Indian Logistics Industry Insight-Aviation

Indian Log istics Industry Insig ht

Aviation

May 2007

4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India Tel: +91-40-23430303-05, Fax: +91-40-23430201, E-mail: [email protected] Website: www.cygnusindia.com Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting & Research (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or implied, as to the

accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of the publication or contents

Indian Log istics Industry Insig ht

Aviation

May 2007

4th & 5th Floors, Astral Heights, Road No. 1, Banjara Hills, Hyderabad-500034, India Tel: +91-40-23430303-05, Fax: +91-40-23430201, E-mail: [email protected] Website: www.cygnusindia.com Disclaimer: All information contained in this report has been obtained from sources believed to be accurate by Cygnus Business Consulting & Research (Cygnus). While reasonable care has been taken in its preparation, Cygnus makes no representation or warranty, express or implied, as to the

accuracy, timeliness or completeness of any such information. The information contained herein may be changed without notice. All information should be considered solely as statements of opinion and Cygnus will not be liable for any loss incurred by users from any use of the publication or contents

CONTENTS 1. Executive Summary ........................................................................ ........... 2. Highlights ....................................................................................... .......... 10 3. Logistics Industry Structure ..................................................................... 11

3.1 Global Logistics Industry Overview ................................ ................................................. ...............................11 ..............11 3.1.1 Components of Logistics Cost ................................ ................................................. .............................. ............. 11 3.2 Indian Logistics Industry Overview ................................. .................................................. ...............................13 ..............13 3.2.1 Spending on Logistics in India ................................. .................................................. .............................. ............. 14 3.2.2 Cost Component of Indian Logistics Industry ............................... ......................................... .......... 14 3.2.3 Infrastructure Development – Boost to Logistics Industry ........................ ........................ 15 4. Air Transport System In India .................................................................. 16

4 .1 Overview..................................... Overview..................................................... ................................. ................................. ............................16 ............16 4.2 Air Transport Sector & India’s GDP............... GDP .............................. .............................. ...............................19 ................19 4.3 Airports ............................... ............................................... ................................. ................................. ................................. .................... ...19 19 4.3.1 Airport Infrastructure Status in India ................................ ................................................ ..................... ..... 20 4.3.2 Infrastructure Status of Major International Airports ............................... ............................... 22

4.4 Air Cargo Market........................................... Market........................................................... ................................ ...........................30 ...........30 n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

4.4.1 Opportunities Galore................................. ................................................. ................................. ......................... ........ 31 4.4.2 Performance of Top 46 Airports................................ ................................................. ........................... .......... 32

4.5 Airport Authority of India................ India ................................ ................................ ................................ ...........................34 ...........34 4.5.1 Role of AAI................................. ................................................. ................................. ................................. ...................... ...... 34

4 .6 Carriers.............. Carriers ............................... ................................. ................................. ................................. ................................. .................... ...36 36 4.7 Recent Trends...................................... Trends...................................................... ................................. ................................. .....................38 .....38 5. Intermediaries and Support Service Providers ....... ............. ............. ............. ............ ............. ......... .. 40

5.1 Reasons to Outsource Logistics Functions ................................ ................................................ .....................40 .....40 5.2 3PL Market Size ....................................... ....................................................... ................................ ................................ .................. 41 5.3 Function of Third Party Logistics ............................... .............................................. ............................... .................... ....41 41 5.4 State of 3PL in India................ India ................................. ................................. ................................ ................................ .................. ..42 42

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© Cygnus Business Consulting & Research 2007

5.5 Fourth Party Logistics (4PL) .........................................................................43 5.6 Clearing & Forwarding Agents ...................................................................43 5.7 Warehousing............................................................................................44 6. Market Dynamics ..................................................................................... 45

6.3.1 Global Air Cargo Forecast ................................................................... 48

6.3 Growth drivers ..........................................................................................49 6.3.1 Economic growth ............................................................................... 49 6.3.2 Global trade....................................................................................... 49 6.3.3 Corporate Trend................................................................................ 50 6.3.4 Improved infrastructure....................................................................... 51 6.3.5 Growth in the manufacturing sector and retail boom............................... 51 6.3.6 Emergence of global manufacturing networks and increased FDI ............... 51 6.3.7 Information technology........................................................................ 52 6.3.8 Liberalization and Deregulation ............................................................ 52 6.3.9 Development of E-commerce ............................................................... 53 7. Technology and Innovation ..................................................................... 54 8. Major Players ................................................................................ ............ 59

Introduction.....................................................................................................59 8.1 Indian (Indian Airlines Ltd) .........................................................................60 n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

8.1.1 Corporate Profile ............................................................................... 60 8.1.2 Business Profile .................................................................................. 60 8.1.3 Physical Performance of Indian.............................................................. 61 8.1.4 Financial performance.......................................................................... 61 8.1.4 Business Strategies .............................................................................. 63

8.2 Air India Ltd..............................................................................................64 8.2.1 Corporate Profile ............................................................................... 64 8.2.2 Business Profile .................................................................................. 64 8.2.3 Physical Performance of Air India Ltd .................................................... 65 8.2.4 Financial Performance.......................................................................... 66 8.2.5 Business Strategies .............................................................................. 67

8.3 Jet Airways...............................................................................................69 2


8.3.1 Corporate Profile ............................................................................... 69 8.3.2 Business Profile .................................................................................. 69 8.3.3 Cargo Operations ............................................................................... 70 8.3.4 Financial Performance.......................................................................... 70 8.3.5. Financial Highlights ............................................................................. 71 8.3.6 Business Strategies .............................................................................. 72

8.4 Blue Dart ..................................................................................................74 8.4.1 Corporate Profile ............................................................................... 74 8.4.2 Business Profile .................................................................................. 74 8.4.3 Financial Performance.......................................................................... 75 8.4.4 Recent Developments & Business strategies ........................................... 76 9. Cost Structure .............................................................................. ............ 78

9.1 Cost Drivers ..............................................................................................78 9.1.1 Air Transport System in India ............................................................... 78 10. Issues and Challenges ............................................................................ 80

10.1 Major Indian Airports Running Out of Capacity .........................................80 10.2 High Waiting Time and Congestion in Airports ..........................................80 10.3 High Fuel Cost.........................................................................................81 10.4 Taxation .................................................................................................81 n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

10.5 Aviation Security .....................................................................................82 10.6 Lack of Human Power ..............................................................................83 11. Government Initiatives, Schemes & Regulations .................................... 84

11.1 Introduction.............................................................................................84 11.2 Requirements for Becoming Air Cargo Operator ........................................85 11.3 Guidelines for Foreign Equity Participation in the Domestic Air Transport Sector.............................................................................................................86 11.4 PPP in Airport Infrastructure......................................................................88 11.5 Aviation Growth through Air Cargo..........................................................89 11.6 Initiatives for Safety .................................................................................90 11.7 Regulations.............................................................................................91 11.7.1 Guidelines for the movement of hazardous goods by air transport .......... 91

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12. Outlook ......................................................................... ......................... 94

