india-aviation-2014

Ministry of Civil Aviation

Government of India

th

4 International Conference

on Civil Aviation

13 March 2014 - Hyderabad

Enhancing Air Connectivity

Knowledge Partner

Ministry of Civil Aviation

Government of India

India Aviation 2014

Contents

1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01

2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03

2.1 Socio - economic benefits of air transport services . . . . . . . . . . . . . . . . . . . 03

2.2 Trends in the global aviation industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04

3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.1 Enhancing regional connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.2 Rationalizing taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4.3 Redesigning the regulatory landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4.4 Supporting the MRO industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.5 Corporatization of ANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

4.6 Abolition of 5/20 rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4.7 Addressing requirements for skilled manpower . . . . . . . . . . . . . . . . . . . . . . . 34

4.8 Innovative IT interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Executive Summary

Introduction to the Aviation Industry

Indian Aviation Industry

Unlocking the Indian Aviation Sector

The Way Forward

List of Figures

List of Tables

India Aviation 2014

Ministry of Civil Aviation

Government of India

India Aviation 2014

Contents

1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01

2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03

2.1 Socio - economic benefits of air transport services . . . . . . . . . . . . . . . . . . . 03

2.2 Trends in the global aviation industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04

3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.1 Enhancing regional connectivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.2 Rationalizing taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4.3 Redesigning the regulatory landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4.4 Supporting the MRO industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4.5 Corporatization of ANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

4.6 Abolition of 5/20 rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

4.7 Addressing requirements for skilled manpower . . . . . . . . . . . . . . . . . . . . . . . 34

4.8 Innovative IT interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Executive Summary

Introduction to the Aviation Industry

Indian Aviation Industry

Unlocking the Indian Aviation Sector

The Way Forward

List of Figures

List of Tables

India Aviation 2014

Ministry of Civil Aviation

Government of India

01

Executive Summary

The Indian civil aviation industry is on a high growth trajectory, albeit with minor

hiccups. India has a vision of becoming the third largest aviation market by

2020 and is expected to be the largest by 2030.

Despite facing a reduced growth rate in the past few years, the Civil Aviation Industry

in India has ushered in a new era of expansion driven by factors such as Low Cost

Carriers (LCC), modern airports, Foreign Direct Investments (FDI) in domestic airlines,

cutting edge Information Technology (IT) interventions and a growing emphasis on

regional connectivity. Simply going by the market size, the Indian civil aviation industry

is amongst the top 10 in the world with a size of around USD 16 billion.

However, in order to achieve the vision of becoming the third largest aviation market

by 2020, a lot more needs to be done.

The Asia Pacific region along with other emerging economies of Latin America and

Eastern Europe are projected to lead the growth of the global aviation sector in the

next few decades. Steady economic development of China and India would lead to

higher spending power and increased need to travel. With one third of the world's

population residing in these two nations, there is a huge untapped potential.

As per the 12th Five Year Plan (2012-2017), improving air connectivity in tier-2 and

tier-3 cities in India is one of the key priorities of the government. This expansion will

not only add a much needed boost to the industry, but also increase the viability of

new trends like low cost airports and airlines in the country. With the unfortunate

downgrade of India to Category 2 by USA's Federal Aviation Administration (FAA),

expansion in the global routes may be constrained. That too will lead to greater focus

on the domestic market in the short run. All this will have a multiplier effect in terms

of higher growth of local economic activities, tourism and employment.

India sells one of the costliest Aviation Turbine Fuel (ATF) in the world, nearly 60%

costlier than competing nations in the Middle East and ASEAN regions. This is thanks

to myopic tax policies at the central and state level. The raw material - ATF - accounts

for nearly half of the operating cost of Indian carriers. This explains why domestic

flight tickets in India are often costlier than a 3 days weekend package in Thailand and

Malaysia. No wonder tourism traffic in India is a fraction of its immense God-gifted

potential.

The irony is that the common man in whose name high taxes are imposed on ATF, is

himself prevented from flying due to high travel costs! According to a rough estimate,

nearly 99.5 percent of the world's third largest economy, have NOT seen the insides of

an aircraft. Most Indian carriers therefore are facing financial ruin and are hoping for a

white knight to bail them out.

1

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

01

Executive Summary

The Indian civil aviation industry is on a high growth trajectory, albeit with minor

hiccups. India has a vision of becoming the third largest aviation market by

2020 and is expected to be the largest by 2030.

Despite facing a reduced growth rate in the past few years, the Civil Aviation Industry

in India has ushered in a new era of expansion driven by factors such as Low Cost

Carriers (LCC), modern airports, Foreign Direct Investments (FDI) in domestic airlines,

cutting edge Information Technology (IT) interventions and a growing emphasis on

regional connectivity. Simply going by the market size, the Indian civil aviation industry

is amongst the top 10 in the world with a size of around USD 16 billion.

However, in order to achieve the vision of becoming the third largest aviation market

by 2020, a lot more needs to be done.

The Asia Pacific region along with other emerging economies of Latin America and

Eastern Europe are projected to lead the growth of the global aviation sector in the

next few decades. Steady economic development of China and India would lead to

higher spending power and increased need to travel. With one third of the world's

population residing in these two nations, there is a huge untapped potential.

As per the 12th Five Year Plan (2012-2017), improving air connectivity in tier-2 and

tier-3 cities in India is one of the key priorities of the government. This expansion will

not only add a much needed boost to the industry, but also increase the viability of

new trends like low cost airports and airlines in the country. With the unfortunate

downgrade of India to Category 2 by USA's Federal Aviation Administration (FAA),

expansion in the global routes may be constrained. That too will lead to greater focus

on the domestic market in the short run. All this will have a multiplier effect in terms

of higher growth of local economic activities, tourism and employment.

India sells one of the costliest Aviation Turbine Fuel (ATF) in the world, nearly 60%

costlier than competing nations in the Middle East and ASEAN regions. This is thanks

to myopic tax policies at the central and state level. The raw material - ATF - accounts

for nearly half of the operating cost of Indian carriers. This explains why domestic

flight tickets in India are often costlier than a 3 days weekend package in Thailand and

Malaysia. No wonder tourism traffic in India is a fraction of its immense God-gifted

potential.

The irony is that the common man in whose name high taxes are imposed on ATF, is

himself prevented from flying due to high travel costs! According to a rough estimate,

nearly 99.5 percent of the world's third largest economy, have NOT seen the insides of

an aircraft. Most Indian carriers therefore are facing financial ruin and are hoping for a

white knight to bail them out.

1

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

02 03

Some recent initiatives such as allowing import of ATF are a step in the right direction,

but more proactive measures are needed in order to make the industry more

competitive and investor friendly. The positive implications of allowing 49% FDI in

Indian airlines are slowly becoming evident. Removal of the unwritten ban on A380s

will help bring down cost of travel and increase tourist arrivals. The 5/20 rule and other

regulatory hurdles in approval of new airlines and import of aircrafts need to be

abolished at the earliest.

The regulatory regime governing Maintenance, Repair and Overhaul (MRO) of aircrafts

is another classic case of tax and procedural overkill. Not a single commercial aircrafts

of Indian carriers undergoes repairs in India. Empty aircrafts are flown to MRO facilities

in our neighboring countries and paid for in foreign exchange. The loss of revenue,

foreign exchange, employment and direct taxes is immense. All this is thanks to the

short-sighted policies regarding indirect taxes (Service Tax and VAT) and cumbersome

Customs procedures regarding import of aircraft parts and consumables.

With the growth of air traffic in the region, focused efforts to upgrade the Air

Navigation Services (ANS) has become imperative. Segregation of ANS directorate

from Airport Authority of India (AAI) into a world class organization with latest

infrastructure and well trained professionals is key. Government is expected to decide

on the matter soon.

In pursuit of becoming a strong aviation player, India perhaps did not put the right

emphasis on development of human capital and regulatory frameworks. The FAA

downgrade has been fallout of the same. India needs to put its act together to address

these issues. The creation of a financially and operationally independent Civil Aviation

Authority (CAA) and the National Aviation University (NAU) need to be undertaken on

a war-footing.

There is a large untapped potential for growth in the Indian aviation industry due to

the fact that access to aviation is still a dream for nearly 99.5 percent of its large

population, nearly 40 percent of which is the upwardly mobile middle class. It is critical

for the industry stakeholders to engage and collaborate with the policy makers to

come up with efficient and rational decisions that will shape the future of Indian civil

aviation industry. With the right policies and a 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 2020 and the largest by 2030.

