Vol. 9 No. 13 WE COVER THE WORLD Wednesday January 27, 2010

All About India 2010 & Beyond

     India's gross domestic product (GDP) grew by 7.9 percent during July-September 2009, up from 6.1 percent in the previous quarter, according to new data released by the national government’s Central Statistical Organization.
     The cumulative expansion for the first half of the current fiscal stands at 7 percent with the economy registering a 6.1 percent growth in the first quarter of 2009-10.
     The surge in GDP numbers was led by a 9.2 percent growth in the manufacturing sector, with the mining and construction activities expanding by 9.5 percent, 6.5 percent, respectively.
     Community, social and personal services expanded by double digit at 12.7 percent, whereas trade, hotels, transport and communication sector grew by 8.5 percent. Further, financing, insurance, real estate, and business services increased by 7.7 percent against 6.4 percent a year ago.
     The size of the domestic economy stood at US$ 385.75 billion in the first half of 2009-10.
     The Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market -- and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 percent share of the domestic aviation market.
     India is the 9th largest aviation market in the world. According to the national government’s Ministry of Civil Aviation, around 29.8 million passengers traveled to/from India during 2008, an increase of 30 percent on previous year. It is predicted that international passengers will grow up to 50 million by 2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines from 49 countries are flying into India.
     The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 percent, and was worth US$ 5.6 billion in 2008. Airlines recorded a double-digit growth in air traffic in August 2009, according to data released by the industry regulator Directorate General of Civil Aviation (DGCA).
     Domestic airlines flew 3.67 million passengers in August 2009, as against 2.92 million in the corresponding period last year—an increase of 26 percent.
     The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will increase by 25 percent to 30 percent by the close of 2010 and international traffic growth by 15 percent, taking the total market to more than 100 million passengers this year.
     By 2020, Indian airports are expected to handle more than 100 million passengers including 60 million domestic passengers and around 3.4 million tonnes of cargo per annum.
     Moreover, significant measures to propel growth in the civil aviation sector are on the anvil. The government plans to invest USD$9 billion to modernize existing airports by 2010. The government is also planning to develop around 300 unused airstrips.
     India ranks fourth after U.S., China and Japan in terms of domestic passenger volume. The number of domestic flights grew by 69 percent from 2005 to 2008. The domestic aviation sector is expected to grow at a rate of 9-10 percent to reach a level of 150-180 million passengers by 2020.
     The industry witnessed an annual growth of 12.8 percent during the last 5 years in the international cargo handled at all Indian airports. The airports handled a total of 1020.9 thousand metric tones of international cargo in 2006-07.
     Further, there has been an increase in tourist charter flights to India in 2008 with around 686 flights bringing 150,000 tourists. Also, there has been an increase in non-scheduled operator permits – 99 in 2008 as against 66 in 2007.
     Major full-service carriers have converted around half their capacity into low-cost services, which has resulted in bringing down the average fares of airlines as a whole by about 30 percent and thereby increasing demand from the domestic passenger market.
     Kingfisher Airlines and Jet Airways have converted around half their capacity into low-cost services. While, government carrier Air India plans to launch a low-cost model in the domestic skies, it already has a low-cost airline called Air India Express, which operates on international routes.
     Jet Airways has also increased the number of low-cost seats in the system by around 50 percent.
     Low cost carriers (LCCs) such as Indigo and SpiceJet have increased the total number of seats by 40 percent and 53 percent, respectively, in the past year.
     SpiceJet is also working on a plan to start international operations next year, making it the third private Indian carrier after Jet Airways and Kingfisher to fly overseas.