12.1 Global Air Cargo Market.........................................................................94 12.2 Indian Air Cargo Outlook ........................................................................95 Annexure I: List of Abbreviations................................................................. 97 Annexure II: Bibliography ........................................................................... 99

LIST OF FIGURES Figure 3.1: Global Logistics Costs as % of GDP, 2005 Figure 3.2: Elements of Logistics Costs Figure 3.3: Logistics Industry Structure Figure 3.4: Spending on Logistics in India (Rs bn) Figure 3.5: Elements of Logistics Costs In India (%) Figure 4.1: Air Transport System and its s hare in GDP (%) Figure 4.2: Air Cargo Market in India (‘000 tonnes) Figure 4.3: Composition of Airports managed by A.A.I. Figure 6.1: Industry Size of Air Transport System in India (at 1999-2000 prices) Figure 6.2: Air Cargo Capacity Utilisation (In percentage) Figure 6.3: Chart- Market Share in Q1 2006 Figure 6.4: Market Share in Q2 2006 n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Figure 6.5: Market Share in Q3 2006 Figure 6.6: India's GDP Growth Rate Figure 6.7: India's Export-Import Growth Rate Figure 8.1: Revenues (Rs bn) Figure 8.2: PAT (Rs bn) Figure 8.3 : Revenue (Rs bn) Figure 8.4 Net Profit (Rs bn) Figure 8.5 operating revenue break-up (2005-06) Figure 8.6 Total Revenue (Rs bn) Figure 8.7 PAT (Rs bn) Figure 8.8: Sales (Rs bn) Figure 8.9 Profit After Tax (Rs m)

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Figure 9.1: Cost Component of Air Transport in India Figure 12.1 Global Air Cargo Market (FTKs bn) Figure 12.2 Indian Air Cargo Market (FTKs bn)

LIST OF TABLES Table 3.1: Spending on Infrastructure from 2005-06 to 2011-12E (Rs bn) Table 4.1: Terminal Areas and No. of Counters Table 4.2: International Terminal Table 4.3: Domestic Terminal Table 4.4: Mumbai Airport cargo handling facilities Table 4.5: Cargo Facilities Table 4.6: Cargo traffic handled at top 46 airports in India (tonnes) Table 4.7: Operational Fleet of Indian Airlines/Alliance Air Table 6.1: Total Cargo Traffic Trends (’000 tonnes Table 6.2: Global Air Cargo Forecast – 2007-2009 Table 8.1: Financial Highlights Table 8.2: Physical Performance of Air India Ltd Table 8.3: Financial Highlights Table 8.4: Financial Highlights Table 8.5: Financial Highlights n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

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Table 10.1: Comparative Airport Charges Table 11.1: Airport Development Programme in India


1. Executive Summary Logistics Industry

The global logistics industry was estimated to be about US$3.5 trillion in 2005, while US logistics industry size is around US$900 billion, which accounts for more than 25.71% of the total global logistics industry. Total logistics activities make up 15-20% of finished product costs. Globally, transportation accounts for 39% of the total logistics costs, followed by warehousing at 27%, inventory 24%, order processing 6% and administration 4%. The Indian economy has been growing at a rate of over 7.5% since the last three years. The manufacturing sector has registered a growth rate of 9.1% in 2005-06 (at 1999-2000 prices), which further enhances the prospects of the Indian logistics industry. Logistics costs in India are estimated to be around 13% of GDP, which is Rs4,226.21 billion (US$94bn) in 2005-06. However, India’s spending on logistics industry is much higher than that of the developed economies like the US (9.5%) and Japan (10.5%). In India, transportation accounts for around 35% of the total logistics costs, followed by inventories 25%, losses 14%, packaging 11%, handling and warehousing 9% and customers and shopping 6%.

n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

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Air Transport Industry in India

Today, Indian aviation industry is one of the fastest growing sectors in the country. The sector contributes 0.2% to the country’s GDP (at 1999-2000 prices). Domestic air cargo traffic has been growing at CAGR of 12.57% from 2001-02 to 2006-07, whereas international air cargo traffic has been moving at CAGR of 13% during the same period. In 2006-07, total air cargo traffic is estimated to be over 1.56m tonnes against 1.4m tonnes during 2005-06, registering a growth rate of 14.65%. The growth was driven by buoyant economy, rise in exports of gems and jewellery and special chemicals and highvalue pharmaceuticals.


Mumbai and Delhi airports together have handled 814,373 tonnes of cargo, accounting for 58% of the total air cargo handled by all airports in India. Mumbai airport registered a growth rate of 7.1% in air cargo during 2005-06, whereas Delhi airport witnessed a growth rate of 11.19% in the same period.

In view of the booming economy and Indian air cargo market, several airline operators have decided to intensify their air cargo operations in India. These include Air India, which has decided to convert its two A310 aircrafts into freighter aircrafts by the end of 2007. Cathay Pacific, the Hong Kong-based airline service provider, has also decided to start six new freighter services in India in view of the growing Indo-US and Indo-China trade. Besides, FedEx Express, the largest express transportation company in the world, decided to expand its network in India and to operate 17 flights weekly on Mumbai-Delhi route. In addition, Flyington Freighters Private Limited, the Secunderabad-based air cargo company, has placed an order to acquire four Boeing 777F cargo aircrafts for an estimated cost of US$945m. The acquisition order of cargo aircrafts is one of the biggest orders so far by an Indian aviation company. Private airlines continue to dominate the domestic market. In January 2007, private regular airlines contributed around 48.6% to the total passenger traffic, followed by lowcost airlines at 32.5%, government-owned airlines at 18.9% against the same period of n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

the previous year. Air transport industry (at 1999-2000 constant prices) has been growing at CAGR of 7.6% from 2001-02 to 2006-07, driven by growing demand for air transport system over the last five to six years, particularly for passenger segment. In 2005-06, domestic passenger segment has handled 73.34m passenger traffic, growing at 23.7%, whereas international passenger traffic was 50.98m, growing at 27.9%. 3PL in India

In view of the growing competition, Third Party Logistics (3PL) business is emerging as a potential segment of the logistics, as companies are increasingly outsourcing their noncore activities for gaining efficiency. There are some important factors that can be

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attributed to rise in 3PL activities. Emphasizing core competency, improving customer services, intensifying flexibility of business operations, optimum utilisation of technology and most importantly, reduction of costs are some of the factors. The adoption of modern manufacturing practices such as just-in-time and built-to-order, together with the rise of global manufacturing network, is also driving the demand for 3PL services. Indian 3PL market was estimated at about US$890.3m in 2005, which is expected to grow at a CAGR of 21.9% to reach US$3,556.7m by 2012. This is owing to the growing presence of multinationals and the renewed thrust on exports. Major Growth Drivers •

Indian economy grew at 9% in 2005-06 and as per advanced estimates; it witnessed a growth rate of 9.2% in 2006-07, which is one of the major growth drivers for aviation sector in India. With the economy positioning itself as the fourth largest economy (in terms of PPP) and second fastest growing economy in the world, it gives enough scope for the logistics industry to grow.

