Aircraft makers come alive to Indian budget airlines

The week before last was remarkable for Airbus. EADS and BAE Systems, its principal shareholders, gave it clearance to sell the A350 mid-range aircraft to airlines, in answer to Boeing's 7E7 Dreamliner launched in April.

This decision was played out against a tussle for control of EADS in which Noël Forgeard, Airbus chief executive and confidant of Jacques Chirac, has come up trumps. He is set to become the co-chief executive of EADS, the Franco-German high-technology group that is also Europe's largest exporter, overriding German objections.

None of this was, however, evident at the Airbus complex in Toulouse, where Air Deccan Managing Director Captain GR Gopinath was shopping for planes.

His first stop was at Avions de Transport Regional (ATR), another subsidiary of EADS, to take delivery of the first of five turboprop aircraft. This is in addition to the 30 ATR or Bombardier planes the airline will acquire over five years to build its feeder services.

But Gopinath's plans have grown beyond the island-hopping type of service Air Deccan started out with 17 months ago. He is first off the blocks towards setting up a full-blown budget airline in India.

Gopinath is about to announce plans to buy 23 Airbus planes, on top of the seven Airbus A320s acquired in February. Air Deccan currently has a fleet of three Airbus A320s and 12 ATRs, and has ambitious plans to quadruple its fleet to 60 planes in five years.

The airline has raised $40 million from two venture funds to pay for new planes and expand services. Air Deccan last week placed new shares with ICICI Venture Funds and the US-based Capital International.

Gopinath will announce their combined shareholding later this month, but the two funds could own 26-35 per cent of Air Deccan after three years, the period for which the convertible instruments have been issued.

Air Deccan's plans are significant for both ATR and Airbus. The five ATRs Gopinath has leased add up to a big chunk of the turboprop maker's production of 12 aircraft in 2004.

And against the 320 deliveries of Airbus aircraft this year, EasyJet, an European low-cost carrier, has placed orders for 173. Low-cost carriers are clearly the growth drivers in all three segments of the duopolistic commercial aircraft market that has Boeing and Airbus making the larger, longer-haul planes; Embraer and Bombardier building smaller regional jets; and ATR and Bombardier selling turboprops.

And the nascent Indian market for low-cost airlines is filling up fast. In the works are budget carriers by the Wadias and Vijay Mallya, who late last week announced plans to buy 30 Airbus A320s till 2008 for his Kingfisher Airlines.

Indian Airlines, too, is considering the revival of Alliance Air and Air-India is talking of a budget airline. Richard Branson is fishing in Indian waters and EasyJet is understood to be scouting for Indian partners.

India has a relatively small air travel market due to fares inflated by fuel and other taxes. Around 19 million Indians flew within the country in 2003-04 while the cheaper, subsidised rail network carried over 5 billion passengers, 3 billion as daily commuters.

But stiff competition among carriers has triggered price cuts that have helped the domestic air travel market expand 26.5 per cent in April-Sept 2004.

This is seen as an encouraging sign. Over the next 20 years, air travel demand in India should rise nearly 9 per cent a year, according to Boeing. Airbus forecasts that airlines in India will acquire 222 aircraft worth some $17.5 billion up to the year 2019.

With rock-bottom fares of Rs 500 for some seats and fares overall at least 30 per cent lower than the three main domestic carriers, Indian Airlines, Jet Airways and Air Sahara, Air Deccan could be symptomatic of this growth. At last count 40,330 people had flown Gopinath's airline for Rs 500.

(The writer was in Toulouse at the hospitality of ATR and Airbus)