Aviation Sector of India

Introduction
Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the air services and introduction of low-cost airlines, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. The Federal Ministry of Civil Aviation is the governing Indian agency for this sector. The AAI (Airport Authority of India) is in-charge of managing all the airports in the country.

Facts
Indias Aviation market currently is the 9th largest aviation market in the world registering an annual growth of 24% last year. The airline industry in India has grown by 400 per cent in a short span of about six-anda-half years. Mr. Praful Patel, the union civil aviation minister said in 10 years Indian market will be the third largest aviation market after the US and China. Passengers carried by domestic airlines from January June 2010 were 46.8 million as against 39.4 million in the corresponding period of year 2009 thereby registering a growth of 18.9 per cent - according to data released by the Directorate General of Civil Aviation (DGCA). The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. Delhi's IGI (Indira Gandhi International) airport is the busiest airport in the country at present, handling an average of about 843 flights per day. On November 29, 2010, it handled its highest ever traffic with 865 operations India ranks fourth after U.S., China and Japan in terms of domestic passengers volume. The number of domestic flights grew by 69 percent from 2005 to 2008. Presently, India has 136 airports, of which 94 are owned by the AAI. There are 17 international airports, 79 domestic airports and other custom airports and civil enclaves. In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India. The growth of airlines traffic in India is almost four times above the international average. In terms of market share, private carrier Jet Airways was the market leader with 19.2 per cent share, closely followed by Kingfisher Airlines with 19.1 per cent, Indigo with 17.3 per cent, National Aviation Company Limited (NACIL)* with 17.1 per cent, Indigo with 16.4 per cent, SpiceJet with 13.3 per cent, JetLite with 7.0 per cent and GoAir with 6.9 per cent during the month of November 2010. *NACIL is an entity formed by the merger of Air India and Indian (commonly known as Indian Airlines). Aviation industry of India has placed the biggest order for aircrafts globally. Leading Aircraft manufacturers like Airbus and Boeing have expressed great optimism over the

growth of this sector. US $100 Billion in aircraft orders would be up for grabs in the next 20 years. In the largest deal in civil aviation history, Delhi-based low-cost domestic carrier IndiGo has placed an order for 180 aircraft with European-aircraft maker, Airbus. The deal is valued at US$ 15.6 billion. Various private players like GMR Infrastructure Ltd, GVK Power and Infrastructure Ltd, Siemens, Larsen and Toubro etc are working in partnership with AAI on different airports. The Hyderabad International Airport is being managed by a public-private joint venture of the GMR Group, Malaysia Airports Holdings Berhad and the State Government of Andhra Pradesh along with the Airports Authority of India (AAI).

Problems of Indias Aviation sector:

Employee shortage: There is clearly a shortage of trained and skilled manpower in the aviation sector as a consequence of which there is cut-throat competition for employees which, in turn, is driving wages to unsustainable levels. Moreover, the industry is unable to retain talented employees. Regional connectivity: One of the biggest challenges facing the aviation sector in India is to be able to provide regional connectivity. What is hampering the growth of regional connectivity is the lack of airports. Rising fuel prices: As fuel prices(ATF-Air Turbine Fuel) have climbed, the inverse relationship between fuel prices and airline stock prices has been demonstrated. Moreover, the rising fuel prices have led to increase in the air fares. Declining yields: LCCs (Low cost carriers) and other entrants together now command a market share of around 46%. Legacy carriers are being forced to match LCC fares, during a time of escalating costs. Increasing growth prospects have attracted & are likely to attract more players, which will lead to more competition. All this has resulted in lower returns for all operators. Gaps in infrastructure: Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start has been made to upgrade the infrastructure, the results will be visible only after 2 - 3 years. Trunk routes: It is also a matter of concern that the trunk routes, at present, are not fully exploited. One of the reasons for inability to realize the full potential of the trunk routes is the lack of genuine competition. The entry of new players would ensure that air fares are brought to realistic levels, as it will lead to better cost and revenue management, increased productivity and better services. This in turn would stimulate demand and lead to growth. High input costs: Apart from the above-mentioned factors, the input costs are also high. Some of the reasons for high input costs are:Withholding tax on interest repayments on foreign currency loans for aircraft acquisition. Increasing manpower costs due to shortage of technical personnel.

Initiatives Taken by the Government recently

To create world class airports, the government has recognized the need for the involvement of private players in the development of airport infrastructure. Development of airports at Delhi and Mumbai has been taken up under Public Private Partnership (PPP) mode. The capital expenditure is funded through private equity, borrowings, and internal resources of joint venture companies. The development work of Mumbai airport is likely to be completed by 2012 whereas the work of a new terminal (Terminal 3) at Indira Gandhi International Airport at Delhi got completed in July 2010. The development work of Kolkata and Chennai International airport has been taken up by Airport Authority of India whereas Bangaluru international airport has been developed on PPP mode as greenfield airports. The AAI has taken up the development of 35 non metro airports. As per the Economic Survey of 2009-10, out of 35 airports, 9 have been completed and put in operation. The other projects are in progress and likely to be completed by 201011. The adoption of Open Sky Policy has resulted in the entry of several new privately owned airlines and increased frequency / flights for international airlines. The advantages of Open Sky Policy are as follows:

Raising the efficiency of aeroplanes. Making air travel cheaper. Making aeroplanes faster.

The government has allowed 100% Foreign Direct Investment, under the automatic route, for Greenfield airports. For existing airports, 100% FDI is allowed while investment up to 74 per cent under the automatic route and beyond 74 per cent under the government route is also allowed. The government is also in the process of setting up the Airport Economic Regulatory Authority (AERA), which will approve tariffs for aeronautical services and also for monitoring the performance of airports