•

The other important growth drivers of the air cargo sector are liberalisation and deregulation of the economy

•

Development of e-commerce industry has also facilitated the air cargo segment. According to estatsIndia.com, an internet research agency, Indian e-commerce market was around Rs41 billion in 2005-06. B2C e-commerce market is expected


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to touch Rs92.59 billion in 2009, whereas B2B is expected to touch Rs13.55 billion by 2009, leaving enough opportunities for supply-chain management and logistics companies to grow.

Issues and Challenges

Major Indian airports are facing huge capacity constraints in terms of passenger traffic as well as cargo traffic. On the other hand, smaller Indian airports continue to be underutilised. According to the Ministry of Civil Aviation, airports at Delhi and Mumbai are either fully utilised or close to full utilisation. The capacity utilisation at AAI airports in 2005-06 is more than 140%, which is further increasing.


In India, there is a rise in congestion and waiting time, especially during peak hours due to lack of adequate technological development among other factors. As a result, airports suffer from high waiting time and congestion. Average waiting time for export cargo is 2.11 days (50 hours, 37 minutes) and for import cargo, it is around 7.58 days (182 hours, 32 minutes). At the best of international airports, the average dwell time of exports is about 12 hours, while the average dwell time of imports is 24 hours. In India, ATC delays cost the sector immensely. A 5-10% additional flying time cost is around US$80m per annum.

The ATF in India is around 70% higher than the global figure, resulting in huge losses for the sector. In India, the ATF prices continue to be much higher than global rates, making ATF account for 35-40% of operating cost as against global average of 20-25%.

Outlook Global air cargo traffic has gone up at a CAGR of 5.53% during 2001-06. Industry

consulting firm Air Cargo Management Group projected that world air cargo volume would reach 208 billion Freight Tonne Kilometres (FTKs) by 2009 from the present 175.6 billion FTKs.

The air freight demand is concentrated geographically since it is based on economic n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

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activity. In 2004, more than 96% of world FTKs moved within the three pillars of the world economy—Asia Pacific, Europe and North America.

Indian aviation industry is emerging as one of the fastest-growing markets in the world, both in terms of passenger as well as cargo traffic. According to AAI, Indian air cargo market (in terms of volume) is expected to grow at CAGR of 11.5% from 2007-08 to 2011-12, of which the CAGR of international air cargo is expected to be 12.2% and domestic air cargo would be 10.15%.


2. Highlights •

The global logistics industry was estimated to be about US$3.5 trillion in 2005, while US logistics industry size is around US$900 billion, accounts for more than 25.71% of the total Global Logistics Industry

•

Logistics costs in India is estimated to be around 13% of GDP, which is Rs4,226.21 billion in 2005-06 is less than China which is 18.6% of GDP

•

Air transport sector contributes over 0.2% to the country’s GDP at constant prices (1999-2000). Indian GDP grew at 9% in 2005-06 and as per advanced estimates, it is expected to have increased at 9.2% 2006-07

•

During 2005-06, Indian airports have handled total 73.34m passengers, registering a growth rate of 23.7%. Out of the total passengers handled, domestic passenger traffic was 50.98m, a growth rate of 27.9% and international passenger traffic went up by 15.1% to 22.36m against the previous year

•

Domestic air cargo traffic has been growing at CAGR of 12.57% from 2001-02 to 2006-07, whereas international air cargo traffic has been moving at CAGR of 13% from 2001-02 to 2006-07. During 2006-07, total air cargo traffic is estimated to be over 1.56m tonnes against 1.41m tonnes during 2005-06, registering a growth rate of


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14.65% •

Mumbai Airports registered a growth rate of 7.1% in air cargo during 2005-06, while Delhi airport witnessed a growth rate of 11.19% in air cargo in the same period

•

Airport Authority of India (AAI) manages 126 airports that include 11 international airports, 89 domestic airports and 26 civil enclaves at defence airfields

•

Indian 3PL market was estimated at about US$890.3m in 2005, which is expected to grow at a CAGR of 21.9% to reach US$3,556.7m by 2012

•

India would spend around Rs400 billion in airport development under several programmes by 2010


3. Logistics Industry Structure 3.1 Global Logistics Industry Overview Logistics

evolved

into

an Figure 3.1: Global Logistics Costs as % of GDP, 2005

independent function thanks to armed forces. Having realized the

30

importance of seamless flow of

25

men and materials, the armed

20

forces developed logistics into a

15

specialized field. The application

10

of logistics in business, meanwhile,

5

began

with

the

advent

of

multinational and multi-locational corporations. As operations spread to

new

geographies,

these

24 22 18.6 13

13

12

10.5

9. 5

0

r u P e

n a n t i e g A r

y i n a a n m C h r G e

d i a I n

d a n a a C

a n J a p

A U S

Source: Edelweiss research, Cygnus Research

corporations used logistics knowledge to manage the flow of materials. The global logistics industry was estimated to be about US$3.5 trillion in 2005, while US logistics industry size is around US$900 billion, which accounts for more than 25.71% of the total Global Logistics Industry. Total logistics activities make up 15-20% of finished product n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

costs.

3.1.1 Components of Logistics Cost

Figure 3.2: Elements of Logistics Costs 4%

6%

Now logistics, as a specialized function covers a range of services such

as

39% 24%

transportation,

warehousing, packaging, customsclearing, and forwarding, inventory management, labelling and order

processing

(see

Figure

3.2).

27 % Trans portation

W arehous ing

Inventory Carrying

Order Proces sing

Administration

Source: World Bank, Cygnus Research

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According to The Council of Logistics Management, USA, Logistics Management is “that part of supply chain management that plans, implements, and controls the forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet the customers' requirements.” In other words, logistics helps companies manage the flow of goods, services and information.

Worldwide, companies have begun to pay as much attention to logistics as they do to other managerial functions like production and marketing. Consider Indian logistics industry. It has three principal components: •

Infrastructure providers

•

Key transportation service providers

•

Support service providers

While infrastructure providers include airports, ports, roadways and railways, key service providers include transportation organisations like Airlines, Shippers, and Road carriers. Support Service Providers are the ones that link customers and Key service providers. Of late, the number of support service providers are increasing—adding a new dimension to n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

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the Indian logistics industry. The structure of the Indian logistics industry is illustrated in Figure 3.3.


Figure 3.3: Logistics Industry Structure

Logistics Industry

Key transportation Service Providers

Airlines

Shippers

Road Carriers

Support Services

Infrastructure Infrastructure Providers

Railways

Airports

Ports

Independent Logistics Service Providers

Road s

C&F Agents

Railways

3PL

4PL

Warehousing & Distribution Agents

Multiple Service Providers

3PL – Third Party Logistics, 4PL –Fourth Party Logistics, C& F agents- Clearing and Forwarding agents Source: Cygnus Research

3.2 Indian Logistics Industry Overview n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

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The Indian economy has been growing at a rate of over 7.5% since the last three years. The manufacturing sector has registered a growth rate of 9.1% in 2005-06 (at 1999-2000 prices), which further enhances the prospects of the Indian logistics industry. The major logistics functions for the Indian industries include transportation, warehousing, freight forwarding and other value-added operations like Management Information Systems (MIS). Of these functions, transportation and freight forwarding have been traditionally outsourced to external service providers with relevant expertise and infrastructure. Warehousing and MIS functions have been bee n mostly managed in-house by the industries.


