Introduction

India's civil aviation industry is on a high-growth trajectory. India aims to become the third-largest aviation market by 2020 and the largest by 2030.

The Civil Aviation industry has ushered in a new era of expansion, driven by factors such as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic airlines, advanced information technology (IT) interventions and growing emphasis on regional connectivity. India is the ninth-largest civil aviation market in the world, with a market size of around US $16 billion.

"The world is focused on Indian aviation – from manufacturers, tourism boards, airlines and global businesses to individual travellers, shippers and businessmen. If we can find common purpose among all stakeholders in Indian aviation, a bright future is at hand" said Mr. Tony Tyler, Director General and CEO, International Air Transport Association (IATA).

Market Size

In January 2016, domestic air passenger traffic rose 23 per cent to 7.66 million from 6.25 million during the same month of last year. Passenger traffic during the January-December 2015 increased at a rate of 20.3 per cent to 81.1 million from 67.4 million in the corresponding period a year ago.

In January 2016, total aircraft movements at all Indian airports stood at 156,048, which was 15.9 per cent higher than January 2015. International and domestic aircraft movements increased 10.6 per cent and 17.5 per cent, respectively, in January 2016. Indian domestic air traffic is expected to cross 100 million passengers by FY2017, compared to 81 million passengers in 2015, as per Centre for Asia Pacific Aviation (CAPA).

India is among the five fastest-growing aviation markets globally with 275 million new passengers The airlines operating in India are projected to record a collective operating profit of Rs 8,100 crore (US $1.29 billion) in fiscal year 2016, according to Crisil Ltd.

Investments

According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in air transport (including air freight) between April 2000 and December 2015 stood at US $612.53 million

Key investments and developments in India's aviation industry include:

• Auto components maker Bharat Forge Ltd (BFL), the flagship company of the US $3 billion Kalyani Group, has formalised agreement with Rolls-Royce Plc, under which BFL will supply critical and high integrity forged and machined components for a range of aero engines.
• Boeing, has outlined the company's long term commitment to investing in India in terms of funds as well as skills, capabilities, infrastructure and partnerships so as to help the aerospace sector build capacity and become one of the drivers of the Indian economy.
• The Ministry of Civil Aviation has signed Memorandum of Understanding (MoU) with Finland, Kazakhstan, Kenya, Sweden, Norway, Denmark, Oman and Ethiopia for increased co-operation between the countries in terms of additional seats, sharing of airlines codes, increased frequencies and additional points of call, during the International Civil Aviation Negotiations (ICAN),2015 held in Antalya, Turkey.
• Tata Advanced Systems (TASL) has signed a joint venture with American aircraft manufacturing major, Boeing, to establish a centre of excellence for manufacturing aerostructures for Apache helicopter initially and collaborate on integrated systems development opportunities in India in the long term.
• US-based aircraft manufacturer Boeing plans to assemble one of its two helicopters namely, Chinook (heavy-lift) or Apache (attack type) in India, thus becoming yet another global company to invest in India encouraged by the 'Make in India' campaign.
• Airbus SAS, one of the top two aircraft manufacturers in the world, plans to open aircraft maintenance and repair overhaul (MRO) facility in India. Airbus, the world's leading aircraft maker, expects India's aviation industry to grow at over 10 per cent annually in the next decade, almost double the average growth rate of the global aviation industry.
• Eyeing large orders from Indian airlines, Airbus has committed to source products worth US $2 billion cumulatively over the next five years from India; the company plans to provide customised maintenance and other services closer to the base for all its airline customers in India.
• French drone-maker LH Aviation signed a Memorandum of Understanding (MoU) with India's OIS Advanced Technologies on June 19, 2015 to manufacture tactical drones in India through an industrial license.

Government Initiatives

Government agencies project that around 500 brownfield and greenfield airports would be required by 2020. The private sector is being encouraged to become actively involved in the construction of airports through different Public Private Partnership models, with substantial state support in terms of financing, concessional land allotment, tax holidays and other incentives.

In the Union Budget 2016-17, the government introduced various proposals for Maintenance, Repair and Overhaul (MRO) operations for airplanes. These include customs and excise duty exemption for tools and tool-kits used in MRO works. The government has also scrapped the one-year restriction for utilisation of duty free parts apart from allowing import of unserviceable parts by MROs for providing exchange. As per revised norms, the foreign aircraft brought in to India for MRO work would now be permitted to stay up to six months or as extended by aviation regulator Directorate General of Civil Aviation (DGCA). Such foreign aircraft would also be henceforth permitted to carry passengers in the flights at the start and end of its period of stay in India.

Some major initiatives undertaken by the government are:

• Airports Authority of India (AAI) plans to develop city-side infrastructure at 13 regional airports across India, with help from private players for building of hotels, carparks and other facilities, and thereby boost its non-aeronautical revenues.
• Directorate General of Civil Aviation (DGCA), India's aviation regulator, has signed an agreement with United States Technical Development Agency (USTDA) for India Aviation Safety Technical Assistance Phase II, aimed at bringing in systemic improvements in the area of operation, airworthiness and licensing.
• The Government of India has given site clearance to Delhi Mumbai Industrial Corridor and Development Corporation (DMICDC) for setting up of a Greenfield Airport for public use near Bhiwadi in Alwar district of Rajasthan and has granted 'in-principle' approval to 13 other greenfield airport projects.
• The Airports Authority of India (AAI) plans to revive and operationalise around 50 airports in India over the next 10 years to improve regional and remote air connectivity.
• The Government of India, in its draft civil aviation policy released for inputs from stakeholders, has proposed raising Foreign Direct Investment (FDI) limit in domestic airlines from the current 49 per cent to over 50 per cent, along with other reforms such as tax incentives for airlines, incentives for travellers to fly to small towns at affordable rates, and easing the norms for domestic carriers to operate abroad.
• Gujarat is expected to get a second international airport at Dholera. The state government has formed Dholera International Airport Co. Ltd. and is obtaining approvals from the union government.
• The Directorate General of Civil Aviation (DGCA) has given its approval to Air India's maintenance, repair and overhaul (MRO) unit.
• The Government of India has dCSIded to award airports in Kolkata, Chennai, Jaipur and Ahmedabad on management contract. AAI has issued the 'Request for Qualification' document for these four airports

Road Ahead

India's aviation industry is largely untapped with huge growth opportunities, considering that air transport is still expensive for majority of the country's population, of which nearly 40 per cent is the upwardly mobile middle class.

The industry stakeholders should engage and collaborate with policy makers to implement efficient and rational dCSIsions that would boost India's civil aviation industry. With the right policies and 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. Exchange Rate Used: INR 1 = US $0.0147 as on March 01, 2016

References: Media Reports, Press Releases, Press Information Bureau, Directorate General of Civil Aviation (DGCA), Airports Authority of India (AAI), Union Budget 2016-17

Disclaimer: Council for Start-up India is not responsible for any errors in the information.