ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Economic Liberalisation and Civil Aviation Industry

This article examines the structure of the civil aviation industry in India and the concomitant challenges. It highlights developments that have radically changed the face of the aviation industry, general economic conditions that have had a bearing on the sector, the process of liberalisation, entrepreneurial interest and the growth of new airlines, allocation of capacity at airports, and other related issues. Further, it examines emerging regulatory issues and imperatives confronting the stakeholders.

S C Bansal M N Khan, V R Dutt

S C Bansal ( Indian Institute of Management, Lucknow M N Khan (

Aligarh Muslim University, and V R Dutt ( National Aviation Company of India.

Domestic scheduled air transport services are offered by the

, its wholly-owned subsidiary Alliance Air and other private transport operators such as Jet Airways, JetLite (erstwhile Sahara A irlines), Kingfisher Airlines, Deccan (Simplifly Deccan or Air Deccan), Spice-Jet, IndiGo, Paramount and Go Air. Presently, Indian Airlines, Jet Airways and Kingfisher are the full service carriers (FSCs), whereas JetLite, Deccan, SpiceJet, Paramount, IndiGo and Go Air fall in the category of low cost carriers (LCCs). Table 1 (p 72) gives the pro file of domestic airlines operating in India.

The civil aviation sector in the country has witnessed a boom as domestic passenger carriage, cargo movement and international air traffic have registered exponential growth in recent years. This change has been largely due to the open sky policy of the government in the domestic and international sectors. The year 2007 especially witnessed remarkable growth in air passenger traffic. Domestic airlines carried a total of 43.2 million passengers during 2007 compared to 32.7 million in the preceding year, resulting in growth of about 33 per cent [Sinha

Indian air transport is one of the most traffic to touch 20 million guests and Invibrant and fastest growing sectors in the dia’s fleet strength will range from 500 to world. According to a survey undertaken 550 by the end of 2010. by the Airports Council International (ACI),


Asia will be the fastest growing region with an annual growth rate of 9 per cent and the two fastest growing markets are set to be India (10.4 per cent) and China

(8.1 per cent) in the next 20 years. As per IATA forecasts, with GDP growth of 7.2 per cent for 2005 to 2009, air traffic increase can be expected to be in the 15 per cent range [Bisignani 2005]. The Sydneybased Centre for Asia Pacific Aviation (CAPA) estimates domestic traffic to grow at 25-30 per cent annually and international traffic at 15 per cent until 2010. The domestic market size is expected to cross 60 million passengers, international . During a time of escalating costs, legacy carriers

Other operating Other operating Aircraft lease

Other operating expenses expenses and rental expenses

17% Airport charges

16% 16% Fuel 5%Fuel 32%35% Aircraft lease 5% Airport charges Fuel and rental 8% 44%