3.2.1 Spending on Logistics in India Logistics

costs

in

India

are

estimated to be around 13% of

Figure 3.4: Spending on Logistics in India (Rs bn)

GDP, which is Rs4,226.21 billion in 2005-06. However, India’s

4500 4000

spending on logistics industry is

3500

much higher than that of the

3000

developed economies like the US

2500

(9.5%) and Japan (10.5%). The

2000

4 2 . 4 1 3 3

0 9 . 4 4 9 2

4 2 . 0 3 7 2

1 7 . 2 1 7 3

1 2 . 6 2 2 4

1500

reasons for this high spending

1000

can be attributed to the poor

50 0

infrastructure facilities, lack of

0 2 0 0 1 -0 2

2 0 0 2 -0 3

2 0 0 3 -0 4

2 0 0 4 -0 5

2 0 0 5 -0 6

implementation of Information Technology (IT) in logistics and

Source: Source: MOSPI, Cygnus Cygnus Research

due to frequent checking points at the national highways which invariably increases the transportation costs.

3.2.2 Cost Component of Indian Logistics Industry


Figure 3.5: Elements of Logistics Costs In India %

Basically, industry

the is

Indian

dominated

logistics by

the

unorganised market. The major Handling & Warehousin g 9%

Customers Shopping 6%

players of the industry can be Transportati on 35%

P ackaging ackaging 11%

broadly

as

local

transporters, transporters providing some kind of value-added services such as warehousing services, and completely

Losses 14%

categorised

integrated

players

providing 3PL services. The major Invent o ries ries 25%

elements of logistics cost for Indian

industries

include

Source: Edelweiss Research, Cygnus Research

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transportation, warehousing, inventory management, and other value-added services like packaging (See Figure 3.5).

3.2.3 Infrastructure Development – Boost to Logistics Industry Table 3.1: Spending on Infrastructure from 2005-06 to 2011-12E At present, India is spending 13% of its GDP on (Rs bn) logistics. The reason for this huge spending is Roads 1,520 4,812 inadequate infrastructure, leading to periodic Power Railways 1,100 bottlenecks along the routes. Another major Telecom 1,226 Aviation 370 reason is the regulatory obstacles, which not only Ports 800 2,210 increases the cost of service but also results in Oil & Gas Urban Infrastructure 1,974 frequent delays and thereby higher logistics Total 13,973

costs.

To

overcome

this

situation,

the

Source: Edelweiss Research

Government of India is taking initiatives to improve the infrastructure in the country by spending around Rs14 trillion across the sectors (See Table 3.1).


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4. Air Transport System In India

4.1 Overview Liberalisation of Indian economy has empowered the Indian aviation sector, which has undergone a sea-change. Today, it is one of the fastest growing sectors in the country. The Indian government nationalised the aviation industry in 1953 by enacting the Air Corporations Act. Till the early nineties, Indian aviation industry was dominated by two government-owned organisations: Indian Airlines (domestic sector) and Air India (International sector). The government relaxed its hold on the industry after the liberalisation of Indian economy began in 1991.

The Air Corporation Act of 1994 had started a new era in Indian aviation sector by allowing private players to operate schedule services in the domestic market. Since 1986 up to the repeal of the Air Corporations Act 1953 in March 1994, private airlines were allowed to operate charter and non-scheduled services under Air Taxi Scheme under which it was allowed to operate ‘inter-alia’ i.e. they (private operators) could not publish time schedules, or issue tickets to passengers. The Air Taxi Scheme was introduced in 1986 to boost tourism and enhance domestic air services. Later on, the Air Taxi Scheme was further liberalised in March 1994, which removed restrictions on air transport n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

services for private players. The first lot of new private airlines included Jet Airways, Air Sahara, Modiluft, Damania Airways, NEPC Airlines and East West Airlines of which only Jet Airways and Air Sahara survived. In August 2003, Air Deccan joined Jet Airways and Air Sahara in the private airlines segment. More recently, Kingfisher Airlines, Go Air, Indigo Airlines, Spicejet and Paramount have started operations in the domestic sector. The government-owned Indian Airlines and Air India, meanwhile, continue to operate alongside the private players.

Foreign airlines, on the other hand, have been largely immune to the flip-flops in the domestic sector. Their operations in the country date back to pre-independence years. The operations of foreign airlines are governed by the bilateral agreement between India and the country of their origin.

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Requirements to become a Scheduled Air Transport Operator •

A Scheduled Operator's permit is granted to: o

A citizen of India, or

o

A company or a body corporate provided that 

It is registered and has its principal place of business within India;



The Chairman and at least two-thirds of its Directors are citizens of India; and



Its substantial ownership and effective control is vested in Indian nationals.

•

A fleet of minimum five aircrafts with all-up-weight of aircraft more than 5,700kg each to be acquired in one years' time from the date of securing operators' permit, if they meet airworthiness, air safety and operational requirements for such operation, and fulfil the routes dispersal guidelines and all other requirements of a scheduled operator.

•

Not less than Rs300m subscribed equity capital in respect of operators having aircraft or all-up-weight exceeding 40,000kg and not less than Rs100m for operators having aircraft of all-up-weight not exceeding 40,000kg

•

•


Not less than three sets of flight crew and cabin crew per aircraft An approved maintenance organisation and facilities to carry out maintenance of aircraft up to 500 hours inspection or Check 'B' for Boeing 737 aircraft

•

Approval manuals for operations, training and quality control-cum-maintenance

•

The permit is not transferable.

•

Cells for pre-flight medical examination of crew, flight planning and dispatch, reliability analysis of aircraft components and systems, defect investigation, compliance of service bulletins and modifications and records of major components

•

Security programme approved by Bureau of Civil Aviation Security and trained security personnel at all operating stations

•

Scheduled operators of trunk routes are required to provide certain minimum capacity on various routes including North-Eastern region, Jammu and Kashmir, Andaman and Nicobar and Lakshadweep.

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•

The validity of No Objection Certificate (NOC) for operating air transport services is for one year. Extension of validity of NOC is granted up to a period of six months on merits of each case. These restrictions are applied both in respect of dry lease and outright purchase of aircraft. However, when the aircraft proposed to be imported is a new one with a definite delivery schedule, extension of NOC is allowed for the actual lead time of delivery, even if it exceeds the total period of one and half year.

•

For import of aircraft: o

pressurised aircraft not to exceed 15 years of age or 75% of its designated economic cycles or 45,000 pressurisation cycles, whichever is less;

o

Unpressurised aircraft normally not to be more than 20 years of age;

•

Scheduled Operator's permit shall not be transferable.

