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BW Businessworld

Ready For Lift-off

Ensnared in red tape India’s helicopter industry has never quite taken off but Make in India looks likely to change that

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The ancient town of Neemrana, Rajasthan is where Delhi’s elite flock for a quick weekend getaway. It also happens to be a major industrial hub, strategically situated as it is between Delhi and Jaipur on the NH-8, a mere 100 km away from the Indira Gandhi International Airport. But with the heavy traffic on that route, Neemrana is anything but easy to get to. A four-hour painful journey is not unusual.

So, how about taking a chopper there?
That’s an idea and could certainly save on precious business time. But wait — first, the helicopter industry needs rescuing.

India’s civil aeroplane sector is profitable and even increasing its fleet. But the civil helicopter segment is hovering over quagmire. Here’s a staggering piece of data: less than 260 choppers are operational — in a country of 1.25 billion people. This is not even 1 per cent of the world’s total fleet, which is around 34,400.

Slow Start
A civil helicopter’s first flight in India dates back to the year 1952. Up until 1985, choppers were the favourite ride of politicians at election time. Growth was negligible.

In 1986, the segment received a push when the Helicopter Corporation of India was formed, later renamed Pawan Hans Helicopters, the largest fleet operator in the country. After that, the sector lifted off just a little. But it was painfully slow paced, in stark contrast with global trends.

While the number of choppers inched up to 293 in 2012, the sector has actually been on a declining trend since 2013 in a market which continues to be positive. Out of the 736 units sold globally in 2014, India’s total purchase remained in single digits.

Rigid policy, slow bureaucracy and poor investment in infrastructure are just some of the reasons why the helicopter industry never took off. Safety concerns and the absence of a culture of flying also restricted the market.

Taxing Regulations

Regulations that dictate flying only on certain routes and above an altitude of 5,000 feet annoy potential individual chopper owners. “The bureaucracy and delay in issuing tenders inhibited progress, but so does the high taxation rate for setting up a manufacturing base,” says Xavier Hay, managing director of Eurocopter India (Helicopter division of Airbus).

Global manufacturing companies prefer to import rather than make in a small market. “The taxes imposed on import of private helicopters are as high as 20 per cent, forcing most owners to bring the helicopter under the Non-Scheduled Operator’s Permit (NSOP) banner,” says Amber Dubey, partner and head of aerospace and defence at global consultancy KPMG. Dubey says that the helicopter industry could not survive in such a rigid regulatory framework. He says, “There are no separate regulations for helicopters in India and they face the same restrictions as fixed-wing non-scheduled operators, despite being completely different in terms of technology, risks and challenges.”

Big Boys Don’t Fly
Despite there being so many millionaires who wouldn’t hesitate to shed a little extra cash to save on their valuable time, the culture of going about in helicopters hasn’t picked up. Baring the Tatas, Ambanis and a few others, copters are out of reach for most. Manufacturers have not done much to promote the helicopter culture among businessmen. Only recently has the corporate class begun eyeing helicopters as a time saver, say aviation experts. In the US, UK and even Brazil, corporate coptering took flight in the 1970s with enough government assistance to foster the growing market.

China’s regulations on operating civil helicopters used to be similar to India’s. But in the past ten years, China has realised the importance of helicopters in civic mobility and encouraged domestic manufacturing. More recently, China has emerged as one of the largest markets for helicopters. Its civil helicopter fleet continued to grow strongly in 2014 at 34 per cent, rising from 436 in 2013 to 583 in 2014 — the highest growth rate in the entire Asia Pacific region.

Defence Priority
For global manufactures, the bigger pie lies with the defence sector with maritime operations and coastguard being two key factors contributing to the demand for unmanned helicopters in APAC countries. Territorial disputes and internal security threats have brought this market into prominence.

For this reason, there has been huge competition among global giants such as Airbus, Boeing, AgustaWestland, Russian Helicopters in the past decade to win massive bids announced by government of India. Currently, Indian Armed Forces maintain a fleet of over 750 helicopters and is planning to induct more than 1,000 in the next 10 to 15 years. Most helicopters in the defence sector are either utility or transport, used to give air support to ground troops. Attack helicopters are negligible.

Domestic players too are looking to expand their presence in defence. Plane maker Boeing Co. and Tata Advanced Systems jointly are looking to produce aero-structures for the AH-64 Apache helicopter. Airbus has also proposed establishing a final assembly line in India for the AS565 MBe Panther helicopters, if they get the Naval Utility Helicopters contract, worth Rs 5,000 crore. Last year in July, Mahindra Defence and Airbus Helicopters had signed an in-principle agreement to set up a joint venture to manufacture helicopters in India, seeking to tap the military hardware market, estimated to grow to $41 billion in the next seven years.

End of the Tunnel

For global manufactures, it will be the APAC region which will dominate the helicopter market in the coming years. India, being one of the bigger forces in the region, has evolved into a strategic market for chopper makers.

