spice Jet, Go Air, Indigo Implication Aviation
has become affordable with check fares and discount schemes Various Operators with different
business model Huge growth foreseen in the Aviation Industry
3. 3. HUGE POTENTIAL Under penetrated Market - Total Passenger Traffic only 50 mn as on 31st Dec
2005 amounting to only 0.05 trips per annum as compared to developed Nations like United States have
2.02 trips per annum - High Level of potential demand with growth in Indian economy Untapped Air
Cargo Market - Air Cargo has not yet been fully taped in the Indian markets and is expected that in the
coming years large no of players would have dedicated fleets What this means - Build up of capacity
by existing players and entry of new players CONSTRAINTS Infrastructure Constraints -Shortage of
airport facilities, parking bays,air traffic control facilities and takeoff and landing slots - Continued growth
might be hampered Relatively Limited Reach -Only 454 airports with less than 100 airports having more
than one daily service
4. 4. Competitive landscape Huge Growth- Huge Plans Fleet Acquisition New Fleet Orders -More than 500
Fund Requirement- USD 50-55 bn approx Order Book New Players Indigo 100 Air India 68 Air
Deccan 60 Kingfisher 50 Indian Airlines 43 Jet airways 40 Go Air 36 Spice Jet 20 Expected to grow to
125 from 7 by 2025 Competitive Pressure FullService Price Low cost Carriers changing the game
Indigo
5. 5. India has jumped to 9th position in world's aviation market from 12th in 2006 Today, private airlines
account for around 75 per cent share of the domestic aviation market. With a growth rate of 18 per
cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the
world.
6. 6. Many policies supporting the infrastructure are now in place. 100 per cent FDI under automatic route
is permissible for greenfield airports. For existing airports, FDI up to 74 per cent is permitted through
automatic approvals and up to 100 per cent through special permission (from FIPB). Private developers

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allowed setting up of captive airstrips and general airports 150 km away from an existing airport. 100
per cent tax exemption for airport projects for a period of 10 years. 49 per cent FDI is permissible in
domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity
ownership by Non- Resident Indians (NRIs) is permitted. 74 per cent FDI is permissible in cargo and
non-scheduled airlines.
7. DEMAND DRIVERS GDP Growth has been more than 7% in the last 4 years The rising middle class
of more than 300 mn is fuelling the growth The Increase in Consumerism and Affordability of Air travel
Government Liberal Policy to allow private carriers and entry of Low Cost Carriers has lead to a
increase in demand in passenger traffic Domestic Tourism and International Business Travel and
Tourism has also greatly fuelled the rise of Indian aviation sector
8. Technology Indigenous technology is coming for aircrafts Social -- Status conscious -- Awareness
is increasing -- Increase in Entrepreneurship Political Govt.is not stable Economy Disposable
income is increasing . GDP grow is more than 9%. & Environment Stiff competition for hiring pilots
(poaching) Easy FDI(49%) through secondary market Legal -- Flexibility in entry . The five year
stringent law towards flying abroad . airports.