8% distribution

Selling and Airport charges Selling and 6% 6%

distribution Depreciation


5% 6%


Selling and distribution Maintenance

Payroll Maintenance charges 14%


11% 12% 6%

Payroll 20%

Depreciation 8%

Maintenance charges 10%

Aviation turbine fuel


NOTESaugust 23, 2008 EPW Economic & Political Weekly74Cargo, a wholly-owned subsidiary of NACIL, plans to lease freighter aircrafts and increase its revenue by 10 per cent to around Rs 9 billion by 2008-09. Accord-ing to the chairman of Jet Airways, Naresh Goyal, Jet Airways also plans to launch a cargo airliner in 2008 [Choudhury 2007].Infrastructure to Support Indian Civil Aviation Industry: The growth in the domestic aviation sector has necessitated the upgradation of infrastructure. Approxi-mately $ 110 billion will be invested in the Indian civil aviation industry by 2020 – $ 80 billion on the acquisition of aircrafts and $ 30 billion on building/improvement of infrastructure. Development of airport infrastructure is being undertaken through the public-private-partnership route in major metro cities like Delhi, Mumbai, Bangalore and Hyderabad while the modernisation of Kolkata and Chennai airports is being undertaken by theAAI. The aim of the government is to transform these airports into world-class facilities without any delay through this hybrid mechanism. AAI has also undertaken an ambitious project to modernise 35 non-metro airports. It is expected that terminal buildings and associated side works in 24 airports will be completed by March 2009 whereas in the remaining 11 airports, it would be completed by March 2010. The government is upgrading the civil navigation system (CNS) and air traffic management (ATM) infrastructure to ease congestion at the existing airports. The aim is to improve management of the sky and reduce flying time, allowing more flights to take off and land at the airports.Maintenance, Repair and Overhaul (MRO): At present, there is no largeMRO centre in India. Even within a five-hour fly zone from India, this facility does not exist. D checks1 are done overseas mainly in Dubai and Singapore. Huge investment is required to ensure servicing and mainte-nance of the increasing fleet. There is a growing demand for airframe, engine and component overhaul facilities. Thus, there exists an opportunity for entrepreneurs to tap the MRO business. India offers substan-tially lower labour cost – 60 per cent lower than western Europe and US. The MRO facilities, once established in India, can tap the international market as well due to competitive rates for labour and other facilities. The government too has recog-nised the potential and has permitted 49 per centFDI in theMRO business. Some positive developments have already taken place in this segment. The Gulf Aircraft Maintenance Company (GAMCO) has signed a maintenance support agreement for 10 Kingfisher Airlines Airbus A320 aircrafts.NACIL has a tie-up withCFM, a joint venture between Snecma (SAFRAN Group) and GE Aviation to estab-lish a joint venture MRO facility in India for CFM56 engines.KLM has agreements with other airlines such as Spicejet, Jet Airways and JetLite for MRO services. Kingfisher Airlines, GMR Group; Lufthansa TechnikAG, Germany; Jupiter Aviation (in consortium with European Aeronautic Defence and Space); and NACIL are also planning to set up comprehensive MRO facilities in India. Ground Handling: Ground handling work entails two basic activities: (i) pas-senger handling at landside and ramp, including loading and unloading of air-craft; and (ii) aircraft handling. India’s ground handling market is estimated to be Rs 11 billion per annum.NACIL presently enjoys a 55 per cent market share in the Indian ground handling business [Zatakia 2007]. It is expected to grow at 15 per cent CAGR till 2011-12. Significant opportunities existfor entrepreneurs in the form of third party handling as well as entering into service contracts with private air-ports/AAI to offer comprehensive ground handling solutions. Air India and Singapore Airport Terminal Services (SATS) have formed a joint venture AISATS to provide ground handling services to domestic and international carriers at Bangalore and Hyderabad International Airports.Training: Airlines in India will, in the near future, need trained pilots, engineers, cabin crew and other ground handling staff. There is a projected requirement for 3,600 additional pilots in the near future. Entrepreneurs can capitalise on the emerging demand for (i) training estab-lishments for cabin crew, engineers and other staff; and (ii) flight simulators for training pilots.At present, there are 39 flying schools in India, which are authorised to impart training for various licences such as the private pilot licence and commercial pilot licence. State governments control 28 of these institutions. The remaining schools are operated by private entrepreneurs. These schools produce about 150 com-mercial pilots each year. The DGCA has received 37 proposals to set up new flying training institutes in India. Existing players in the aviation sector have already initiated some steps to tap this potential.NACIL has a central training establishment at Hyderabad and Jet Airways owns a pilot training centre at Mumbai. Budget-carrier Deccan has tied up with the Frankfinn Institute of Air Hostess Training as an exclusive cabin crew partner. The Kingfisher Training Academy is launching 12 new centres by February 2008 to meet the acute shortage of manpower in the airlines and hospitality sectors.Leveraging the Internet: An increasing number of passengers are booking their tickets directly on the airlines’ web sites. Traditional sales channels with paper ticketscost airlines around 10 per cent of the ticket price. On the other hand, e-ticket sales from its own web site costs an airline only 3 per cent of the ticket price. For every direct booking on their web site, airlines save an estimated $ 4 plus 5 per cent agency commission [Trivedi 2007]. Airlines can also turn their web sites into one-stop shops for all travel-related services, gener-ating additional revenue.Access to New Markets: The existing civil aviation policy allows overseas flights only to those Indian airlines that have at least five years’ experience in the domestic market. It is also necessary to have a minimum fleet of 20 aircrafts to be eligible to fly overseas. Consequently, at present NACIL, Jet and JetLite have the permission to fly abroad. Deccan is expected to join this group very soon as it completes its five years of commercial operations on August 26, 2008. The MoCA has given its traffic rights approval to Jet Airways on the India-Gulf/west Asia routes with effect from January 1, 2008. Jet Airways has already launched flights to Kuwait, Muscat, Doha and Bahrain, becoming India’s first private

Future Prospects

of service for 15 to 30 days or more. The total cost of a D check averages between $ 1 million and $ 2 million.

1 Airlines are mandatorily required to carry out maintenance checks on all aircraft after a certain amount of time or usage. Airlines refer to these checks as one of the following: A check, B check, C check, or D check. A and B checks are lighter checks, while C and D are considered heavier checks. The D check is the general overhaul of an aircraft, marking the ultimate in MRO skills. The D check takes between 15,000 and 35,000 hours of labour and can put a plane out

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Back to Top