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Runway To Recovery
Virtually grounded a year ago in the wake of the pandemic, the domestic civil aviation sector has seen a quick turnaround thanks to pent up demand, right policy push and a slew of decisions helping the sector become future ready. Will Omicron play spoilsport?
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India’s civil aviation sector has literally risen from the ashes like the proverbial phoenix. After being grounded for nearly 100 days last year, the sector, to everyone’s relief, today finds itself back on a healthy growth trajectory, After all, this sector helps generate more than 1.5 million jobs, directly and indirectly, and contributes more than $35 billion to the country’s GDP.
The credit for the turnaround in no small measure belongs to the Ministry of Civil Aviation (MoCA) whose timely intervention and support put the sector back on the wings of recovery. From flying an average of 65-75 passengers (virtually half the capacity due to Covid-led curbs), today flights are carrying double that number and without any restrictions on carrying capacity.
The numbers chronicle the sector’s comeback. The domestic air traffic grew around 16 per cent in November. In number terms, around 10.4-10.5 million passengers flew in November compared to 8.98 million fliers in October 2021. There were nearly 50 per cent more departures (year-on-year comparison) between November this year and November of 2020. In real terms, there were around 80,750 departures in November 2021 compared to 54,132 departures in November 2020.
Minister of Civil Aviation Jyotiraditya M. Scindia too gloats over the turnaround. “On 21 November 2021, nearly 3.93 lakh domestic passengers took to the skies, which is nearly 98.7 per cent of the pre-Covid average. On 20 November 2021, cargo uplifted by domestic airlines was 3,810 MT which is nearly 103 per cent of the pre-Covid average cargo uplift. The revival of the India aviation market appears to be robust and reversible,” Scindia said at an interaction.
Of course, the threat from the Omicron variant, the cases of which are being reported regularly from around the world, could become a potential bump on the road to recovery. Therefore, it is still a wait-and-watch situation as far as international air travel goes. India has extended the suspension of scheduled international flights till January 31, a decision taken just a few days ago by the Directorate General of Civil Aviation (DGCA) amid rising concerns over the Omicron strain.
The scheduled international passenger services have been suspended in India since 23 March 2020 due to the coronavirus pandemic. But special international flights have been operating under the Vande Bh3arat Mission since May 2020 and under bilateral “air bubble” arrangements with selected countries since July 2020. India has entered into air bubble pacts with around 32 countries, including the US, the UK, the UAE, France and others. Under an air bubble pact, special international flights can be operated.
Referring to the Omicron threat, Scindia said, “The research on the transmissibility and infection rate with respect to the Omicron variant is on around the world. In India, we are extremely careful about it. That is why in consultation with the health ministry, we have taken a number of steps including expanding the arrangement for Rapid-RTPCR tests at all 12 international airports. We have also identified at least 11 ‘at risk’ countries. We are using a graded system of response. We will be tweaking the system constantly based on the inputs received. It is a dynamic situation and we are responding to it accordingly. This is a day-to-day work.”
The aviation sector in India has been affected due to severe disruption caused by the Covid-19 pandemic. As per the data sourced from private airlines and airports, the MoCA estimates the losses incurred by airlines and airports in India in 2020-21 at Rs 19,564 crore and Rs 5,116 crore, respectively.
After the outbreak of Covid-19, scheduled domestic operations were suspended with effect from 25 March 2020, and subsequently resumed in a calibrated manner from 25 May 2020 with a 33 per cent limit on capacity and a cap on fares (lower and upper limit on different sector). This was to ensure that airlines did not charge excessive fare. Following evaluation of the emerging scenario of the Covid-19 pandemic, the limits on capacity were relaxed from 18 October 2021, and the domestic operations got restored without any capacity restrictions.
The civil aviation and tourism sectors were the worst affected due to Covid, according to Scindia. “This is a fixed cost driven industry. Even if aircraft are grounded and airports are vacant, there is a big cost attached. That is why in the past several months we have taken a number of steps to increase the capacity. In fact, we almost were about to touch 100 per cent capacity before the Omicron threat emerged,” he said.
Off late, a slew of measures have been taken by the government to revive the civil aviation sector. For example, the Airports Authority of India (AAI) has taken up a development programme to spend around Rs 25,000 crore in next five years for expansion and modification of existing terminals, new terminals, expansion or strengthening of existing runways, aprons, Airport Navigation Services (ANS), control towers, technical blocks, among others. Three public private partnership (PPP) airports at Delhi, Hyderabad and Bengaluru have undertaken major expansion work to the tune of Rs 30,000 crore by 2025. Additionally, Rs 36,000 crore has been planned for the development of new greenfield airports across the country under the PPP model, says a senior government official.
