Traffic jams in the sky

Aircraft makers are slugging it out for a piece of the Indian sky

Last month, Harry Stonecipher, president and chief executive officer of The Boeing Company, must have felt like a gatecrasher at a party.

Leading a senior team from its headquarters in Seattle, he did the mandatory rounds of North Block and South Block, presenting a case for Boeing's aircraft.

At a time when orders from India are piling up on the assembly line, Boeing has been given a royal drubbing by arch rival Airbus.

Already, Boeing has lost the Rs 9,475 crore aircraft order from the state-run Indian Airlines to Airbus, even after offering price reductions on more than one occasion. But Indian Airlines is not the only deal that's hurting it in India.

In recent times, most aircraft buying decisions have gone in favour of Airbus "" low-cost airline Air Deccan is acquiring larger aircraft for its long-haul routes from Airbus, and Vijay Mallaya's Kingfisher Air "" to start operations this spring "" has booked orders for 14 Airbus aircraft.

In all, airlines in India expect to pick up some 200 new aircraft within the next 12 months. And that's just for starters.

Thereafter, Indian carriers will add at least 50 aircraft every year till 2010, to take the total number of airplanes belonging to Indian carriers to well over 500.This is much more than the 135-odd aircraft that the five Indian carriers own currently.

"These aircraft are needed to replace ageing aircraft and provide more capacity for growth. Recent developments in India, such as the emergence of low-cost carriers, together with the large untapped potential that India's huge population represents, suggest that this estimate is conservative, and that the market may be much larger," says David Velupillai, regional manager, Airbus.

The European aircraft maker, flush with orders, is confident of bagging at least half of the Indian market.

No wonder senior executives from aeronautical firms have been making frequent appearances at Rajiv Gandhi Bhawan, lobbying for easier aircraft import norms as well as future government contracts.

At the least, the two state carriers Air India and Indian Airlines, will buy about 100 aircraft, investing over $5 billion in fleet modernisation.

The newest private carriers, Air Deccan and Kingfisher Air, no less aggressive when it comes to growth, have already confirmed orders for about 40 aircraft, with options to buy another 50.

Jet Airways and Air Sahara will probably double their current fleet to run profitable international operations and to meet competition from the new airlines "" Go Air, Royal and East West, that too will need to buy a minimum of five aircraft each to start operations in the next 12 months. (As per present regulations, an airline needs at least five aircraft in its fleet to get a license.)

Not all the activity is limited to the acquisition of new aircraft. While many of them may in fact be replacements for ageing fleets, the Centre for Asia Pacific Aviation (CAPA) forecasts total air traffic in India rising by 5 million passengers each year over the next 10 years.

Besides, India's domestic air passenger market will grow over 30 per cent this calendar year, to around 23 million passengers. International traffic is expected to grow over 25 per cent year on year for the next few years.

As a result, the government is looking at vast spends in aviation infrastructure to support the level of activity. According to its estimates, the aviation sector alone will absorb $55billion of project financing over the next 10 years. For the immediate future, the government plans to raise about $10 billion through public-private participation.

The modernisation of airports in Delhi and Mumbai airports has already been cleared, the privatisation project for Bangalore airport has been given the green signal, a new airport at Hyderabad is on the anvil, and Chennai and Kolkata will develop their airports as high capacity international gateways.

Besides, the government is also drawing up plans to develop 23 non-metro airports for $1 billion and build five new airports for another $1.5 billion.

To generate funds for the development of the 23 non-metro airports in the country, the government will undertake commercial development of the "city facing" land at these airports.

To this effect, the Airports Authority of India (AAI) has shortlisted two consortiums, one led by Ernst & Young and the other by UTI Bank, to come up with detailed business plans for 10 airports within the next four months.

The increased capacity has received another shot in the arm when the cabinet cleared the way for existing carriers (with a five-year flying moratorium) to fly on international routes. That's bound to push up aircraft demand still further, particularly for Air Sahara and Jet.

"Till now the demand was mainly for narrow-bodied aircraft. To operate on international routes, these airlines will now have to look at wide-bodied aircraft. This will lead to more demand from India," confirms Kapil Kaul, chief executive officer (Indian subcontinent and Middle East), CAPA.

Jet and Sahara are currently deciding on the routes they would like to operate and the configuration of their fleets. The airline industry expects both carriers to invest in long-haul aircraft for their operations to Europe and the US.

But it's not just big aircraft that are coming to India. Growth in the regional air travel market plus the new low cost operations are driving the market for smaller aircraft like ATR and regional jets like Embreaer and Bombardier.

"There is an increased demand for smaller aircraft. India is the largest market in the Asian region for us. We expect about 25 per cent of demand for our aircraft to come from India," says John Moore, senior vice president, ATR.

In the near future, the company is expecting to sell a mix of new and used ATR aircraft, and while the numbers may be low at 15 "" as compared to the large size of the orders emanating from carriers in India "" it's clear that at least for the next few years, the country can expect some more high profile visits from aircraft manufacturers hoping to bag fresh orders.