•

A Scheduled Operator's permit shall be renewable every year

Characteristics of Indian aviation sector

The Indian aviation sector can be broadly divided into following four categories: •

Domestic airlines run scheduled flights within India besides servicing select international destinations;

•


18

•

•

International airlines operate scheduled international air services to and from India; Non-scheduled operators includes charter operators and air taxi operators; and Air cargo service operators, who transport cargo and mail


4.2 Air Transport Sector & India’s GDP Air transport sector contributes over 0.2% to the country’s GDP at constant prices (1999-2000 prices) (See Figure 4.1). Transport sector’s contribution to the GDP has been firming up over the last couple of years,

mostly

because

of

the

growing economic activities in the country,

especially

transport

sector.

the

Although

road

Figure 4.1: Air Transport System and its share in GDP % 10 9

8.5

8 7 6 5 4

the GDP remains constant over the

9.2

7.5 6.1

5.8

6.4

6.6

6.9

6.2

0.2

0.2

0.2

0.2

3.8

3 2 1 0

0.2 2001-02

0.2 2002-03

2003-04

2004-05 2005-06*

air

transport sector’s contribution’s to

9

GDP

Transport Sector

200607**

Air Transport

*Quick Estimates, ** Advanced Estimates Source: Planning Commission, MOSPI

last couple of years, the sector is emerging and gaining significance in country’s overall economic development due to rise in economic activities.

4.3 Airports n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

19

The airport infrastructure plays a decisive role in shaping a nation’s competitiveness and the inflow of foreign investment. It is also significant in the country’s booming economic growth. The structure of Indian airport infrastructure is shown in map below. Currently, the number of airports/airstrips in the country is 449.


Map of Airports in India


Source: Airports Authority of India

4.3.1 Airport Infrastructure Status in India Airport Authority of India (AAI) manages 126 airports that include 11 international airports, 89 domestic airports and 26 civil enclaves at defence airfields. The premier authority also provides Air Traffic Management Services over the entire Indian air space and adjoining oceanic areas with ground installations at all airports and 25 other locations to ensure the safety of aircraft operations.

20


Significantly, the Government of India aims to attract private investment in aviation infrastructure. Thus, the Ministry of Civil Aviation decided to lease out, on global tender basis, the four most important airports in the country viz. Delhi, Mumbai, Kolkata and Chennai airports primarily aiming to upgrade these to follow the international standards. Privatisation of the Delhi and Mumbai airports is in progress. Concessions have already been awarded and it is expected that there would be an investment of about Rs157.00 billion (US$3.5bn) for both the projects. In addition, the new international airports at Bangalore and Hyderabad are being built by private consortia with a total investment of about Rs40.00 billion and 25 other city airports are being considered for private investment. International Airports: There are 12 international airports in the country namely,

Mumbai, Delhi, Chennai, Kolkata, Thiruvananthapuram, Cochin, Hyderabad, Bangalore, Guwahati, Goa, Amritsar and Ahmedabad, which serve as a base for international services of domestic and foreign carriers. Custom Airports: This category includes domestic airports with customs and

immigration facilities for a limited range of international services. Such custom airports are located in Jaipur, Agra, Lucknow, Varanasi, Patna, Gaya, Kozhikode, Coimbatore and Tiruchirapalli. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

21

Model Airports: The model airports are located in Bhubaneshwar, Nagpur, Vadodara,

Imphal and Indore. This category includes domestic airports with a minimum runway length of 7,500 feet and terminal capacity to handle an Airbus 320. These airports can handle international services, if necessary. Civil Enclaves in Defence Airfields: There are 28 civil enclaves in Defence Airfields. Other Domestic Airports: The remaining airports in the country, not included in the

above-mentioned category, fall in this category.


Airport Hubs

The airports at Delhi and Mumbai serve as hubs of India’s airport network. Other major airports that have the potential to emerge as hubs include airports at Chennai, Kolkata and Bangalore. In 2005-06, Delhi, Mumbai and Chennai airports together handled over 73% of the total air cargo in the country.

4.3.2 Infrastructure Status of Major International Airports Indira Gandhi International Airport, Delhi

Indira Gandhi International (IGI) Airport is one of the busiest and most important airports in India. It acts as a crucial linkage between the country’s capital and rest of the world. The airport currently operates one international and three domestic terminals.

The international airport co-ordinates flights of 35 airlines, connecting India to different major cities of the world. Three domestic terminals include Terminal 1A, Terminal 1B and Domestic Arrival Terminal. Terminal 1A is dedicated to serve the domestic flights of Indian Airlines and its subsidiary, Alliance Air. Flights of different scheduled private airlines operate from Terminal 1B along with other executive aircraft/private aviation activities.


22

Indira Gandhi International Airport is well equipped with state-of-the-art technology to operate even in dense foggy weather. It utilises the IIIA landing system. It handles nearly 13,100 domestic and 9,500 international passengers everyday.

The Delhi airport handled 273,410 tonnes of international cargo during 2005-06, a growth of 14.92% over the previous year. The airport handled 16.24m passengers during 2005-06 out of which, international passengers account for 35.31% of the total passengers.


Airport Facilities Table 4.1: Terminal Areas and No. of Counters Terminal

Area In sq metres

No. of counters Check Immigration In

Customs

Security Check

1-A

8,090

33

Nil

Nil

At the entrance of the security hold area

1-B

11,700

17

Nil

Nil

At the entrance of security hold area

Terminal -II (Departure + (Arrival)

64,000

81 Nil

28 28

02 Red & Green channels are available

At the entrance of security hold area. No checks after clearance from customs

Table 4.2: International Terminal Parking Bays

Runway Lights

Type of Bay Total Bays Runway No. Edge Lights Centre Line Lighting


23

In contact

9 (41 - 49)

-

Elevated High Bi-directional

Remote

12 (81-92)

RWY 28

Cargo

6 (98-103)

Intensity

200W

Bi-directional Halogen Lamps

Table 4.3: Domestic Terminal Parking Bays

Runway Lights

Type of Bay

Total Bays Runway No. Edge Lights Centre Line Lighting

In contact

Nil

-

204 W Lamp

-

Power in Power Out

55

10

-do-

-do-

Power in Push back

01

-

-

-

Available

Rwy 10

Available

N.A.

only at Intl.

-

-

-

Apron

Rwy 09

Available

N.A.

Hydrant Refuelling System


Cargo Information •

IGI cargo terminal area is 27 acres

•

Y2k Compliant Online Integrated Cargo Mgt. system for data processing

•

Elevated Transfer Vehicle with 350 stacking slots for 3 Level Storage of ULD's

•

Pick and carry cranes, forklifts, high reach stackers

•

Electronic/mechanical weighing scales, cargo trolleys, power pallet trucks

•

Idle ULD parking area, truck - Doc 84 Nos and auction hall for disposal of unclaimed cargo

Special facilities offered by Delhi Airport •

Strong rooms for valuable cargo

•

Centre for perishable cargo/cold room (3 Chambers, 0-12°C)

•

Hazardous cargo shed

•

Live animal shed

Chhatrapati Shivaji International Airport, Mumbai

The ISO 9001: 2000 certified Chhatrapati Shivaji International Airport is the busiest airport in the country. Located in Mumbai, which is the financial capital of India and the capital of Maharashtra, it is the major gateway to international traffic into India. The airport manages around 469 aircraft movements, 50,000 passengers and 892 tonnes of n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

24

cargo everyday on an average basis, resulting in handling about 37% of India's air traffic. The airport handles nearly 45 landings and take-offs per hour. The international terminals of the airport co-ordinate the flights of 36 airlines from different parts of the world. It currently has two modules Terminal- 2A and Terminal-2C.