Airport Infrastructure
     • Mumbai and Delhi airports have already been privatized and are being upgraded at an estimated investment of USD$4 billion over 2006-16.Greenfield airports are operational at Bangalore and Hyderabad built by private consortia at a total investment of over USD$800 million.
     • A second Greenfield airport being planned at Navi Mumbai is going to be developed using public-private partnership (PPP) mode at an estimated cost of USD$2.5 billion.
     • 35 other city airports are to be upgraded. The city side development will be undertaken through PPP mode.
     • Over the next five years, AAI has planned a massive investment of USD$3.07 billion—43 percent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernizing the existing aeronautical facilities.
     • An investment of USD$623 million will be made by industries in the Aerospace and Precision Engineering Special Economic Zone at Adibatla, Ranga Reddy district.
     • The country's first special economic zone (SEZ) dedicated to the aerospace industry has been inaugurated in Belgaum district, Karnataka. The SEZ—promoted by Quest Global, an aerospace engineering and manufacturing company—was undertaken at an investment of USD$32.5 million. [Nov 16]
     After much debate, many (but not all) of the national and state-level government policies designed to support transport infrastructure are finally falling into place.
     • 100 percent FDI under automatic route is permissible for Greenfield airports.
     • For existing airports, FDI up to 74 percent is permitted through automatic approvals and up to 100 percent through special permission (from FIPB).
     • Private developers are allowed to set up captive airstrips and general airports 150 km away from an existing airport.
     • 100 percent tax exemption for airport projects for a period of 10 years.
     • 49 percent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 percent equity ownership by Non-Resident Indians (NRIs) is permitted.
     • 74 percent FDI is permissible in cargo and non-scheduled airlines.
     • The Indian government plans to set up an Airport Economic Regulatory Authority to provide a level playing field to all players.
     Over the past year, various companies have shown an interest in the Indian aviation industry. Investment in airport infrastructure was over USD$5 billion in 2008 and will go up USD$9 billion by 2013, of which close to USD$6.8 billion is expected to come through public private partnerships (PPP) model, according to a study by research firm Frost & Sullivan.
     • Tata Advanced System Limited (TAS), a unit of the Tata Group, will set up a USD$113.63 million helicopter manufacturing unit at the Aerospace Special Economic Zone (SEZ) in Adhibatla village near the Hyderabad international airport. Further, the company has formed a joint venture with U.S.-based Sikorsky Aircraft to make aerospace components in India.
     • U.S. aircraft maker, Boeing Co, will deliver 100 planes worth USD$17 billion over the next four to five years to India.
     • Changi Airports International is ready to enter into joint ventures with more Indian companies in developing airports. The company, which has picked up a 26 percent stake for USD$20 million in Bengal Aerotropolis Pvt Ltd (BAPL) is looking at other opportunities.
     • State-owned aerospace firm Hindustan Aeronautics Limited (HAL) has signed an agreement with Boeing to supply flaperons for the Boeing's 777 series commercial jetliners. It is understood that HAL will supply 600 units of flaperons to Boeing, which will be delivered in phases by 2019.
     • European passenger plane maker Airbus SAS will move 20 percent of its engineering and design activities to low-cost countries, a majority of it to India, by 2012.
The Indian aviation sector is likely to see clear skies ahead in the years to come.
     • Passenger traffic is projected to grow at a CAGR of over 15 percent in the next 5 years.
     • The Vision 2020 statement announced by the Ministry of Civil Aviation, envisages creating infrastructure to handle 280 million passengers by 2020.
     • Investment opportunities of USD$110 billion envisaged up to 2020 with USD$80 billion in new aircraft and USD$30 billion in development of airport infrastructure.
     • Associated areas such as maintenance, repair and overhaul (MRO) and training offer high investment potential. A report by Ernst & Young says the MRO category in the aviation sector can absorb up to USD$120 billion worth of investments by 2020.
     • Aerospace major Boeing forecasts that the Indian market will require 1,000 commercial jets in the next 20 years, which will represent over 3 percent of Boeing Commercial Airplanes’ forecasted market worldwide. This makes India a USD$100 billion market in 20 years.
Gordon Feller

What Will Happen India 2010

     If 2009 was a year when the world moved ever so slowly, 2010 will be different, according to stakeholders in the Indian air cargo sector.