Introduction

to the Aviation Industry2A

ir transportation services have evolved into a crucial building block for the

world's socio-economic growth. In the last four decades, the air travel across

the world has grown by more than 1000% and the air freight has increased by

over 1400% while the national economies have grown only three to four times. This

phenomenal growth is due to a combination of three key global drivers, namely,

increase in disposable incomes, accelerated globalization and deregulation of the

aviation industry.

Increasing competition, technological advancements and improved operational

efficiencies have enabled the cost of air travel to remain relatively low despite severe

volatility of global fuel prices and leading currencies.

Air transport is essential for global business and tourism because of the growing value

of time and money. Aircrafts transported around 3.1 billion passengers and over 51.6

1

million tonnes of freight in 2013 . Over 35% of the inter-regional exports of goods by

value and 51% of international tourists are served by air transport services.

2.1 Socio-economic benefits of air transport services

Figure 1- Key global drivers of aviation industry

Increase in

Disposable

Incomes

Accelerated

Globalization

Deregulation

of the

Aviation Industry

Increased

spending power

Many nations have

opened up the sector to

private players and this

has led to explansion of

the aviation market

Increased competition,

use of latest technologies

for both operational and

passenger services have

kept travel costs relatively

low

Greater accessiblity to

global business and

tourism hubs

Rise in demand for air

travel

Increased propensity

to travel

1

IATA - Estimated as of December 2013.

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

02 03

Some recent initiatives such as allowing import of ATF are a step in the right direction,

but more proactive measures are needed in order to make the industry more

competitive and investor friendly. The positive implications of allowing 49% FDI in

Indian airlines are slowly becoming evident. Removal of the unwritten ban on A380s

will help bring down cost of travel and increase tourist arrivals. The 5/20 rule and other

regulatory hurdles in approval of new airlines and import of aircrafts need to be

abolished at the earliest.

The regulatory regime governing Maintenance, Repair and Overhaul (MRO) of aircrafts

is another classic case of tax and procedural overkill. Not a single commercial aircrafts

of Indian carriers undergoes repairs in India. Empty aircrafts are flown to MRO facilities

in our neighboring countries and paid for in foreign exchange. The loss of revenue,

foreign exchange, employment and direct taxes is immense. All this is thanks to the

short-sighted policies regarding indirect taxes (Service Tax and VAT) and cumbersome

Customs procedures regarding import of aircraft parts and consumables.

With the growth of air traffic in the region, focused efforts to upgrade the Air

Navigation Services (ANS) has become imperative. Segregation of ANS directorate

from Airport Authority of India (AAI) into a world class organization with latest

infrastructure and well trained professionals is key. Government is expected to decide

on the matter soon.

In pursuit of becoming a strong aviation player, India perhaps did not put the right

emphasis on development of human capital and regulatory frameworks. The FAA

downgrade has been fallout of the same. India needs to put its act together to address

these issues. The creation of a financially and operationally independent Civil Aviation

Authority (CAA) and the National Aviation University (NAU) need to be undertaken on

a war-footing.

There is a large untapped potential for growth in the Indian aviation industry due to

the fact that access to aviation is still a dream for nearly 99.5 percent of its large

population, nearly 40 percent of which is the upwardly mobile middle class. It is critical

for the industry stakeholders to engage and collaborate with the policy makers to

come up with efficient and rational decisions that will shape the future of Indian civil

aviation industry. With the right policies and a 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 2020 and the largest by 2030.

Introduction

to the Aviation Industry2A

ir transportation services have evolved into a crucial building block for the

world's socio-economic growth. In the last four decades, the air travel across

the world has grown by more than 1000% and the air freight has increased by

over 1400% while the national economies have grown only three to four times. This

phenomenal growth is due to a combination of three key global drivers, namely,

increase in disposable incomes, accelerated globalization and deregulation of the

aviation industry.

Increasing competition, technological advancements and improved operational

efficiencies have enabled the cost of air travel to remain relatively low despite severe

volatility of global fuel prices and leading currencies.

Air transport is essential for global business and tourism because of the growing value

of time and money. Aircrafts transported around 3.1 billion passengers and over 51.6

1

million tonnes of freight in 2013 . Over 35% of the inter-regional exports of goods by

value and 51% of international tourists are served by air transport services.

2.1 Socio-economic benefits of air transport services

Figure 1- Key global drivers of aviation industry

Increase in

Disposable

Incomes

Accelerated

Globalization

Deregulation

of the

Aviation Industry

Increased

spending power

Many nations have

opened up the sector to

private players and this

has led to explansion of

the aviation market

Increased competition,

use of latest technologies

for both operational and

passenger services have

kept travel costs relatively

low

Greater accessiblity to

global business and

tourism hubs

Rise in demand for air

travel

Increased propensity

to travel

1

IATA - Estimated as of December 2013.

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

04 05

The development of air transportation services and socio-economic development are

highly correlated. According to the International Civil Aviation Organization (ICAO), an

additional dollar invested in air transport leads to a benefit of around three dollars to

the local economy. Moreover, every additional job created in the air transport results in

creation of over six new jobs in the local economy. Figure 2 describes the distribution

of employment generated by aviation services around the world.

7.6, 13%0.8, 1%

9.3, 17%

4.4, 8%

34.5, 61%

56.6 Mn - Global Employment by Aviation

Airline, Airports and Navigation Services

Civil Aerospace Sector

Air Transport Supply Chain

Spending by Industry Employees

Tourism facilitated by Air Transport

Figure 2- Distribution of global employment in the aviation sector

Source: IATA (December 2013)

2.2 Trends in the Global Aviation Industry

Year on Year (YoY) comparison of key parameters for the global aviation industry are

represented in the following table.

Table 1 Global passenger and cargo growth trends (2013 vs 2012)

Passenger Traffic Cargo Traffic

Routes

International

Domestic

Total

RPK ASK PLF FTK AFTK FLF

5.4% 4.9% 79.3% 1.2% 2.6% 49.0%

4.9% 4.6% 79.9% 2.5% 2.3% 30.8%

5.2% 4.8% 79.5% 1.4% 2.6% 45.3%

(All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the Year 2013) Source:

IATA

Note: RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-

Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor

The growth in passenger traffic has been led by a strong progress made by the Middle

East countries supported by the other emerging economies of Latin America, Africa

and Asia-Pacific. The developed economies of North America and Europe lagged

behind in terms of growth in passenger traffic.

The cargo traffic growth rate has recovered from a decreasing trend during 2012.

While Middle East nations have managed a strong growth during 2013, Asia-Pacific

and North America showed a decline. The details regarding regional passenger and

cargo traffic are presented in the following table.

Table 2 - Regional international passenger and

cargo traffic growth trends (2013 vs 2012)

Passenger Traffic Cargo Traffic

Region

Africa

Asia-Pacific

Europe

Latin America

Middle East

North America

Total

International

RPK ASK PLF FTK AFTK FLF

5.5% 5.2% 69.0% 1.5% 6.6% 30.4%

5.3% 5.2% 77.7% -1.6% 0.1% 58.7%

3.8% 2.8% 81.0% 1.7% 1.8% 48.7%

8.1% 7.4% 79.2% 1.3% 2.3% 43.9%

12.1% 0.1% 77.3% 12.9% 12.1% 45.0%

3.0% 2.2% 82.8% -1.5% 0.8% 38.8%

5.4% 4.9% 79.3% 1.2% 2.6% 49.0%

(All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the Year 2013) Source:

IATA

Note: RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-

Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor

It has been observed that during economic upswing, airline traffic grows roughly

around twice the rate of growth of GDP. The following figures display the trend of

scheduled passengers and cargo during the last decade. The recession caused by the

Global Financial Crisis in 2008 has led to a negative growth in both passenger as well

as cargo traffic.

Figure 3 - Global scheduled air passenger traffic, 2004-2013

(in Millions)

Source: Airbus Outlook

2,014 2,157

2,277

2,478 2,515

2,479

2,681

2,845

2,977

3,129

2013

(est.)

201220112010200920082007200620052004

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

04 05

The development of air transportation services and socio-economic development are

highly correlated. According to the International Civil Aviation Organization (ICAO), an

additional dollar invested in air transport leads to a benefit of around three dollars to

the local economy. Moreover, every additional job created in the air transport results in

creation of over six new jobs in the local economy. Figure 2 describes the distribution

of employment generated by aviation services around the world.