The central government has also accorded ‘in-principle’ approval for setting up 21 greenfield airports across the country. So far, eight greenfield airports—Shirdi in Maharashtra, Durgapur in West Bengal, Pakyong in Sikkim, Kannur in Kerala, Orvakal in Andhra Pradesh, Kalaburagi in Karnataka, Sindhudurg in Maharashtra and Kushinagar in Uttar Pradesh—have been operationalised. The government has also granted an “in-principle” approval for development of 13 greenfield airports — two each in Andhra Pradesh, Karnataka and Gujarat, one each in Arunachal Pradesh, Goa, Maharashtra, Puducherry, UP and MP. The responsibility for implementation and sustainable development of airport projects including funding rests with the concerned airport developer, the ministry said.
Then the government has taken steps to reduce the Goods and Services Tax (GST) rate from 18 per cent to 5 per cent for domestic maintenance, repair and overhaul (MRO) services. A conducive aircraft leasing and financing environment has been enabled. Also underway are projects for the improvement in air navigation infrastructure at airports.
Cargo business did pick up amidst the corona-induced restrictions. That is the reason the number of freighter aircraft deployed by Indian carriers has increased — from seven in 2018 to 28 in 2021. “As a result the share of Indian carriers in international freighter movements to and from India increased from 2 per cent to 19 per cent over the last two years,” said an official of the ministry.
Under Regional Connectivity Scheme (RCS), also known as the Ude Desh ka Aam Nagrik (UDAN) Scheme, as on 24 November 2021, 393 routes had commenced connecting 62 unserved and underserved airports, including two water aerodromes and six heliports. The government has released Rs 2,062 crore for revival of unserved and underserved airports/ heliports/ waterdrome of state government, PSUs and AAI between April 2017 and October 2021.
To further expand the reach of UDAN, the civil aviation ministry introduced a new mode of transportation i.e. seaplane operations from water aerodromes under UDAN-3. Till date a total of 14 water aerodromes have been identified in the states of Gujarat, Assam, Telangana, Andhra Pradesh, Andaman and Nicobar Islands and Lakshadweep.
“In very near future, the growth and expansion of India’s domestic civil aviation sector would be coming in from small/ regional airports and not from the 6-8 larger airports, as the case is today. At least 3-5 lakh passengers would be using these small airports every year,” said Scindia. He is targeting Second AC and First AC train passengers. “Going forward, more Indians would be flying to their destinations and not using the trains as air travel would work out to be affordable, faster and a time-saver,” Scindia added.
The Airports Authority of India (AAI) owns 136 airports in the country. Of these, AAI has formed joint ventures in seven airports. Recently, it awarded six airports — Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram, Mangaluru — for operations, management and development under PPP for a period of 50 years. As per National Monetisation Pipeline (NMP), 25 AAI airports have been earmarked for asset monetisation between 2022 and 2025. These include Bhubaneshwar, Varanasi, Amritsar, Trichy, Indore, Raipur, Calicut, Coimbatore, Nagpur, Patna, Madurai, Surat, Ranchi, Jodhpur, Chennai, Vijayawada, Vadodara, Bhopal, Tirupati, Hubli, Imphal, Agartala, Udaipur, Dehradun and Rajahmundry. The criteria adopted for monetisation of airport assets under NMP are two-fold: one, airports having annual traffic above the threshold of 0.4 million passengers (in FY2019 and FY2020), and airports with a sizeable ongoing/ proposed capex plan as per the National Infrastructure Pipeline (NIP).
Air India Sale – A Bold Move
In October, the government-owned ‘national carrier’ finally changed hands, a historic move indeed considering the process took almost a decade since running Air India had entailed an expenditure of Rs 2 lakh crore before the sale happened. The sale of Air India to a company called Talace, a wholly owned subsidiary of Tata Sons, for Rs 18,000 crore in enterprise value, therefore, would be remembered as a historic event. By January 2022, it is expected that all formalities, paperwork, clearances etc. would be over. “This was a win-win deal for every stakeholder,” said Scindia. Why? Because as per the aviation ministry estimates, the per day cost of running Air India was upwards of Rs 20 crore (Rs 7,200 crore of fund infusion by the central government).
