INDIA FLIES: THE FUTURE OF INDIA'S AVIATION INDUSTRY

India is home to among the world's fastest growing air travel market. This growth is underpinned by India's booming economy, rising proportion of middle-income households, healthy competition amongst low-cost carriers, infrastructure buildup at leading airports and supportive policy framework helmed by the government. At present, India is the ninth largest civil aviation market in the world and slated to become the third largest by 2024, as per the data by IATA.

The National Policy 2016 aims to facilitate 300 million domestic flight ticketing by 2022 and expects it to further increase to 500 million by 2027, as per AAI data. With air passenger traffic projected to increase from 187 million (2017-18) to 570 million by 2037, the number of airplanes operating in the sector is increasing steadily. To cater the current and projected traffic demand airlines are increasing their fleet size. Commercial aircraft fleet is projected to rise to 1,547 by 2029 from 604 in 2019, as per the data provided by Oliver Wyman. Furthermore, OEMs projecting India's fleet size to quadruple by 2038 to approximately 2500 jets (Boeing). This has created a simultaneous need to improve and upgrade airport infrastructure and develop a robust ecosystem of after-market services to cater to expanded operations.

The development of the Indian aviation sector can have a multiplier effect on the nation's economy in terms of investments, tourism, and employment. The government of India, through supportive policies and augmentation of airport infrastructure, has developed an aggressive plan to promote the sector.

Infrastructure Built-up

The Indian government has announced an investment of USD 1.83 Bn into airport infrastructure development. In line with government's plan, Ministry of Civil Aviation has launched NABH (NextGen Airports for Bharat) Nirman initiative. Under this initiative, the government plans to work towards a five-fold expansion in airport capacity to handle a billion trips a year, in the next 10-15 years.)

Under the same scheme, approval has been accorded to the government of Uttar Pradesh for constructing the 5,000 hectares Noida International (NIAL) Greenfield Airport at Jewar. The airport will likely have six runways and is expected to be operational by early 2024. Developed by Zurich International Airport, NIAL is envisioned to become India's leading airport in customer-service, outstanding efficiency, digital services, and commitment to minimal environmental impact.

Furthermore, the government of Prime Minister Narendra Modi intends to privatise 30-35 airports over the next five years. Currently, six airports have already been awarded to the private sector and concession agreements have been signed. The Airport Authority of India is working on the next round of privatisation in which six-10 airports will be included. These airports will be built similar to the world-class airports at Mumbai, Delhi, Kochi, Hyderabad, and Bengaluru, which, according to Deloitte, together account for over 60 percent of the nation's air traffic.

Maintenance, Repair and Overhaul (MRO) Industry

India's MRO industry is, valued at approximately USD 800 Mn, growing at the CAGR at 8 per cent annually against a 4 per cent world average. The Indian civil Aviation MRO market is valued at close to USD 900 Mn and is expected to reach USD 4.33 Bn by 2025 growing at a CAGR of about 14 per cent. 

The projected upsurge in aircraft fleet would enhanced MRO services. The average age of India's commercial aircraft fleet is also expected to rise from 7.1 to 8.8 years between 2019 and 2024 (Oliver Wyman). India's, maintenance facilities will become increasingly important as extending the life cycle of aircrafts and ensuring their suitability for service gain prominence.

Conscious of Indian carriers undertaking MRO services in Sri Lanka, South-East Asia or the Middle East, tax structures for MRO services were aligned with leading global jurisdictions in April 2020. Indian entities without any extra tax liability.

Greening Indian Aviation

Given expected growth in Indian domestic travel market, decarbonising the aviation sector is even more important to remain in line with Nationally Determined Contributions (NDC). India will experience the largest increase in energy demand through 2040 of any country in the world, according to the Internationa Energy Agency.

India's civil aviation industry accounts 1 per cent of the country's total carbon emissions. The Green Aviation Policy is a major step taken by the Indian Government to reduce the pollutant contributions by this industry. As the ninth-largest aviation market with more than 17 international airports, 80 domestic airports, 14 scheduled airlines, 120 non-scheduled airlines it is essential to formulate and execute regulations to keep a check on Co2 emissions.

Consistent with the Green Aviation Policy, The World Economic Forum has come up with Clean Skies for Tomorrow (CST) initiative forming a community of Indian private and public institutions with a shared vision of scaling production and use of sustainable aviation fuel (SAF). CST India initiative established a specific goal to transport 100 million domestic passengers on at least 10% blended fuel with SAF by 2030.

Supporting government policies, airports and airlines in India are also adopting approaches to implement additions and changes which include usage of renewable sources of energy. GMR Group operating the Indira Gandhi International (IGIA), Delhi had deployed 1,000 Taxi Bot-aided flights since the introduction of fuel and carbon emission-saving equipment at its facility in 2019. This strategic initiative helped airlines save 214,000 litres of jet fuel, reducing around 532 tons of carbon emissions.

Supportive Government Policies

One of the significant contributors to the growth of the aviation industry has been the strong policy support from the government. In 2016, the Ministry of Civil Aviation launched the first integrated National Civil Aviation Policy (NCAP). The policy covers aspects related to all the stakeholders, including airline operators, airport operators, air freighters, MRO players, and ground handling service providers, among others.

The Regional Connectivity Scheme or UDAN ('Ude Desh ka Aam Nagrik') has been a vital component of NCAP 2016. The scheme plans to enhance connectivity to India's unserved and under-served airports and envisages to make air travel affordable and widespread. Under the scheme, airfare for a one‑hour journey of 500 km has been capped at Rs. 2,500, as an all‑inclusive charge. Under the scheme, 325 routes and 56 airports including 5 heliports and 2 water aerodromes have been operationalised.

Fostering air connectivity could be win-win for both the aviation industry and for the economic development of the unserved and under-served regions. Better regional connectivity can help meet consumer demand for convenient travel, make businesses and trade more efficient. Equally, airlines and airports could get high traffic volumes to sustain their businesses. Given that bulk of the passenger growth is restricted to the country's select few airports, it is compelling to connect the interiors and bring them on to the country's air grid.

However, Covid-19 pandemic has reduced the short-term demand from passenger traffic. The Indian aviation industry will make a strong comeback by taking advantage of support offered by government in form of an encouraging ecosystem and infrastructure development through various initiatives. Additionally, gradual increase in passenger traffic, and enhanced level of cargo traffic catalysed by private investments will further buoy the Indian aviation industry.

Aanchal Aggarwal

Senior Investment Specialist, Invest India

Hits: 162