7.6, 13%0.8, 1%

9.3, 17%

4.4, 8%

34.5, 61%

56.6 Mn - Global Employment by Aviation

Airline, Airports and Navigation Services

Civil Aerospace Sector

Air Transport Supply Chain

Spending by Industry Employees

Tourism facilitated by Air Transport

Figure 2- Distribution of global employment in the aviation sector

Source: IATA (December 2013)

2.2 Trends in the Global Aviation Industry

Year on Year (YoY) comparison of key parameters for the global aviation industry are

represented in the following table.

Table 1 Global passenger and cargo growth trends (2013 vs 2012)

Passenger Traffic Cargo Traffic

Routes

International

Domestic

Total

RPK ASK PLF FTK AFTK FLF

5.4% 4.9% 79.3% 1.2% 2.6% 49.0%

4.9% 4.6% 79.9% 2.5% 2.3% 30.8%

5.2% 4.8% 79.5% 1.4% 2.6% 45.3%

(All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the Year 2013) Source:

IATA

Note: RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-

Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor

The growth in passenger traffic has been led by a strong progress made by the Middle

East countries supported by the other emerging economies of Latin America, Africa

and Asia-Pacific. The developed economies of North America and Europe lagged

behind in terms of growth in passenger traffic.

The cargo traffic growth rate has recovered from a decreasing trend during 2012.

While Middle East nations have managed a strong growth during 2013, Asia-Pacific

and North America showed a decline. The details regarding regional passenger and

cargo traffic are presented in the following table.

Table 2 - Regional international passenger and

cargo traffic growth trends (2013 vs 2012)

Passenger Traffic Cargo Traffic

Region

Africa

Asia-Pacific

Europe

Latin America

Middle East

North America

Total

International

RPK ASK PLF FTK AFTK FLF

5.5% 5.2% 69.0% 1.5% 6.6% 30.4%

5.3% 5.2% 77.7% -1.6% 0.1% 58.7%

3.8% 2.8% 81.0% 1.7% 1.8% 48.7%

8.1% 7.4% 79.2% 1.3% 2.3% 43.9%

12.1% 0.1% 77.3% 12.9% 12.1% 45.0%

3.0% 2.2% 82.8% -1.5% 0.8% 38.8%

5.4% 4.9% 79.3% 1.2% 2.6% 49.0%

(All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the Year 2013) Source:

IATA

Note: RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-

Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor

It has been observed that during economic upswing, airline traffic grows roughly

around twice the rate of growth of GDP. The following figures display the trend of

scheduled passengers and cargo during the last decade. The recession caused by the

Global Financial Crisis in 2008 has led to a negative growth in both passenger as well

as cargo traffic.

Figure 3 - Global scheduled air passenger traffic, 2004-2013

(in Millions)

Source: Airbus Outlook

2,014 2,157

2,277

2,478 2,515

2,479

2,681

2,845

2,977

3,129

2013

(est.)

201220112010200920082007200620052004

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

06 07

As the economies develop, especially in the Asian region, the aerospace industry is

expected to continue on its growth path. This is reflected in the order books of the

aircraft manufacturing companies. The global passenger aircraft fleet is expected to

grow from the existing size of 16,094 (in 2012) to 33,651 (in 2032). The number of

dedicated freighters is expected to grow from 1,645 to 2,905 over the same period.

While some of the existing passenger aircrafts will be reconfigured as dedicated

freighter, 871 new freighters are projected to be introduced. Around 28,355 new

2

aircrafts are expected to be added to passenger fleet . The following figures show the

breakup of new deliveries by region and by type of aircraft.

2

Airbus Global Market Forecast (2013-2032)

38.4 39.4

41.8

44.4

42.9 42.6

50.7 51.4 51.1 51.6

2004 2005 2006 2007 2008 2009 2013

(est.)

2010 2010 2010

Figure 4 - Global air freight tonnage, 2004-2013

(in Millions)

Source: Airbus Outlook

20,242 , 69%

7,273 , 25%

1,711 , 6%

Single Aisle

Twin Aisle

Very Large

29,226 New deliveries globally during 2013-2032 by aircraft type

Figure 5- Global aircraft deliveries by aircraft type

Regional distribution of 29,226 new deliveries during 2013-2032

Figure 6- Regional distribution of aircraft deliveries

The distribution of the new aircraft deliveries, showcased in the figures above, strongly

support the expected trend in the aviation sector. Middle income groups in emerging

economies increasingly want to travel by air. During the period of next 20 years, the

RPK in these countries is expected to grow at a rate of around 6%, while it is expected

to grow at a rate of 4% in the advanced economies of Western Europe, North America

3

and Japan . While large aircrafts would be required to serve the routes between pairs

of cities with heavy passenger and cargo traffic, smaller aircrafts are expected to grab

the lion's share.

The Asia Pacific region is expected to emerge as the largest aviation market by 2032.

Middle East and Latin America are expected to enhance their share at the cost of

North America and Europe.

Source: Airbus Outlook

970 , 3%

10,664 , 36%

6,922 , 24%

2,279 , 8%

1,999 , 7%

5,521 , 19%

871 , 3%

Africa

Asia -Pacific

Europe

Latin America

Middle East

North America

Freighters

Table 3- Forecasted change in pattern of region-wise distribution of RPK

Region Share of 2012 RPK Share of 2032 RPK

Asia Pacific

Europe

North America

Middle East

Latin America

Africa

Total

29% 34%

30% 26%

25% 18%

8% 12%

5% 7%

3% 3%

100% 100%

Source: Airbus Global Market Forecast (2013-2032)

3

Airbus Global Market Forecast (2013-2032)

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

06 07

As the economies develop, especially in the Asian region, the aerospace industry is

expected to continue on its growth path. This is reflected in the order books of the

aircraft manufacturing companies. The global passenger aircraft fleet is expected to

grow from the existing size of 16,094 (in 2012) to 33,651 (in 2032). The number of

dedicated freighters is expected to grow from 1,645 to 2,905 over the same period.

While some of the existing passenger aircrafts will be reconfigured as dedicated

freighter, 871 new freighters are projected to be introduced. Around 28,355 new

2

aircrafts are expected to be added to passenger fleet . The following figures show the

breakup of new deliveries by region and by type of aircraft.

2

Airbus Global Market Forecast (2013-2032)

38.4 39.4

41.8

44.4

42.9 42.6

50.7 51.4 51.1 51.6

2004 2005 2006 2007 2008 2009 2013

(est.)

2010 2010 2010

Figure 4 - Global air freight tonnage, 2004-2013

(in Millions)

Source: Airbus Outlook

20,242 , 69%

7,273 , 25%

1,711 , 6%

Single Aisle

Twin Aisle

Very Large

29,226 New deliveries globally during 2013-2032 by aircraft type

Figure 5- Global aircraft deliveries by aircraft type

Regional distribution of 29,226 new deliveries during 2013-2032

Figure 6- Regional distribution of aircraft deliveries

The distribution of the new aircraft deliveries, showcased in the figures above, strongly

support the expected trend in the aviation sector. Middle income groups in emerging

economies increasingly want to travel by air. During the period of next 20 years, the

RPK in these countries is expected to grow at a rate of around 6%, while it is expected

to grow at a rate of 4% in the advanced economies of Western Europe, North America

3

and Japan . While large aircrafts would be required to serve the routes between pairs

of cities with heavy passenger and cargo traffic, smaller aircrafts are expected to grab

the lion's share.

The Asia Pacific region is expected to emerge as the largest aviation market by 2032.

Middle East and Latin America are expected to enhance their share at the cost of

North America and Europe.

Source: Airbus Outlook

970 , 3%

10,664 , 36%

6,922 , 24%

2,279 , 8%

1,999 , 7%

5,521 , 19%

871 , 3%

Africa

Asia -Pacific

Europe

Latin America

Middle East

North America

Freighters

Table 3- Forecasted change in pattern of region-wise distribution of RPK

Region Share of 2012 RPK Share of 2032 RPK

Asia Pacific

Europe

North America

Middle East

Latin America

Africa

Total

29% 34%

30% 26%

25% 18%

8% 12%

5% 7%

3% 3%

100% 100%

Source: Airbus Global Market Forecast (2013-2032)

3

Airbus Global Market Forecast (2013-2032)

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

08 09

6809, 64%

3233, 30%

622, 6%

The proportion of the new deliveries of the aircraft in Asia Pacific region is in line with

the global trend where single aisle aircrafts having a share of over 60%. The share of

the smaller aircrafts is increasing due to the growing dominance of Low Cost Carriers

(LCC). LCCs have driven the growth of the aviation market in this region through low

fares, introduction of new routes and periodic discount offers.