In total, around Rs 2 lakh crore was the cost of keeping Air India under government’s control. Speaking at a public event, Scindia gave a broad break-up. “It is widely known that Rs 60,000 crore was the current debt of Air India; Rs 32,000 crore was the equity infusion and Rs 50,000 crore was its past debt. In the past year, the central government infused another Rs 52,000 crore as equity infusion taking the total cost of running Air India to Rs 2 lakh crore. This was the cost coming from the taxpayer’s money. Was it ever a viable option to keep spending such a huge sum of money merely to run an airline? This government has taken a bold and courageous decision in selling Air India,” he said.
It has to be noted here that the process for disinvestment of Air India and its subsidiaries commenced in June 2017 and later re-commenced on 27 January 2020. The timelines had to be extended in view of the Covid-19 pandemic. In view of the excessive debt and other liabilities of Air, the bidding construct was revised in October 2020 to enterprise value (EV) to allow prospective bidders an opportunity to resize the balance sheet and increase chances of receiving bids and competition. The EV construct allowed the bidders to bid on the total consideration for equity and debt instead of a pre-determined, fixed debt with minimum cash consideration of 15 per cent for equity. As per both the original and revised construct, all non-core assets (land, buildings, etc.) got transferred to Air India Asset Holding Company, and therefore were not a part of the transaction. It was also ensured that the interest of the employees and retired employees would be taken care of.
Private Carriers Gear Up
Private carriers are also gearing up for growth, expanding their footprint, starting new destinations and adding new aircraft. SpiceJet, leading low-cost carrier, celebrated the return to service of the 737 MAX in its fold. SpiceJet, the only operator of the 737 MAX in the country, had signed a $22 billion deal with Boeing for up to 205 aircraft in 2017 and has 13 of these planes in its fleet at present. SpiceJet will be deploying these aircraft on both domestic as well as international routes.
Why is Boeing 737 Max important? The MAX 8 can fly up to 3,500 nautical miles, which is approximately 19 per cent more than 737-800 enabling the airline to fly to newer destinations. The 737 MAX is the most environment friendly aircraft. It uses up to 20 per cent less fuel than older 737s. The Boeing 737 MAX can fly non-stop to Singapore, Doha, Kuwait, Abu Dhabi, Riyadh, Kuala Lumpur, Tehran, Krabi, Moscow, and Istanbul, among other international destinations from various international airports in India. And with just one-stop, the aircraft can also fly up to Finland, Norway, Morocco, London and Amsterdam.
Ajay Singh, Chairman and Managing Director, SpiceJet said, “The return of the MAX comes at a perfect time for SpiceJet. With passenger traffic picking up and the government allowing airlines to operate at full capacity, our new planes will allow us to expand our network ahead of the busy travel season and play a major role in our future expansion. With significant cost saving capabilities, we expect a significant reduction in our operating costs improving our bottom line.”
Rival and market leader at home, IndiGo has been replacing its old fleet with the fuel efficient Neo aircraft. Airbus A320 Neo aircraft delivers 20 per cent reduced fuel burn as well as 50 per cent less noise compared to previous generation aircraft. IndiGo took the delivery of the 2,000th A320 Neo family aircraft in early December. This was almost two years after the airline had taken delivery of the 1,000th A320 Neo aircraft in 2019, despite the challenges posed by the pandemic.
Ronojoy Dutta, Chief Executive Officer, IndiGo said, “IndiGo was early to recognise the fuel efficiency and performance of the A320 Neo family, which resulted in large orders for Neo family aircraft. The vision was not only to increase the efficiency, but also the sustainability of the fleet.”
IndiGo is the world’s largest customer for the A320 Neo family with orders totalling 730 aircraft. Since its first Neo was delivered in March 2016, its fleet of A320 Neo family has grown into the world’s largest with 187 aircraft operating alongside 61 A320s and 34 ATRs. In an extremely competitive aviation market, the fuel efficient A320 family has been instrumental in IndiGo’s rise to become India’s largest airline by fleet size and passenger numbers.
Apart from the big boys, GoFirst, earlier known as GoAir is expected to raise money from its public offer. The proceeds from the IPO are expected to take care of its mounting debt. In 2022, we would expect to see one new airline – Akasa – promoted by investor Rakesh Jhunjhunwala, and the return of Jet Airways. More airlines simply mean more choices, more competition, better ticket prices and a win-win for the consumer. Unless the Omicron variant threat escalates and leads to stringent restrictions in air travel, the domestic aviation market is only headed for the skies.