The domestic airport has two terminals i.e. Terminal-1A and Terminal-1B. Terminal-1A serves the Indian Airlines and its subsidiary Alliance Air, and Terminal-1B is dedicated to private airways and other private aviation activities. The airport carried 17.66m passengers and handled the movement of over 490,000 tonnes of cargo in 2005-06.


Present status and facilities available at Mumbai Airport

The international arrival area is equipped with exchange counters, hotel bookings and pre-paid taxi services. Departure counter has marginally

better

facilities

like

shops,

Table 4.4: Mumbai Airport cargo handling facilities EXPORT Terminal

restaurants, snack bars and foreign exchange Module 1

Centre for Perishable Cargo

counter. The emigration counter is usually FACT Sheds

AI Terminals

chaotic due to over-loading of traffic.

Area (In Sq. metres) 9,445 2,436 6,783 6,000

IMPORT

Module 2 Mumbai Airport handled total 288,960 New Cargo Terminal Phase -2 metric tonnes of international cargo during AI Terminal 2005-06, which noticed a growth of 5.74% Marol Import Complex

10,402 11,568 7,364 4,500

over the previous year. Nearly 74.3% of the total freight movement from this airport was carried by different private airlines and the rest by nationalised airlines during August 2006. General facilities


25

•

Online Integrated Cargo Mgt System for clearance

•

X-ray scanning, cargo trollies, forklifts , ULD packing slots

•

Auction hall, Truck Dock 33 nos

•

5 cargo bays in cargo apron area

Special facilities offered by Mumbai Airport •

24 hours clearance facilities for special type of cargo

•

Strong rooms for valuable cargo

•

Centre for perishable cargo/cold room and walk in type cold storage

•

Hazardous cargo shed

•

Packer services


Netaji Subhash Chandra Bose International Airport, Kolkata

Kolkata International Airport, now called Netaji Subhash Chandra Bose International Airport, is situated at Dum Dum, about 18km from the city. It acts as the prime gateway to northeastern part of the country. This IS/ISO 9001:2000 certified airport is connected directly to all the major cities in the country. Besides Air India, international airlines include British

Table 4.5 : Cargo Facilities EXPORT Terminal Area (In Sq. meters) Module 1 9,445 Centre for Perishable 2,436 Cargo 6,783 FACT Sheds 6,000 AI Terminals IMPORT

Module 2 New Cargo Terminal Phase -2 AI Terminal Marol Import Complex

10,402 11,568 7,364 4,500

Airways, KLM, Singapore Airlines, Thai Airways, Biman Bangladesh, Druk-Air, Lufthansa, Royal Brunei Airlines and Royal Jordanian, connecting most of the major cities in the world. This is a major airport in the eastern part of the country and currently handles two terminals—Terminal 1 and Terminal 2—for domestic and international airways. The international terminal has 36 airlines and operates from two modules Terminal-2A and Terminal-2C. The domestic airport has two terminals i.e. Terminal-1A and T-1B. Terminal-1A caters to domestic flights of Indian Airlines and its subsidiary Alliance Air n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

26

and Terminal 1B caters to the private airlines. Present Status

During 2005-06, the airport has handled total 51,560 aircrafts, comprising 42,311 domestic and 9,249 international aircrafts. The airport handled a total of 32,164 tonnes of international cargo and 42,311 tonnes of domestic cargo during 2005-06, a growth of only 5.36% and 8.3% respectively over the previous year. Facilities at NSCBI •

Export cargo (baggage) and export general / perishable cargo facilities

•

Registration, processing of shipping bill and pay documentation charges

•

Obtain custom exam order on the shipping bill © Cygnus Business Consulting & Research 2007

•

Complete exam and obtain "Let Export Order" from Supdt./AO (Custom)

•

Unaccompanied baggage (Import) facilities

•

Registration and noting of baggage declaration form with customs

•

Obtain exam order from Supdt/ACC

•

Complete custom exam and assessment of duty

•

Pay custom duty

•

Obtain out of charge from custom Supdt.

•

Obtain clearance from custom gate officer

•

Import general cargo facilities

•

Declaration, submission/Registration of BOE along with AWB, DO, letter of authority, invoice, packing list, import licence etc.

•

Assessment of duty, audit and issuance

•

Collect the print out of appraised BOE from appraisal counter

•

Payment of custom duty

Chennai International Airport

Chennai International Airport, first ISO-9001-2000 certified airport of the country, is located at Tirisulam, about 7km south of Chennai. It has two terminals, Kamraj Domestic Terminal, handling all domestic flights and Anna International Terminal managing all the n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

international flights. Kamraj Terminal is used by all domestic airs and Malaysian Airlines; whereas Anna Terminal is utilised by all international airlines. Other than Air India, the other flights that operate from this international airport are Air Mauritius, British Airways, Emirates, Gulf Air, Kuwait Airways, Lufthansa, Malaysia Airlines, Oman Air, Saudi Arabian Airlines, Singapore Airlines and Sri La nkan Airlines. Present status and facilities available at Chennai Airport

During 2005-06, Chennai International Airport handled total 47,900 domestic aircrafts, up from 43,122 in 2004-05 and 21,155 international aircrafts, which increased by 16.8% from 18,111 in 2004-05. Cargo traffic in 2005-06 has increased to 205,971 tonnes from 185,870 tonnes in 2004-05, out of which international cargo accounts for 81.5% of the

27


total air cargo. Passenger traffic has gone up by 20.34% to 6.8m in 2005-06. Domestic passengers have increased by 29% to 4.17m from 3.23m in 2004-05 and international passenger traffic has witnessed a growth rate of 8.6% to 2.6m in 2005-06. The Chennai Airport has two warehouses for export and import cargo. Export cargo has two AI and AAI warehouses, covering a total area of 5,750sq meters. These warehouses have one-time holding capacity of 40 tonnes and the temperature is maintained at 2–18 degree centigrade. The import warehouse, covering an area 8,004sq metre, offers the following facilities: •

Strong room

•

Cold storage

•

Electronic cargo shed

•

Unaccompanied baggage

•

Heavy cargo shed

Bangalore Airport

Bangalore Airport, also called ‘HAL Airport’, is one of the busiest in India, with over 70 international and domestic flights flying everyday. The Airport is situated about 6km from MG Road that is at the centre of the city. This is a major hub in southern part of the country for domestic, as well as international connectivity. Other than Air India, the other n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

28

airlines that operate through this international airport are Air Lanka, British Airways, Bulgarian Airways, Cathay Pacific, Ethiopian Airlines, Japan Airlines, KLM Airlines, Kuwait Airways, Malaysian Airlines, Pakistan International Airlines, Quantas, Swiss Air and Thai Airways. The airport currently operates two domestic terminals—Terminal 1 and Terminal 2. Terminal 1 has the departure lounge for all the domestic flights and Terminal 2 handles arrival of domestic flights. The international terminal manages departures and arrival of all international flights together. The airport is the premier civil airport with modern ATC systems equipped for CAT-I IFR operations round-the-clock.