Single Aisle

Twin Aisle

Very Large

10,664 New deliveries in Asia Pacific during 2013 - 2032 by aircraft type

Figure 7- Aircraft deliveries by aircraft type, Asia Pacific

Source: Airbus Global Market Forecast (2013-2032)

India and China, accounting for around one third of the world's population, are well

poised to contribute to and benefit from the growth of the aviation sector. The

following figure displays the projected 20-year GDP growth rate of various regions

across the world. This highlight the high growth in aviation expected in the two Asian

giants.

Figure 8- Regional GDP Growth - 20 year CAGR

Source: : Airbus Global Market Forecast (2013-2032)

Indian Aviation Industry

3The Indian aviation sector is experiencing a mix of exciting and challenging times.

On one hand, mounting losses of domestic airlines, high cost of ATF, slow growth in

passenger and cargo traffic, rising fares, high airport charges, pitiable state of the MRO

sector, etc are crippling industry growth. On the other hand, the long term growth

prospects of the industry are attracting international players to invest in India.

The size of Indian civil aviation industry is amongst the top ten in the world at USD 16

4

billion . Despite market fluctuations especially with regard to ATF prices, the Indian

aviation sector is growing, albeit slowly. Indian carriers plan to double their fleet size

by 2020 to around 800 aircrafts.

In order to cope up with the growing demand of air travel, India's Ministry of Civil

Aviation (MoCA) has introduced some far-reaching reforms. These include:

a) Handing over airport management of leading airports to private players on a PPP

basis

b) Foreign airlines allowed to invest upto 49% in Indian carriers. This would not only

facilitate funds infusion, but will also bring in global best practices and synergy

benefits.

c) In addition to the Greenfield airports at Navi Mumbai, Goa, Kannur and

Kushinagar, six AAI airports have been identified for handover to private

management under the PPP route following the successful implementation of PPP

models like Delhi, Mumbai, Bangalore, Hyderabad, Cochin. There are reports of

another 14 AAI airports being considered for PPP.

d) All Indian carriers are now allowed to fly to foreign locations subject to the 5/20

Rule. The discriminatory 5/20 Rule itself is likely to be abolished. This has led to

an increase in share of Indian carriers in the growing international traffic to and

from India.

e) 51 new low-cost airports in tier 3-4 cities have been planned in order to improve

regional connectivity

f) Direct import of ATF to offset the high sales tax imposed on it.

g) Introduction of 24x7 customs facility at the cargo terminals at leading airports.

h) Extension of duty-free period for parts and testing equipments imported for

Maintenance, Repairs and Overhaul (MRO) from three months to one year.

4

Source: Report of Working Group on Civil Aviation Sector, National Transport Development Policy Committee (NTDPC), June

2012; KPMG analysis

Japa

n

Euro

pe

Nor

ht A

mer

ica

Pacific

Cen

tral A

mer

ica

Middle Ea

stAsia

Sou

th A

mer

ica

Africa

China

India

7%

6%

5%

4%

3%

2%

1%

0%

World GDP 20 Yr CAGR

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

08 09

6809, 64%

3233, 30%

622, 6%

The proportion of the new deliveries of the aircraft in Asia Pacific region is in line with

the global trend where single aisle aircrafts having a share of over 60%. The share of

the smaller aircrafts is increasing due to the growing dominance of Low Cost Carriers

(LCC). LCCs have driven the growth of the aviation market in this region through low

fares, introduction of new routes and periodic discount offers.

Single Aisle

Twin Aisle

Very Large

10,664 New deliveries in Asia Pacific during 2013 - 2032 by aircraft type

Figure 7- Aircraft deliveries by aircraft type, Asia Pacific

Source: Airbus Global Market Forecast (2013-2032)

India and China, accounting for around one third of the world's population, are well

poised to contribute to and benefit from the growth of the aviation sector. The

following figure displays the projected 20-year GDP growth rate of various regions

across the world. This highlight the high growth in aviation expected in the two Asian

giants.

Figure 8- Regional GDP Growth - 20 year CAGR

Source: : Airbus Global Market Forecast (2013-2032)

Indian Aviation Industry

3The Indian aviation sector is experiencing a mix of exciting and challenging times.

On one hand, mounting losses of domestic airlines, high cost of ATF, slow growth in

passenger and cargo traffic, rising fares, high airport charges, pitiable state of the MRO

sector, etc are crippling industry growth. On the other hand, the long term growth

prospects of the industry are attracting international players to invest in India.

The size of Indian civil aviation industry is amongst the top ten in the world at USD 16

4

billion . Despite market fluctuations especially with regard to ATF prices, the Indian

aviation sector is growing, albeit slowly. Indian carriers plan to double their fleet size

by 2020 to around 800 aircrafts.

In order to cope up with the growing demand of air travel, India's Ministry of Civil

Aviation (MoCA) has introduced some far-reaching reforms. These include:

a) Handing over airport management of leading airports to private players on a PPP

basis

b) Foreign airlines allowed to invest upto 49% in Indian carriers. This would not only

facilitate funds infusion, but will also bring in global best practices and synergy

benefits.

c) In addition to the Greenfield airports at Navi Mumbai, Goa, Kannur and

Kushinagar, six AAI airports have been identified for handover to private

management under the PPP route following the successful implementation of PPP

models like Delhi, Mumbai, Bangalore, Hyderabad, Cochin. There are reports of

another 14 AAI airports being considered for PPP.

d) All Indian carriers are now allowed to fly to foreign locations subject to the 5/20

Rule. The discriminatory 5/20 Rule itself is likely to be abolished. This has led to

an increase in share of Indian carriers in the growing international traffic to and

from India.

e) 51 new low-cost airports in tier 3-4 cities have been planned in order to improve

regional connectivity

f) Direct import of ATF to offset the high sales tax imposed on it.

g) Introduction of 24x7 customs facility at the cargo terminals at leading airports.

h) Extension of duty-free period for parts and testing equipments imported for

Maintenance, Repairs and Overhaul (MRO) from three months to one year.

4

Source: Report of Working Group on Civil Aviation Sector, National Transport Development Policy Committee (NTDPC), June

2012; KPMG analysis

Japa

n

Euro

pe

Nor

ht A

mer

ica

Pacific

Cen

tral A

mer

ica

Middle Ea

stAsia

Sou

th A

mer

ica

Africa

China

India

7%

6%

5%

4%

3%

2%

1%

0%

World GDP 20 Yr CAGR

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

10 11

i) Maintenance, Repairs and Overhaul' operations included under the airport

infrastructure category, in a view to facilitate external commercial borrowings (ECB)

for the sector

5

However, global comparison of air travel penetration shows that India (at 0.04 air-trips

per capita per annum) stands far behind the developed countries like US and Australia

(2 air-trips per capita per annum). China's air travel penetration is five times the size of

India's despite having a population around 10 percent higher.

5

Air trips per capita per year = Domestic passengers carried in a year/ Total population

Table 4- Air travel penetration for key countries, 2012

Source: World Bank, FAA, DGCA India, CAAC, Malaysia Ministry of Transport, BTRE Australia, ANAC Brazil

As India's economy grows, disposable incomes rise and the value of time increases, the

air travel penetration is expected to grow exponentially.

In the last decade, India has made significant growth in aviation. As per data from

Airports Authority of India (AAI), passenger throughput grew to 159 million (FY 13) and

cargo throughput to 2.19 million MT (FY 13) registering an impressive growth of 13%

and 10% CAGR respectively for the period FY 03-13.

In the last five years, the passenger handling capacity of airports in India has risen from

72 million to 233 million. This capacity growth has been possible because of the

proactive steps taken by the government and the private sector. India is poised to be

among the top three aviation markets by 2020, from its ninth position currently.