Positive Outlook
     Most optimistic and well-grounded view of things here comes from Capt. Mukut Pathak, whose freight company ACE is ready to start operations in three months.
     Speaking to Air Cargo News FlyingTypers he noted:
     “What we feel about the market is that in the months of January, February and March 2010, there will be more consolidation of rates.
     “The yields will improve while over-capacity which is in the market would even out and then from the month of April 2010 onwards, we will hit the lean season.
     “In that lean season, we do not expect the yields and rates to fall as they did in 2009.
     “The real rise will be seen from July-August 2010 onwards.
     “We expect that January-March 2011 onwards to reach the same point we were in 2008.
     “If you look at the last 10-12 months in the air cargo industry, the drop in air cargo has been so severe that it has gone down to the levels of 2005.
     “So, the industry has to first recover, go back to the peak of 2008 and then the real rise will start.”

Recap 2009
     Taking an industry view from the India perspective 2009 saw top domestic air cargo and logistics majors all lose business, while start-ups waiting on the sidelines had to delay their launches.
     Saddled with whopping losses, First Flight Couriers Ltd, the second-largest courier in the country was forced to abandon its cargo airline plans.
     Reason: the company had selected an ATP freighter that was unable to lift the expected tonnage.
     On its heels was logistics major Gati, which had tied up with Air India.
     The company endured mounting losses as it continued with its freighter business.
     Crescent Air Cargo Services Pvt. Ltd, that had planned to run Crescent Air, shut down its operations, again due to accruing losses.
     Waiting in the wings was Aryan Cargo Express and Captain G R Gopinath’s Deccan 360.
     Of these, Deccan 360 is up and about while Aryan Cargo Express has planned its launch in March-April this year.

2010 Debuts Change
     What then will makes 2010 different? The focus will be on capacity building, we are told.
     As Civil Aviation Secretary Madhavan Nambiar (right) put it to the delegates at the second India-U.S. Aviation Partnership Summit held in Washington, D.C. (December 7-9, 2009): “Capacity building is a vital need for Indian organizations.
     “Through projects under the Joint Aviation Steering Committee and the Aviation Cooperation Programme (ACP), I am sure both countries would proactively execute the activities identified in supporting civil aviation objectives.
     “Some significant initiatives are controller training, Air Traffic Flow Management planning, capacity analysis of India’s airspace and cooperation in establishing proper regulatory framework.
     “Sharing of information, knowledge and harmonization of systems will result in aviation appropriate solutions in the best interests of the industry and the country.
     “Adoption of best international practices is the best way forward,” he concluded.
     As 2010 opens India’s top airport infrastructure provider, the Airports Authority of India (AAI) that manages 126 airports, which include 11 international airports, 89 domestic airports and 26 civil enclaves at military airfields, is upbeat.      Chairman V P Agrawal (left) talking to ACNFT pointed out:  “The past year has indeed been challenging and exciting”.
     Having just completed his first year as the head of AAI, Agrawal has steered the government-controlled organization through the economic recession and even managed to implement a few of the planned projects of upgradation and development of airports.
     “In this period (the last year) the seed of modernization that we had sown started to germinate and the projects at 21 airports (nine non-metro and 12 other airports) were completed.”
     As for air cargo, the airports under the AAI (the list does not included the five privately-held airports at Delhi, Mumbai, Hyderabad, Bangalore and Cochin) handled in 2009, 1.14 million tons of exports and 0.54 million tons of domestic cargo.      The AAI chief mentioned that there had been an upward trend in international cargo over the last few years from 2005-06: averaging 11 percent per year.
     Mr. Agrawal said that the AAI has planned out major projects in two of the metro airports under its command: Chennai and Kolkata.
     In Chennai, for example, the cargo complex had seen the creation of storage/processing area of 15,600 sq meters.
     “AAI is going to add an area of 26,000 sq m. to increase the capacity by 501890 MTs.
     “This capacity will be sufficient to handle the cargo up to the year 2019-20.
     “As for Kolkata, the old cargo terminal with an area of 4,000 sqm. had been converted into a separate exclusive domestic/courier terminal.
     “The AAI is also moving ahead to create Centers for Perishable Cargo (CPC) at Delhi, Chennai, Hyderabad, Mumbai, Amritsar and Kolkata.
     “Although perishable cargo has not shown any appreciable growth, the present facilities are yet to be utilized to full potential and will meet any future requirements for handling of perishable cargo at the airports.”
     With the major upgrading process underway, the air cargo growth that AAI was looking forward to in 2010 is around six percent. Mr. Agrawal said.
     “As per our study and projections, there will be cargo growth of 6% in the year 2010-11. A growth of 8 percent on the international sector and 6 per cent on the domestic sector is expected between 2010 and 2017.”
     The optimism of the AAI has rubbed off on other operators too.