9. SEGMENTATION - HNI People .& POSITIONING Chartered air service Statement - TARGET
-VPs,CEOs -Bollywood Stars -Politicians -Foreign Tourists -industrialists -regular -Oil exploring
companies others
10. Place Metros Productivity /process - Giving convenience in travelling People - Pilots Engineers
Physical evidence - Aircrafts Helicopters & capitals
11. Gaps in infrastructure High input costs Building on cost efficiencies Declining yields
12. Increasing growth prospects have attracted Legacy carriers forced to match low LCC fares, during
a time of escalating costs LCCs and other new entrants together now command a market share of
around 46% & The bottom-line lower yields for all operators More players more competition
lower fares a continuous cycle likely to attract more players
13. Airlines have to build on their cost efficiencies Low yield regime to continue & Yet, airlines have
no control on external input costs For an industry that is estimating losses of US$ 500-550 million by
end of current fiscal, this is a daunting challenge drive down costs below the yield that their product will
fetch, to return to profits
14. Increasing manpower costs due to shortage of technical personnel Witholding tax proposed on
aircraft lease rentals for leases concluded after 1st April07. Witholding tax on interest repayments on
foreign currency loans for aircraft acquisition ATF cost / kilolitre : US$ 755 in Delhi US$ 780 in
Mumbai US$ 455 in Singapore US$ 497 in Dubai High input costs High basic rates aggravated by
high taxes imposed by State Govt.s ATF prices in India continue to be far higher than global rates,
making ATF account for 35-40% of operating cost, as against global average of 20-25% High input
costs
15. A large & Developing alternative revenue streams Air cargo operations Airframe,
enginegrowing potential market & Access to new marketscomponent overhaul Ground handling
Training Leveraging the internet
16. Forecast to grow at 11.4% p.a. till 2011-12 Fuelled by a fast growing economy, supported by a
strong industrial base CAGR of 15% over the past 2 years Freight carriage in India currently around
4200 tons per day
17. Opportunity lies in 3rd party handling as well as entering into service contracts with private
airports / AAI to offer comprehensive ground handling solutions, e.g. AI CIAL at Cochin Expected to
grow at 15% CAGR till 2011-12 Ground handling business in India estimated at Rs. 1074 crores

18. 18. Airlines in India will need training for pilots, engineers, cabin crew, load & Cabin crew, engineers,
technicians will also be required to support aircraft being inducted Opportunity for simulator training
establishments IA already has a Central Training Establishment at Hyderabad, with facilities for most
categories / types of trainings on A320 Projected requirement for 3600 additional pilots in the short to
medium term trim, etc.
19. 19. Increasing numbers are booking directly from the airlines For every direct booking from their
website, airlines save an estimated US$ 4 plus 5% agency commission Airlines can also turn their
websites into one stop shops for all travel related services, generating additional revenue
Comparatively, e-ticket sales from own website cost an airline only ~3% of ticket price Traditional
sales channels with paper tickets cost airlines ~10% of ticket price websites
20. 20. The risk cycle of increased competition, low yields, and growth transferred to the international
arena The opportunity for some will be a challenge for the existing international players As airlines
complete 5 years of domestic operations, those with 20+ aircraft will get international access Access to
new revenue streams Help even out the seasonality factor of domestic operations Spread the risk of
downturn in a single market
21. 21. Being primarily a govt-ownwed industry ,the Indian aviation industry is now dominanated by
privately owned full service airlines and low cost carriers. With the liberalization of the Indian aviation
sector, aviation industry in India has undergone a rapid transforamtion.priavate airline account for
around 75% share of the domestic aviation market India has 454 airports and airstrips; of these,16 are
designated international airports. The Indian aviation industry Is one of the fastest growing aviation
industries in the % share of the world.
22. 22. Center for Asia pacific aviation (CAPA) estimates domestic traffic to grow 25-30 % annually and
international traffic 15%untill 2010. Over 135 aircraft have been added in the past two year alone.
Domestic and international traffic is up 45% and 15.1 %,respectively.
23. 23. Significant opportunity for foreign companies as Indian companies not technologically equipped to
cater to requirements Provides a huge opportunity for private players operating in Aerospace and allied
industries Authorities have initiated various steps to implement modernization, reconstruction and
development of airport infrastructure to implement infrastructure development plan Airport
Infrastructure needs to improve significantly to meet the current and future demand of the Indian
Aviation Sector Indian Aviation has seen high growth on account of sustained Indian socio economic
growth and liberalized Government initiatives
24. 24. A host of initiatives are required to be taken by all concerned, to tide over the current situation
Control Costs Improve quality of service Develop a large pool of skilled / technical manpower
Attract more professionals to manage the aviation industry Develop infrastructure to match growth
plans Liberalise rules Despite a growing market, airlines in India are fighting for survival in a highly
competitive environment & regulations governing civil aviation, without compromising on safety &
security Reduction in ATF prices and taxation on ATF and lease rentals