Evolution of the Indian Aviation Industry

Investments worth 50 billion USD envisaged

Key highlights of the expected investment over the next five years are

mentioned below:

a) Airlines: Indian carriers plan to increase their fleet size to reach 800 aircrafts by

2020

b) Airports: Private operators expected to contribute more than three-fourth of the

investment in next 5 years; including investment in cargo handling and other non-

aero infrastructure

c) ATC: Investments in CNS / ATM/ Meteorology equipment upgradation;

augmentation of training infrastructure; induction of satellite navigation GAGAN

(GPS aided geo-augmented navigation) to harmonize with leading global

initiatives as SESAR and NextGen

d) General Aviation: USD 4.3 billion investment planned to augment the GA

infrastructure. 300 business jets, 300 small aircrafts and 250 helicopter expected to

be added to the current fleet in next 5 years

6

http://www.aai.aero/traffic_news/traffic_news.jsp ; Airports Authority of India Traffic News, March 20137

AAI traffic Report, KPMG analysis 8

Report of Working Group on Civil Aviation Sector, National Transport Development Policy Committee (NTDPC), June 2012

S.N. Country Air Trips Per Capita

1. U.K. 320%

2. U.S. 220%

3. Australia 200%

4. Germany 100%

5. Malaysia 54%

6. Brazil 25%

7. China 20%

8. India 4%

Table 4 - Air travel penetration for key countries, 2012

49.4

30.0

14.1

0.9 4.3

Airlines Airports ATC General

Aviation

Total

Figure 9 - Expected investment in Indian Aviation (billion USD), 2012-2017

Source: MoCA, AAI, KPMG Analysis

Passenger traffic growth

In FY 13, Indian aviation industry witnessed a contraction in passenger traffic, due to

combination of general slowdown in the economy and high prices of air tickets. The

total passenger traffic in FY 2013 was 159 million as compared to 162 million in FY

6

2012 . Despite the contraction in domestic air traffic, international traffic to and from

7

India has been strong, growing at a CAGR of 9 percent between FY 2010 to FY 2013 .

According to MoCA, overall air traffic is expected to grow at an annual average growth

rate of 10.1 percent in this decade. Domestic traffic is expected to grow at 11.4

percent and international traffic is expected to grow at 9.5 percent for the next ten

8

years .

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

10 11

i) Maintenance, Repairs and Overhaul' operations included under the airport

infrastructure category, in a view to facilitate external commercial borrowings (ECB)

for the sector

5

However, global comparison of air travel penetration shows that India (at 0.04 air-trips

per capita per annum) stands far behind the developed countries like US and Australia

(2 air-trips per capita per annum). China's air travel penetration is five times the size of

India's despite having a population around 10 percent higher.

5

Air trips per capita per year = Domestic passengers carried in a year/ Total population

Table 4- Air travel penetration for key countries, 2012

Source: World Bank, FAA, DGCA India, CAAC, Malaysia Ministry of Transport, BTRE Australia, ANAC Brazil

As India's economy grows, disposable incomes rise and the value of time increases, the

air travel penetration is expected to grow exponentially.

In the last decade, India has made significant growth in aviation. As per data from

Airports Authority of India (AAI), passenger throughput grew to 159 million (FY 13) and

cargo throughput to 2.19 million MT (FY 13) registering an impressive growth of 13%

and 10% CAGR respectively for the period FY 03-13.

In the last five years, the passenger handling capacity of airports in India has risen from

72 million to 233 million. This capacity growth has been possible because of the

proactive steps taken by the government and the private sector. India is poised to be

among the top three aviation markets by 2020, from its ninth position currently.

Evolution of the Indian Aviation Industry

Investments worth 50 billion USD envisaged

Key highlights of the expected investment over the next five years are

mentioned below:

a) Airlines: Indian carriers plan to increase their fleet size to reach 800 aircrafts by

2020

b) Airports: Private operators expected to contribute more than three-fourth of the

investment in next 5 years; including investment in cargo handling and other non-

aero infrastructure

c) ATC: Investments in CNS / ATM/ Meteorology equipment upgradation;

augmentation of training infrastructure; induction of satellite navigation GAGAN

(GPS aided geo-augmented navigation) to harmonize with leading global

initiatives as SESAR and NextGen

d) General Aviation: USD 4.3 billion investment planned to augment the GA

infrastructure. 300 business jets, 300 small aircrafts and 250 helicopter expected to

be added to the current fleet in next 5 years

6

http://www.aai.aero/traffic_news/traffic_news.jsp ; Airports Authority of India Traffic News, March 20137

AAI traffic Report, KPMG analysis 8

Report of Working Group on Civil Aviation Sector, National Transport Development Policy Committee (NTDPC), June 2012

S.N. Country Air Trips Per Capita

1. U.K. 320%

2. U.S. 220%

3. Australia 200%

4. Germany 100%

5. Malaysia 54%

6. Brazil 25%

7. China 20%

8. India 4%

Table 4 - Air travel penetration for key countries, 2012

49.4

30.0

14.1

0.9 4.3

Airlines Airports ATC General

Aviation

Total

Figure 9 - Expected investment in Indian Aviation (billion USD), 2012-2017

Source: MoCA, AAI, KPMG Analysis

Passenger traffic growth

In FY 13, Indian aviation industry witnessed a contraction in passenger traffic, due to

combination of general slowdown in the economy and high prices of air tickets. The

total passenger traffic in FY 2013 was 159 million as compared to 162 million in FY

6

2012 . Despite the contraction in domestic air traffic, international traffic to and from

7

India has been strong, growing at a CAGR of 9 percent between FY 2010 to FY 2013 .

According to MoCA, overall air traffic is expected to grow at an annual average growth

rate of 10.1 percent in this decade. Domestic traffic is expected to grow at 11.4

percent and international traffic is expected to grow at 9.5 percent for the next ten

8

years .

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

12 13

It has been observed that during economic upswing, airline traffic grows roughly

around twice the rate of growth of GDP. The following figures display the trend of

scheduled passengers and cargo during the last decade. The recession caused by the

Global Financial Crisis in 2008 has led to a negative growth in both passenger as well

as cargo traffic.

87.1 77.3

89.4 105.5

121.5 116.3 29.8 31.6

34.4

37.9

40.8 43.0

116.9 108.9

123.8

143.4

162.3 159.3

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Figure 10 - Growth in passenger traffic (millions) handled at

Indian airports, 2008-2013

Source: AAI traffic Report

Cargo traffic growth

The total cargo throughput for the FY 13 was 2.19 mmtpa as compared 2.3 mmtpa in

FY 2012. While the domestic cargo traffic has increased by 7.2% CAGR from FY 2006

to FY 2013, international cargo traffic has grown by a CAGR of 6.2% over the same

period.

0.57 0.55 0.69

0.85 0.81 0.78

1.15 1.15 1.27

1.50 1.47 1.41

1.72 1.70

1.96

2.35 2.28

2.19

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Figure 11 -Growth in air cargo volume (million tons) at

Indian airports, 2008-2013

Source: AAI traffic Report

The corresponding number of air traffic movements (ATMs) has been as dispayed in

the following graph.

Figure 12 - Growth in ATM Traffic (million), 2008-2013

Source: AAI traffic Report

1.06 1.04 1.05 1.09 1.24 1.17

0.25 0.27 0.28 0.30

0.31 0.31

1.31 1.31 1.33 1.39

1.55 1.48

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Increasing share of low cost carriers in the Indian market

The airline landscape in India has transformed radically in recent years. In 2003, there

were just 4 carriers Air India, Indian Airlines, Jet Airways and Air Sahara, all operating

full service models. The private carriers in those days were limited to operating

domestic routes only. In 2013, there are five airlines namely Air India, Jet Airways

(including Jet Lite), IndiGo, SpiceJet and GoAir. All carriers except GoAir fly on

international routes.

The most significant development in the Indian domestic market is the growing

dominance of the low-cost carrier model, which in FY 2013 accounted for almost 70

percent of the domestic capacity. Some full service carriers plan to shift more seats to

their low cost offerings in line with market trends.

Figure 13- Market share of key domestic airlines (October-2013)

Source: DGCA traffic statistics, 2013

Indigo, 30%

Air India

Domestic, 19%Jet

Airways, 17%

Jet Lite, 5%

Spice

Jet, 20%

Go Air, 9%

India Aviation 2014India Aviation 2014

Ministry of Civil Aviation

Government of India

12 13

It has been observed that during economic upswing, airline traffic grows roughly

around twice the rate of growth of GDP. The following figures display the trend of

scheduled passengers and cargo during the last decade. The recession caused by the

Global Financial Crisis in 2008 has led to a negative growth in both passenger as well

as cargo traffic.