Cans On The Rise
     The government-run Container Corporation of India (CONCOR) that had decided to set up air freight stations quite some time ago, has now said that two air freight stations (of the seven planned) will be created by April 2010.
     CONCOR has tied up with Cargo Services Centre for air cargo handling, warehousing and cargo security services.

New Ventures
     Private operators too are ready to fly high.
     One of those rare outfits that has braved the recession is homegrown express major Blue Dart.
     Anil Khanna, Managing Director, Blue Dart Express said that 2009 for the air express industry could be described as extremely challenging.
     "These are tough times . . . We believe that these inconsistencies will bottom out with the revival of the economy."
      But the company kept to its expansion plans, opening a new warehouse at the Hyderabad airport in December 2009 and is well ahead in its plans to set up another at Delhi airport this year.
     “Blue Dart is all set to improve and enhance its existing aviation network, especially in the North-east region of the country.
     “However we are holding back as far as inducting more freighters in our seven-strong Boeing fleet,” Anil Khanna said.
     With the $625-million domestic express cargo market forecast to grow at 20 percent over the next five years, Capt. G R Gopinath, who started his Deccan 360 last year, had been looking around to expand but had stopped short because of a lack of funds.
     He has decided to sell 25 percent stake in his Deccan 360, now that the markets have revived and the valuation of his enterprise had reached around Rs 800 crore (USD$200 million).
     The Deccan 360 boss had abandoned talks in September 2009 due to low valuations.
     According to insiders privy to the talks with European and U.S. investors, Deccan 360 plans to hire 5,000 staffers in the next five years and also appoint 100 franchisees.

Air India Struggling
     Elsewhere as 2010 begins, a troubled Air India has taken the decision to hive off its ground handling and cargo operations into separate business units.
     Arvind Jadhav, CMD, Air India told ACN/FT:
     “We already have three registered companies that will operate the three SBUs (Special Business Units) separately from the beginning of coming financial year.
     “The new unit handling cargo operations will offer logistics services for door-to- door deliveries and is expected to generate Rs 2,000 crore of revenues in 2010.”

Who Cuts The Cheese?
Looking across the table India’s freight forwarders who had a rough 2009 are keen to break out.
According to Bangalore-based Sesh Kulkarni, President of UT Worldwide, and a prominent member of the Bangalore Air Cargo Club (BACC),:
“Last year (2009) gave most companies a good chance of introspecting and knowing the strengths of their teams.
“As we embark on establishing the difference between the chalk and the cheese (quality), it will create a flutter in the trade, it will be interesting to see how companies will deal with the always in short supply cheese internally and how companies will identify cheese externally.”
“We see 2010 as the ‘Year of
Hope’ and “we are particularly very excited as there is some sanity, which is building around in the system.
“While not everything has fallen in place, the strength of Indian domestic economy and the course corrections taken by various countries and industries has brought to the front – some realistic expectations.
“We think that 2010 will be a better year than 2009 and we foresee growth,” said Kulkarni.
He went on to add: “I would attribute 2010 also as a year of reinvention both for business and business practices.
“Our industry is not very matured on all these fronts, but I guess, the writing is on the wall, and the companies which are here to stay, will have to look at this.”
Tirthankar Ghosh