According to the Centre for Asia Pacific Aviation (CAPA) India, civil helicopters in India will increase nearly three-fold to 800 in next 10-20 years with the government’s “Make in India” initiative.

Two of the largest player Airbus and Bell Helicopters are looking for opportunities to expand their operations provided they get government assistance. In the recently concluded Indian Aviation Expo 2016 in Hyderabad, Bell Helicopters said it is exploring building helicopters in India. “From manufacturing cabins at present, we are exploring the potential to make fully-built helicopters in India by 2018-19,” Inderjit Sial, president and managing director of the company said. The company is currently doing feasibility studies for setting up a facility. “We are in talks with a few state governments including Telangana, Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra among others,” he added.

“At present, the business segment contributes 25 per cent to our total sales. Many businessmen and developers are keen on buying single engine helicopters for personal mobility. There is a huge appetite for us in this segment if regulations become more flexible,” says Hay of Eurocopter.

To overcome the lack of Maintenance, Repair and Overhaul (MRO) facility, Pawan Hans (PHL) and Hindustan Aeronautics (HAL) have signed an agreement to set up a maintenance facility for both defence and civil helicopters. The MRO facility will be set up in New Delhi and it is expected to be operational by June 2016.

Pawan Hans is also looking for a possible tie-up with Airbus to develop a maintenance repair and overhaul unit at its Juhu base. “We are in discussions with Airbus. Development of MRO is in line with the government’s Make in India initiative,” says Pawan Hans chairperson B. P. Sharma.

Riding on the back of the Make in India initiative, domestic companies such as Tata have inked agreements with major western rotorcraft manufacturer Sikorsky to make aerospace components in India. Following Tata, Anil Ambani’s Reliance helicopter has also decided to set up a Rotary Wing Helicopter Unit in Bhopal with an investment of nearly Rs. 6,000 crore.

“The demand for helicopters is likely to grow manifold — both in civil and defence sector. The manufacturers are not too many and most of them have been in India for several decades. The government is encouraging most of the global players to leverage the country’s frugal engineering talent and set up a larger manufacturing footprint,” says Dubey of KPMG.

There is a huge growth opportunity for civil helicopters in India. There is a major requirement of choppers in tourism, mining, corporate travel sector. Large corporates such as Reliance, Jindal, Essar and many state governments are looking to expand their fleet.

Money Minter
Despite the regulations and a very limited number of choppers, the helicopter business in India is a very profitable venture for charter companies. Private operators in New Delhi charge between Rs 50,000 and Rs 2,00,000 per hour, depending on the degree of demand.

“There are entrepreneurs who use choppers rarely. They lease out choppers to charter companies to make big bucks during the peak season, which is elections. It is a very profitable venture for them as well as for us,” says a New-Delhi based agent. Rates during elections can be as high as Rs 2 lakh per hour and a non-stop service in an election season can fetch anywhere around Rs 10 crore.

Apart from elections, religious pilgrimage in Himalayan region such as Kedarnath, Badrinath and VaishnoDevi are also big money spinners. A Dehradun-Kedarnath- Badrinath-Dehradun tour can be as expensive as Rs 3 lakh. “In the past decade there has been a huge surge of devotees looking to make a quick trip to the char-dham. They don’t hesitate to pay when it comes to devotion. All they want is to save time,” says an agent.

Surface trips to the Himalaya pilgrim centres can take 7 to 10 days, but choppers can reduce the time to two days as you can land pretty much wherever you want as long as you have permissions.

Government Assistance
An effort has been made to uplift the sector by the Ministry of Civil Aviation and DGCA through the draft National Civil Aviation Policy (NCAP 2015). NCAP 2015 has several positives for the helicopter industry. The industry hopes that the final policy will incorporate the industry’s suggestions and will be implemented in letter and spirit. A separate regulation for helicopters will be notified by DGCA by 1 April 2016, after due stakeholder consultation.

In the proposed draft policy, the government will facilitate the development of four heli-hubs initially, across the country to promote regional connectivity. These would have parking, fuelling, repairing, training, warehousing and other facilities. These in turn will develop heli-connections to their hinterland.

Scheduled helicopter operators will be allowed to trade their flying credits with larger airlines. That will help them bring down cost per passenger.

Helicopters will be free to fly from point to point without prior air traffic control (ATC) clearance in airspace below 5,000 feet and areas other than restricted ones, after filing the flight plan with the nearest ATC office.

The government is also working to give a thrust to the sector by allowing 100 per cent foreign direct investment (FDI) to helicopter services.

“FDI in the helicopter sector is very positive. With the draft civil aviation policy providing a structural lift to the helicopter operations in India, 100 per cent FDI will bring in capital and expertise and shift dynamics completely,” said Kapil Kaul, chief executive officer at Centre for Asia Pacific Aviation to a financial daily.

Though the new draft policy for civil aviation can lift the sector, any near-term growth can only be achieved by importing the machine or by licence assembling.

[email protected]; @arshadkhan_BW