87.1 77.3

89.4 105.5

121.5 116.3 29.8 31.6

34.4

37.9

40.8 43.0

116.9 108.9

123.8

143.4

162.3 159.3

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Figure 10 - Growth in passenger traffic (millions) handled at

Indian airports, 2008-2013

Source: AAI traffic Report

Cargo traffic growth

The total cargo throughput for the FY 13 was 2.19 mmtpa as compared 2.3 mmtpa in

FY 2012. While the domestic cargo traffic has increased by 7.2% CAGR from FY 2006

to FY 2013, international cargo traffic has grown by a CAGR of 6.2% over the same

period.

0.57 0.55 0.69

0.85 0.81 0.78

1.15 1.15 1.27

1.50 1.47 1.41

1.72 1.70

1.96

2.35 2.28

2.19

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Figure 11 -Growth in air cargo volume (million tons) at

Indian airports, 2008-2013

Source: AAI traffic Report

The corresponding number of air traffic movements (ATMs) has been as dispayed in

the following graph.

Figure 12 - Growth in ATM Traffic (million), 2008-2013

Source: AAI traffic Report

1.06 1.04 1.05 1.09 1.24 1.17

0.25 0.27 0.28 0.30

0.31 0.31

1.31 1.31 1.33 1.39

1.55 1.48

FY - 08 FY - 09 FY - 10 FY - 11 FY - 12 FY - 13

Domestic International TOTAL

Increasing share of low cost carriers in the Indian market

The airline landscape in India has transformed radically in recent years. In 2003, there

were just 4 carriers Air India, Indian Airlines, Jet Airways and Air Sahara, all operating

full service models. The private carriers in those days were limited to operating

domestic routes only. In 2013, there are five airlines namely Air India, Jet Airways

(including Jet Lite), IndiGo, SpiceJet and GoAir. All carriers except GoAir fly on

international routes.

The most significant development in the Indian domestic market is the growing

dominance of the low-cost carrier model, which in FY 2013 accounted for almost 70

percent of the domestic capacity. Some full service carriers plan to shift more seats to

their low cost offerings in line with market trends.

Figure 13- Market share of key domestic airlines (October-2013)

Source: DGCA traffic statistics, 2013

Indigo, 30%

Air India

Domestic, 19%Jet

Airways, 17%

Jet Lite, 5%

Spice

Jet, 20%

Go Air, 9%

India Aviation 2014India Aviation 2014

Ministry of Civil Aviation

Government of India

14 15

Thus, overall the sector outlook is promising. However, certain progressive policy

decisions by the government are the need of the hour. These include:

a) Enhancing Regional Connectivity

b) Rationalization of ATF taxes

c) Elimination of discriminatory taxation policy for domestic MRO players

d) Segregation of ANS functions from AAI

e) Abolition of the 5/20 Rule

f) Human Resource Development

Unlocking the

Indian Aviation Sector44.1 Enhancing regional connectivity

The growth of civil aviation in India has not led to a homogenous increase in air

connectivity. Despite the doubling of the passenger traffic over the last five years,

several Tier 2/3 cities are unconnected or underserved by airlines.

With the existing economic centers reaching a saturation point, business activities are

bound to move to newer destinations. Air connectivity to these new economic centers

will not only provide a fillip to the local economy but also bring in incremental traffic

to existing airports.

Analysis of ATMs operated in 21 leading states of India vis-a-vis total state population

and total passenger flown is stated in the figure below. It highlights the disparity in air

connectivity especially in North, East and North East regions of India.

Figure 14 - Distribution of population, passengers & ATMs

across all Indian States, 2012-2013

Source: AAI , Population Census 2011 data increased at 2.4% to arrive at 2013 population

25

20

15

10

5

0

% of total population % of total passenger flown % of total ATMs

Mah

aras

htra

Delhi

Tam

il Nad

u

Kar

nataka

And

hra Pr

ades

h

Wes

t Ben

gal

Kera

la

Gujar

atGoa

Rajas

than

Utta

r Pr

ades

h

Mad

hya Pr

ades

h

Punjab

Jam

mu

and

Kas

hmir

Orrisa

Bihar

Chh

attis

garh

Tripur

a

Man

ipur

Ass

am

Jhar

khan

d

India Aviation 2014India Aviation 2014

Ministry of Civil Aviation

Government of India

14 15

Thus, overall the sector outlook is promising. However, certain progressive policy

decisions by the government are the need of the hour. These include:

a) Enhancing Regional Connectivity

b) Rationalization of ATF taxes

c) Elimination of discriminatory taxation policy for domestic MRO players

d) Segregation of ANS functions from AAI

e) Abolition of the 5/20 Rule

f) Human Resource Development

Unlocking the

Indian Aviation Sector44.1 Enhancing regional connectivity

The growth of civil aviation in India has not led to a homogenous increase in air

connectivity. Despite the doubling of the passenger traffic over the last five years,

several Tier 2/3 cities are unconnected or underserved by airlines.

With the existing economic centers reaching a saturation point, business activities are

bound to move to newer destinations. Air connectivity to these new economic centers

will not only provide a fillip to the local economy but also bring in incremental traffic

to existing airports.

Analysis of ATMs operated in 21 leading states of India vis-a-vis total state population

and total passenger flown is stated in the figure below. It highlights the disparity in air

connectivity especially in North, East and North East regions of India.

Figure 14 - Distribution of population, passengers & ATMs

across all Indian States, 2012-2013

Source: AAI , Population Census 2011 data increased at 2.4% to arrive at 2013 population

25

20

15

10

5

0

% of total population % of total passenger flown % of total ATMs

Mah

aras

htra

Delhi

Tam

il Nad

u

Kar

nataka

And

hra Pr

ades

h

Wes

t Ben

gal

Kera

la

Gujar

atGoa

Rajas

than

Utta

r Pr

ades

h

Mad

hya Pr

ades

h

Punjab

Jam

mu

and

Kas

hmir

Orrisa

Bihar

Chh

attis

garh

Tripur

a

Man

ipur

Ass

am

Jhar

khan

d

India Aviation 2014India Aviation 2014

Ministry of Civil Aviation

Government of India

16 17

Air connectivity

Most places in North-East India are inaccessible due to inadequate road/rail facilities.

The only viable means of transportation in many areas is by air. The flight frequency

per week available to and from 9 airports in the North-Eastern Region by domestic

scheduled carriers is shown in the figure below:

Figure 15 - Air connectivity across North Eastern States,

(2012-2013 vs 2013-2014)

Source: DGCA, as per the winter schedule published in DGCA website, 2012-2013 and 2013-2014

(Considered flights operating to/from north eastern airports)

From the above figure, this has been observed that the leading airports in the North

East airports are experiencing nearly double the frequency in FY 2014 as compared to

the previous year. Dimapur, Jorhat and Shillong are still underserved. Data reveals that

Air India, Jet Airways and IndiGo are aggressively expanding their services to North

East.

DGCA has laid down separate guidelines to operate regional air transport service in

India. Although many airlines received a no-objection certificate from the Government

to operate regional services in the past few years, none of them have been able to

take-off. Paramount, MDLR, and Air Mantra are some examples. Air taxi operator

Ventura is struggling and Deccan Shuttles closed down within months of starting.

The recently launched Air Costa connects southern cities like Hyderabad, Chennai,

Bengaluru and Vijaywada to Ahmedabad and Jaipur. Some more regional carriers are

on the way.

MoCA has held interactions with industry stakeholders in the past regarding relaxation

on some of the DGCA norms and the existing route dispersal guidelines (see box

Regulations for regional airlines

below). The Route Dispersal Guidelines (RDG), introduced in 1994, make it mandatory

for domestic scheduled carriers to deploy a certain proportion of their capacity to

regional and remote airports. These guidelines are being revised. MoCA is also

evaluating a seat-trading system which will allow domestic carriers to do code shares

with regional airlines and use the credits thereof to meet their RDG obligations.

Statutory DGCA requirements for Regional Air

Transport Service in India

Definition: Regional Airline is a Scheduled Air Transport service that operates

primarily in a designated region (North, South, West, and East/Northeast). Regional

airlines are not permitted to operate on Category I routes (between two metros). If

operating in southern region, the regional airlines are allowed to operate between

the three metros, namely Bangalore, Chennai, and Hyderabad. Since scheduled

regional airlines do not fall under the purview of Route Dispersal Guidelines, they are

not allowed to trade their Available Seat-Kilometer (ASKM) on Category II, IIA, and III

routes with Scheduled Domestic Airlines.

