The passenger airline business is booming in India. The number of commercial aircraft is estimated to grow to more than 500 from the current 270 over the next five years. New airlines like Kingfisher, Indigo, Spice Jet, Go Air and Air Deccan are expanding their fleet.
A few months ago, American aircraft manufacturer Boeing decided to set up a maintenance, repair and overhaul facility in Nagpur with a $100 million investment. Now, it’s the turn of European Airbus Industrie to follow suit. It has approached the state government to set up a similar facility near Nagpur.
Boeing had earlier said its investment in Nagpur would come on the back of a joint venture with Air India. It is seen as Boeing’s commitment to plough back part of the money it makes by selling 68 aircraft to AI.
The rush to invest in Nagpur was triggered by civil aviation minister Praful Patel’s plan to convert the Orange City, the geographic centre of India, into an international cargo hub. As a first step, he initiated a plan to build an airport for cargo operations.
Cargo carriers are expected to get another shot in the arm when the many special economic zones (SEZs) that have been proposed go on stream. It is expected that aircrafts dedicated exclusively to cargo will go up to 550 in the near future from the current 10-15.
Besides, big business houses have announced their plans to enter the organised retail business where logistics are crucial and cargo crafts will be in demand. It is believed that this is the reason Reliance is in the market for anywhere between 50 and 100 aircrafts to power its retail business.
The recent decision taken by U.S. Exim Bank to support Air India (AI) financially has been received with mixed feelings. Most American carriers have labeled AI as “one of the most poorly-run airlines in the world,” and have strongly opposed the $3.4 billion loan to it to buy Boeing 787 Dreamliners.
Air India has pending orders for 27 Boeing Dreamliners, the deliveries of which are expected to begin by the end of this year. These are part of the 68-aircraft order placed by the national carrier with the U.S. plane manufacturer.
Personally, I think that AI has caught a huge break. With no financial backing and dipping commercial value, this was possibly one of the last resorts. I’m not really sure but the kudos probably need to be directed towards Rohit Nandan, who recently replaced Arvind Jadhav (no relation to me) as Chairman.
The opposition by American carriers has resulted in the Air Transport Association (ATA), a trade group representing America’s biggest carriers, shooting off a letter to U.S. Export-Import Bank Chairman Fred Hochberg opposing the decision, saying Air India’s financial ill-health should disqualify it from getting American help.
The U.S. Exim Bank had last month decided to give loan guarantees of $1.3 billion to support Air India’s fleet acquisition from Boeing and another $2.1 billion preliminary commitment to support future deliveries of the U.S. aerospace company’s planes to the Indian national carrier.
From a business perspective, I have always believed that financial stability is the key to a successful airline. Profit margin, commercial (face) value, etc follow. The murky waters in the Indian Aviation Market today have made most airlines (read: Kingfisher Airlines) adapt to the oncoming wave.