Present Status

The total aircraft movement from Bangalore Airport has significantly increased by 25.44% to 69,680 during 2005-06. Passenger traffic at Bangalore airport has increased by 37.47% to 5.65m in 2005-06, out of which domestic passenger traffic constitutes around 85% of the total passenger traffic in the airport. Air freight traffic at the airport increased by 19% to 1,38,852 tonnes in 2005-06 against 1,12,374 tonnes during the previous year, out of which international cargo constitutes 59% of the total cargo handled by the airport. Bangalore Airport has one export cargo terminal, covering an area of 41,000 sq m. It has X-ray baggage handling facility, provided by MSIL. Lufthansa and Singapore Airlines operate through this terminal.

Warehousing Facilities at the Airport

JWG-JACC has been formed as a joint working arrangement of Hindustan Aeronautics Ltd (HAL), Container Corporation of India Ltd., (CONCOR) and Mysore Sales International Ltd (MSIL) with a view to augmenting and providing state-of-the-art warehousing and handling facility for air cargo at Bangalore airport. The warehousing complex is named as Joint Air Cargo complex (JACC).

Following facilities are available JACC: n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

•

Facilities for processing of import, export, transshipment cargo and unaccompanied baggage with a total ground storage area of 28,000sq ft.

•

Full-fledged customs facilities and EDI connectivity for processing of customs documents

•

Adequate handling equipment and systems

•

Online Integrated Cargo Management System for on line data processing

•

Special facilities for valuable cargo and dangerous / hazardous cargo

•

Well-trained customer-friendly personnel

•

Facilities like photocopying, canteen, public telephone, packer services, public waiting area and business centre

29


4.4 Air Cargo Market Indian aviation industry has been experiencing an exceptional growth rate over the last five years, driven by booming Indian

economy,

Figure 4.2: Air Cargo Market in India (‘000 tonnes)

flourishing

trade (both export and import)

1200

and the pharmaceutical industry.

1000

Both domestic and international air cargo traffic at all Indian airports

have

registered

an

exponential growth rate over the

800 600 400

last 5–6 years. Domestic air

200

cargo traffic has been growing at

0

2006-07,

whereas

international air cargo traffic has been moving at CAGR of 13% from

2001-02

to

5 0 . 4 9 2

2 2 2 . 3 3 3

6 3 4 . 5 7 3

2 6 6 . 6 5 4

9 7 . 3 8 4

4 6 . 1 3 5

2001-02 2002-03 2003-04 2004-05 2005-06 200607*

CAGR of 12.57% from 2001-02 to

6 2 2 . 0 6 5

3 2 2 . 3 9 6

7 3 1 . 6 4 6

5 1 . 0 2 9

8 0 6 . 3 2 8

6 6 . 8 2 0 1

Dom estic

International

*2006-07- Planning Commission Estimates Source: Airport Authority of India

2006-07.

During 2006-07, total air cargo traffic is estimated to be over 1.56m tonnes against 1.4m tonnes during 2005-06, registering a growth rate of 14.65% (See Figure 4.2). n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

According to Planning Commission, India’s air cargo movements would grow at over CAGR of 11.5% from 2007-08 to 2011-12. Riding high on export of gems and jewellery, special chemicals and high value pharmaceuticals, international air cargo traffic at all Indian airports has been growing rapidly. Increasing economic activities have fostered Indian aviation industry, which has attracted many foreign logistics as well as airline service providers to plan their air cargo operations in India such as Cathay Pacific, DHL, FedEx, TNT and many Indian companies have also decided to start exclusive air cargo movements in India such as Air India, Indian Airlines, Secunderabad-based Flyington Freighters Private Limited and Jet Airways.

30


4.4.1 Opportunities Galore In view of the present boom in air cargo segments in India, several domestic as well as international air carriers have decided to start air cargo operations in India and some of them have already started flying freighter aircrafts in the country. Besides the stateowned carriers Indian Airlines and Air India, new players such as Jet Airways, GoAir and Kingfisher Airlines have also decided to venture into air freight market and play a bigger role in the booming aviation sector. •

Air India, the public sector airline operator, which has leased belly space on Falcon Aviation to fulfil the demand on the Kerala-Gulf and the India-Germany sectors, is in the process of converting two of its A310 aircraft into freighter aircraft by September 2007. In addition, the airline is expecting addition of some new fleet for the quarter ended December 2006. This is likely to enhance its cargo capacity.

•

Last Year, Blue Dart Aviation Ltd (BDAL) added two leased Boeing 757 freighters to their fleet. The new aircrafts will be positioned at Chennai and Kolkata. The freighters will increase the capacity of the BDAL’s regular night flights to 250 tonnes from 166 tonnes. With the two new freighter aircrafts, BDAL’s total freighter aircraft fleet will reach seven.

•

Cathay Pacific Cargo, the Hong Kong-based airline, decided to start six new freighter services in India in view of the growing Indo-US and Indo-China trade. The new


freighters will be B747-400 Extended Range Freighters. Cathay Pacific currently lifts 155 tonnes of cargo per month. •

FedEx Express, the largest express transportation company in the world, decided to expand its network in India and to operate 17 flights weekly on Mumbai-Delhi route.

•

Flyington Freighters Private Limited, the Secunderabad-based air cargo company, has placed an order to acquire four Boeing 777F cargo aircrafts for an estimated cost of US$945m. The acquisition of cargo aircraft is one of the biggest orders so far by an Indian aviation company. The deliveries of the Boeing 777-200 freighters would start in the end of 2009. The company is expected to start its air cargo operation with three leased aircrafts by April 2007.

•

Great Wall Airlines, a Sino-Singaporean joint venture, is planning to launch a freighter service connecting Shanghai with Mumbai and Chennai. The services will be

31


the first and only direct scheduled freighter services between China and India. Great Wall Airlines has a fleet of two Boeing 747-400 freighters. •

In addition, Indian Airlines is also looking at converting five of its Boeing 737-200 passenger aircrafts into freighters.

•

Jet Airways, India’s largest passenger private sector airlines, has plans to start a domestic cargo airline. The airliner has mooted a feasibility study for this purpose. The company would initially convert its old passenger aircraft into freighters to cater to the booming domestic air cargo market.

•

Another important feature of ecstatic growth of Indian aviation industry is aircraft maintenance, repair and overhaul (MRO) industry.