Minimum Requirements:-

A Scheduled Regional Air Operator's permit for operating regional airlines can be

granted only to:

nA citizen of India

nA company or a body corporate

lProvided that it is registered and has its principal place of business within

India

lProvided that its chairman and at least two-thirds of its directors are citizens

of India

lProvided that its substantial ownership and effective control is vested in

Indian nationals

The applicant shall acquire a fleet of a minimum three aircraft/multiengine

helicopters, either by outright purchase or through lease, within a period of two

years. At the end of five years, the airline shall be required to operate with a

minimum five aircraft.

Investment required:-

Paid-up capital for the applicant, confirmed with a certificate from the banker or

chartered accountant, is as follows:

800

700

600

500

400

300

200

100

0

2012-2013 2013-2014

Guwahati Agartala Imphal Dibrugarh Silchar Aizwal Dimapur Jorhat Shillong

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

16 17

Air connectivity

Most places in North-East India are inaccessible due to inadequate road/rail facilities.

The only viable means of transportation in many areas is by air. The flight frequency

per week available to and from 9 airports in the North-Eastern Region by domestic

scheduled carriers is shown in the figure below:

Figure 15 - Air connectivity across North Eastern States,

(2012-2013 vs 2013-2014)

Source: DGCA, as per the winter schedule published in DGCA website, 2012-2013 and 2013-2014

(Considered flights operating to/from north eastern airports)

From the above figure, this has been observed that the leading airports in the North

East airports are experiencing nearly double the frequency in FY 2014 as compared to

the previous year. Dimapur, Jorhat and Shillong are still underserved. Data reveals that

Air India, Jet Airways and IndiGo are aggressively expanding their services to North

East.

DGCA has laid down separate guidelines to operate regional air transport service in

India. Although many airlines received a no-objection certificate from the Government

to operate regional services in the past few years, none of them have been able to

take-off. Paramount, MDLR, and Air Mantra are some examples. Air taxi operator

Ventura is struggling and Deccan Shuttles closed down within months of starting.

The recently launched Air Costa connects southern cities like Hyderabad, Chennai,

Bengaluru and Vijaywada to Ahmedabad and Jaipur. Some more regional carriers are

on the way.

MoCA has held interactions with industry stakeholders in the past regarding relaxation

on some of the DGCA norms and the existing route dispersal guidelines (see box

Regulations for regional airlines

below). The Route Dispersal Guidelines (RDG), introduced in 1994, make it mandatory

for domestic scheduled carriers to deploy a certain proportion of their capacity to

regional and remote airports. These guidelines are being revised. MoCA is also

evaluating a seat-trading system which will allow domestic carriers to do code shares

with regional airlines and use the credits thereof to meet their RDG obligations.

Statutory DGCA requirements for Regional Air

Transport Service in India

Definition: Regional Airline is a Scheduled Air Transport service that operates

primarily in a designated region (North, South, West, and East/Northeast). Regional

airlines are not permitted to operate on Category I routes (between two metros). If

operating in southern region, the regional airlines are allowed to operate between

the three metros, namely Bangalore, Chennai, and Hyderabad. Since scheduled

regional airlines do not fall under the purview of Route Dispersal Guidelines, they are

not allowed to trade their Available Seat-Kilometer (ASKM) on Category II, IIA, and III

routes with Scheduled Domestic Airlines.

Minimum Requirements:-

A Scheduled Regional Air Operator's permit for operating regional airlines can be

granted only to:

nA citizen of India

nA company or a body corporate

lProvided that it is registered and has its principal place of business within

India

lProvided that its chairman and at least two-thirds of its directors are citizens

of India

lProvided that its substantial ownership and effective control is vested in

Indian nationals

The applicant shall acquire a fleet of a minimum three aircraft/multiengine

helicopters, either by outright purchase or through lease, within a period of two

years. At the end of five years, the airline shall be required to operate with a

minimum five aircraft.

Investment required:-

Paid-up capital for the applicant, confirmed with a certificate from the banker or

chartered accountant, is as follows:

800

700

600

500

400

300

200

100

0

2012-2013 2013-2014

Guwahati Agartala Imphal Dibrugarh Silchar Aizwal Dimapur Jorhat Shillong

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

18 19

a) Airlines operating with aircraft with takeoff mass equal to

or exceeding 40,000 kg.

nUp to 3 aircraft Rs 30 crores

nFor each additional aircraft, additional equity investment of Rs 10 crores will

be required, subject to a maximum of Rs 50 crores after which no further

equity enhancement is required.

b) Airlines operating with aircraft with takeoff mass not

exceeding 40,000 kg.

nUp to 3 aircraft Rs 12 crores

nFor each additional aircraft paid-up capital of Rs 4 crores will be required

subject to a maximum of Rs 20 crores, after which no further equity

enhancement is required.

Other requirements:-

nThe aircrafts shall be of maximum certified take-off mass of more than 5,700 kg.

Multi-engine helicopters shall be of maximum certified take-off mass of more

than 3,180 kg.

nThe operator shall have on his regular employment a sufficient number of flight

crew and cabin crew, but not less than three sets of crew per aircraft. Foreign

pilots are allowed, but foreign cabin crew members are not permitted.

Route dispersal guidelines: an overview

Formulated by DGCA in 1994, all routes were divided into three categories.

Category II and II-A routes provide connectivity to remote areas. It is mandatory for

domestic scheduled airlines to deploy a specified percentage of capacity deployed

in category-I routes, on Category II, IIA and III routes, as per the following:

Categorization of routes Regions covered Capacity to be deployed

I Metro cities None

II North-Eastern region, At least 10% of the

Jammu and Kashmir, capacity deployed on

Andaman & Nicobar routes in Category - I

and Lakshadweep

IIA Jammu and Kashmir, At least 10% of the

Andaman & Nicobar capacity deployed on

and Lakshadweep routes in Category - II

Under the proposed new guidelines:

n

moved from Category-III. This means an operator has to fly additional flights

on category-II and IIA routes as well.

nSome of the Category-III airports (Pantnagar, Kangra, Dehradun, and Gaya

etc) may be brought under a separate category of RDG to improve air

connectivity and traffic growth there.

Category-I routes may have 10 to 12 airports (including Pune, Goa etc.)

Source: MoCA, DGCA

Excess supply vs lower demand

Regional airports suffer from underutilization of existing resources. These include the

following.

Underutilized parking bays

Indian airports allocate parking stands to cater to all types of aircrafts. These airports

provide customized bay to park Boeing, Airbus and ATR aircrafts according to their

width and size. The chart below illustrates the underutilization of the parking stands

for the airports in 2013.

Figure 16 - Number of parking bays utilized and vacant at

airports with watch hours of 24 hours IST, 2013

Source: MoCA

8

2

9

1

22

5

1110

Ahmedabad Coimbatore Jaipur Trivandrum

Utilized bays Vacant bays

India Aviation 2014 India Aviation 2014

III Other cities and routes

those are not included capacity deployed on

in Category - I and routes in Category - I.

Category - II.

At least 50% of the

Ministry of Civil Aviation

Government of India

18 19

a) Airlines operating with aircraft with takeoff mass equal to

or exceeding 40,000 kg.

nUp to 3 aircraft Rs 30 crores

nFor each additional aircraft, additional equity investment of Rs 10 crores will

be required, subject to a maximum of Rs 50 crores after which no further

equity enhancement is required.

b) Airlines operating with aircraft with takeoff mass not

exceeding 40,000 kg.

nUp to 3 aircraft Rs 12 crores

nFor each additional aircraft paid-up capital of Rs 4 crores will be required

subject to a maximum of Rs 20 crores, after which no further equity

enhancement is required.

Other requirements:-

nThe aircrafts shall be of maximum certified take-off mass of more than 5,700 kg.

Multi-engine helicopters shall be of maximum certified take-off mass of more

than 3,180 kg.

nThe operator shall have on his regular employment a sufficient number of flight

crew and cabin crew, but not less than three sets of crew per aircraft. Foreign

pilots are allowed, but foreign cabin crew members are not permitted.

Route dispersal guidelines: an overview

Formulated by DGCA in 1994, all routes were divided into three categories.

Category II and II-A routes provide connectivity to remote areas. It is mandatory for

domestic scheduled airlines to deploy a specified percentage of capacity deployed

in category-I routes, on Category II, IIA and III routes, as per the following:

Categorization of routes Regions covered Capacity to be deployed

I Metro cities None

II North-Eastern region, At least 10% of the

Jammu and Kashmir, capacity deployed on

Andaman & Nicobar routes in Category - I

and Lakshadweep

IIA Jammu and Kashmir, At least 10% of the

Andaman & Nicobar capacity deployed on

and Lakshadweep routes in Category - II

Under the proposed new guidelines:

n

moved from Category-III. This means an operator has to fly additional flights

on category-II and IIA routes as well.

nSome of the Category-III airports (Pantnagar, Kangra, Dehradun, and Gaya

etc) may be brought under a separate category of RDG to improve air

connectivity and traffic growth there.

Category-I routes may have 10 to 12 airports (including Pune, Goa etc.)

Source: MoCA, DGCA

Excess supply vs lower demand

Regional airports suffer from underutilization of existing resources. These include the

following.

Underutilized parking bays

Indian airports allocate parking stands to cater to all types of aircrafts. These airports

provide customized bay to park Boeing, Airbus and ATR aircrafts according to their

width and size. The chart below illustrates the underutilization of the parking stands

for the airports in 2013.

Figure 16 - Number of parking bays utilized and vacant at

airports with watch hours of 24 hours IST, 2013

Source: MoCA

8

2

9

1

22

5

1110

Ahmedabad Coimbatore Jaipur Trivandrum

Utilized bays Vacant bays

India Aviation 2014 India Aviation 2014

III Other cities and routes

those are not included capacity deployed on

in Category - I and routes in Category - I.

Category - II.

At least 50% of the

Ministry of Civil Aviation

Government of India

20 21

Runways

The minimum runway length in most of the Indian regional or remote airports varies

between 1400 meters to 1700 meters which are capable of handling 40-70 seater

aircrafts. Around eight non-metro airports have a runway length of more than 2300

meters which is sufficient to handle narrow body aircrafts like A320s and B737s.

Around ten non-metro airports have night landing facility. A 20-40 seater aircraft can

operate at most of the existing regional airports. However, as can be seen from the

figure below many of these airstrips are either non-operational or grossly

underutilized. They require monetary, fiscal and policy support till they achieve self-

sufficiency.

Figure 17 - Non Operational Airports in India

Source: AAI

Maintenance, repair and overhaul services

The unused apron and hangars at regional airports can be utilized in providing

Maintenance, Repair and Overhaul (MRO) services to airlines. The Airworks facility at

Hosur Airport is one such example. Indian carriers today send their entire fleet out of

India at a high cost. Supported with the favourable fiscal policies, the same MRO

facilities can be set up in India over a 5-8 year period. It would be win-win for airlines,

regional airports and the local economy. This requires deep foresight on part of the

state governments.

Fleet analysis

Indian domestic scheduled carriers operate ATR, Bombardier and Embraer aircrafts on

Analysis of fleet and airport infrastructure in regional and

remote routes

regional routes. Till date, there are less than 50 small and medium sized aircrafts in

India with seating capacity between 40-100 seats. The major players flying regional

routes are Jet Airways with ATR 72-500 and Air India with their ATR 42-300 aircrafts.

SpiceJet introduced Bombardier Q-400 aircrafts for flying regional routes. Indigo and

GoAir operate their A320s on regional routes.

Air India Regional with its four Bombardier CRJ700s has been the country's only

operator of regional jets so far. Paramount Airways had used jets earlier on regional

routes but could not continue. Air Costa started serving regional routes in October

2013 with Embraer jets.

Analyzing the opportunity at airports

Due to the congested nature of and high airport charges in metro airports, there is an

opportunity to consider non-metro airports as hubs for new or existing carriers. For

instance the new airline Air Costa is headquartered in Vijaywada and plans to set up an

MRO facility there in future.

Operating regional routes attract various cost advantages on operational, regulatory

and infrastructure front. Regional aircrafts, in general, have a low break-even seat

factor and have a shorter turnaround time due to their smaller size.

Indian carriers with aircraft weight below 40 MT are exempt from paying navigation

and airport charges. No landing charges are applicable for aircraft less than 80 seats.

The landing and parking charges at Category II and Category II airports (including

non-defense airports in North-East Region, Jammu & Kashmir, Andaman & Nicobar

Islands and Lakshadweep) is reduced by 25 per cent of the current rate for domestic

scheduled airlines. For an airline operating between 2200 and 0600 hrs, the night

parking charges are 50 percent of the existing parking charges at all airports except

Chennai and Kolkata.

As the air travel demand in remote and regional areas is currently low, these markets

may require limited frequencies and small sized aircrafts. Deploying larger aircrafts on

these routes may result in losses. One option is to maintain a fleet of two aircraft sizes

and alter the fleet mix based on the market response. The downside is the additional

cost of maintaining separate crews, spares and maintenance infrastructure.

In the Indian scenario, on an average, an aircraft (with seating capacity more than 70)

operating around 11-12 hours day is considered to be well utilized. The operating

hours may reduce while operating a small type of aircraft on the regional routes due to

factors such as airport infrastructure, navigational aids, night flying facilities, weather

patterns and runway operational hours, etc.

Since regional carriers operate on a different business model, it becomes imperative to

Cost advantages of regional routes

Choice of aircraft for regional air connectivity is the key

Slot allocation

India Aviation 2014 India Aviation 2014

Ministry of Civil Aviation

Government of India

20 21

Runways

The minimum runway length in most of the Indian regional or remote airports varies

between 1400 meters to 1700 meters which are capable of handling 40-70 seater

aircrafts. Around eight non-metro airports have a runway length of more than 2300

meters which is sufficient to handle narrow body aircrafts like A320s and B737s.

Around ten non-metro airports have night landing facility. A 20-40 seater aircraft can

operate at most of the existing regional airports. However, as can be seen from the

figure below many of these airstrips are either non-operational or grossly

underutilized. They require monetary, fiscal and policy support till they achieve self-

sufficiency.

Figure 17 - Non Operational Airports in India

Source: AAI

Maintenance, repair and overhaul services

The unused apron and hangars at regional airports can be utilized in providing

Maintenance, Repair and Overhaul (MRO) services to airlines. The Airworks facility at

Hosur Airport is one such example. Indian carriers today send their entire fleet out of

India at a high cost. Supported with the favourable fiscal policies, the same MRO

facilities can be set up in India over a 5-8 year period. It would be win-win for airlines,

regional airports and the local economy. This requires deep foresight on part of the

state governments.

Fleet analysis

Indian domestic scheduled carriers operate ATR, Bombardier and Embraer aircrafts on

Analysis of fleet and airport infrastructure in regional and

remote routes

regional routes. Till date, there are less than 50 small and medium sized aircrafts in

India with seating capacity between 40-100 seats. The major players flying regional

routes are Jet Airways with ATR 72-500 and Air India with their ATR 42-300 aircrafts.

SpiceJet introduced Bombardier Q-400 aircrafts for flying regional routes. Indigo and

GoAir operate their A320s on regional routes.

Air India Regional with its four Bombardier CRJ700s has been the country's only

operator of regional jets so far. Paramount Airways had used jets earlier on regional

routes but could not continue. Air Costa started serving regional routes in October

2013 with Embraer jets.

Analyzing the opportunity at airports

Due to the congested nature of and high airport charges in metro airports, there is an

opportunity to consider non-metro airports as hubs for new or existing carriers. For

instance the new airline Air Costa is headquartered in Vijaywada and plans to set up an

MRO facility there in future.

Operating regional routes attract various cost advantages on operational, regulatory

and infrastructure front. Regional aircrafts, in general, have a low break-even seat

factor and have a shorter turnaround time due to their smaller size.

Indian carriers with aircraft weight below 40 MT are exempt from paying navigation

and airport charges. No landing charges are applicable for aircraft less than 80 seats.

The landing and parking charges at Category II and Category II airports (including

non-defense airports in North-East Region, Jammu & Kashmir, Andaman & Nicobar

Islands and Lakshadweep) is reduced by 25 per cent of the current rate for domestic

scheduled airlines. For an airline operating between 2200 and 0600 hrs, the night

parking charges are 50 percent of the existing parking charges at all airports except

Chennai and Kolkata.

As the air travel demand in remote and regional areas is currently low, these markets

may require limited frequencies and small sized aircrafts. Deploying larger aircrafts on

these routes may result in losses. One option is to maintain a fleet of two aircraft sizes

and alter the fleet mix based on the market response. The downside is the additional

cost of maintaining separate crews, spares and maintenance infrastructure.

In the Indian scenario, on an average, an aircraft (with seating capacity more than 70)

operating around 11-12 hours day is considered to be well utilized.