4.4.2 Performance of Top 46 Airports The major international airports accounted for a majority of domestic cargo traffic between 2002-03 and 2003-04. The domestic cargo traffic at major international airports is given in Table 11. The quantum of international cargo traffic handled was concentrated in the major internal hubs ie Mumbai, Delhi, Chennai and Bangalore. Table 4.6 : Cargo traffic handled at top 46 airports in India (tonnes) Domestic International Airport Percentage Percentage 2004-05 2005-06 2004-05 2005-06 Change Change n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Mumbai

129,450

142,361

10.0

273,265

288,960

5.7

Delhi

106,578

109,642

2.9

237,923

273,410

14.9

Chennai

39,427

38,118

-3.3

146,443

167,853

14.6

Bangalore

47,941

56,861

18.6

64,433

81,991

27.3

Kolkata

39,099

42,335

8.3

30,529

32,164

5.4

Hyderabad

20,083

19,572

-2.5

13,924

16,949

21.7

Ahmedabad

14,157

13,273

-6.2

2,535

3,615

42.6

Goa

3,623

3,812

5.2

1,233

1,356

10

Thiruvananthapuram

1,368

1,300

-5.0

22,287

23,280

4.5

Kozhikode

1,178

1,437

22.0

9,411

9,193

-2.3

Guwahati

4,308

4,342

0.8

2

140

6,900.00

Srinagar

2,172

2,665

22.0

0

0

Amritsar

34

68

100

1,278

1,331

4.1

1,531

1,853

21.0

240

509

112.1

Jaipur Nagpur Cochin

32

2,780 3,965

5,031

3,180 26.9

14.4 18,210

0 16,206

0

-11.00


Table 4.6 : Cargo traffic handled at top 46 airports in India (tonnes) Domestic International Airport Percentage Percentage 2004-05 2005-06 2004-05 2005-06 Change Change

Pune

8,791

8,666

-1.4

0

0

-

Lucknow

1,962

2,040

4.0

626

552

-11.8

Coimbatore

3,720

3,345

-10.1

965

1,949

102.0

627

574

-8.5

0

0

-

1,035

1,420

37.2

0

0

-

31

21

-32.3

301

692

129.9

0

0

-

0

0

-

Vadodara

3,265

3,435

5.2

0

0

-

Indore

2,925

2,349

-19.7

0

0

-

Mangalore

233

270

15.9

0

0

-

Jammu

944

1,017

7.7

0

0

-

Agartala

2,868

2,948

2.8

0

0

-

Udaipur

1

15

650.0

0

0

-

Bhubaneswar

945

875

-7.4

0

0

-

Visakhapatnam

670

504

-24.8

0

0

-

Port Blair

1,736

1,442

-16.9

0

0

-

Bagdogra Madurai

420 429

567 361

35.0 -15.9

0 0

0 0

-

1,031

825

-20

0

0

-

Leh

827

716

-13.4

0

0

-

Juhu

395

239

-39.5

0

0

-

1,064 1,517

1,063 1,599

-0.1 5.4

0 0

0 0

-

Bhopal

323

308

-4.6

0

0

-

Chandigarh

440

477

8.4

0

0

-

74

43

-41.9

0

0

-

Dibrugarh

503

593

17.9

0

0

-

Raipur

865

905

4.6

0

0

-

Silchar

247

275

11.3

0

0

-

Ranchi

237

247

4.2

0

0

-

Others

842

805

-4.4

0

0

-

5.9

823,608

920,150

11.7

Varanasi Patna Trichurapalli Gaya

Rajkot


33

Aurangabad Imphal

Jodhpur

Total

456,662

483,794

Source: Airport Authority of India


4.5 Airport Authority of India The Airport Authority of India

Figure 4.3: Composition of Airports managed by A.A.I.

(AAI) is the nodal agency for managing airports in India and provides

air

traffic

control

Civil Enclaves 20.63%

services over the entire Indian airspace and adjoining oceanic areas. At present, it manages

Domestic 70.63%

126 airports, which include 11 international

airports,

89

Internation al 8.73%

domestic airports and 26 civil enclaves at Defence Airfields

Note: Total may not add upto 100 due to rounding off Source: Airport Authority of India

(See Figure 4.3). Although the AAI continues to be a major provider of airport infrastructure in the country, the government has permitted private sector companies to take up Greenfield projects such as Hyderabad International Airport and Bangalore International Airport.

4.5.1 Role of AAI


34

The Airports Authority of India was set up in 1995 to develop airport infrastructure in the country. AAI looks after the development, expansion and modernisation of operational, terminal and cargo facilities at the airports. The AAI is also responsible for managing the entire Indian airspace and provides air traffic control services over the Indian airspace and adjoining oceanic areas. The Airports Authority of India owns and manages most airports in India. It also looks after terminal-building facilities at military airports for civilian aircraft. The scheduled clearances of such civilian aircrafts, however, come under the purview of Defence authorities.


Other functions of AAI •

To design, construct, operate and maintain international airports, domestic airports and civil enclaves at Defence Airports

•

Development and management of international cargo terminals

•

Vigilance

•

Provisioning of passenger facilitation and information system

•

Expansion and strengthening of operational areas such as runways, apron and taxiways

•

Providing communication and navigational aids such as Instrument Landing System and Doppler Very High Frequency Omni-Directional Range (DVOR).

•

Providing visual aids

The AAI provides facilities and services to airlines for a fee. For example, the AAI provides parking bays and the space for setting up facilities such as administration offices and dispatch centres. In addition, AAI provides services such as route navigation and Xray baggage.


35


4.6 Carriers The Indian aviation sector is witnessing rapid development since deregulation as a number of private players started up their operations in domestic market. Private airlines continue to dominate the domestic market. In January 2007, private regular airlines contributed around 48.6% to the total passenger traffic, followed by low-cost airlines at 32.5%, government-owned airlines at 18.9% against the same period of the previous year. In terms of cargo traffic, regular airlines’ share was 72.9% followed by governmentowned airlines at 26.4% and low-cost airlines at only 0.7% against the same period previous year. In recent times, the domestic sector has experienced stiff competition due to the entry of low-cost airline service providers such as Air Deccan, Spice Jet, Indigo Airlines, Paramount Airways, Go Air and Indus Air.

The international sector comprises 45 carrier run services to and from India. Some of the prominent ones include British Airways United Airlines, Qantas, Lufthansa, Aeroflot, Air France and Japan Airlines. Competition

The competition in domestic sector is fierce with the major players being Indian Airlines, Jet Airways, Air Sahara and Air Deccan, Kingfisher Airlines and Spice Jet. The domestic n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

sector excludes “on carriage” services provided by government-owned Air India. Due to rise in competition, state owned airline service providers share has been eaten up by the private players.

•

Indian Airlines & Air India

The Indian Airlines and Air India are fully-owned by the Indian Government. The Indian Airlines primarily serves the domestic market though its services extend to about 17 international destinations. Air India, on the other hand, primarily serves the international sector though it also services the domestic sector in a small way. The fleet size of Indian Airlines and Air India is given in Table 4.6.

36


Table 4.7 : Operational Fleet of Indian Airlines/Alliance Air No. of Aircraft

Airbus A-300B4 Airbus A-320 Airbus A-319 DO-228 Source: DGCA

B777-200 B747-300 (COMBI) B747-400 B747-400 (COMBI) A310-300 Total Source: Air India

3 48 06 2

Total Fleet 4 2 8 1 19 34

Owned 2 6 8 20

Leased 4 2 1 11 14

In view of the booming aviation sector, almost all the airline service providers are enhancing their fleet strength. Currently, both Jet Airways and Indian Airlines are leading with 59 aircraft owned/operated, followed by Air Deccan with 41, Air India Ltd with 38, Air Sahara 28 among others to total 308, which is expected to increase to 415 by 2012.

•


Jet Airways

Jet Airways is the largest private domestic airline in India with a fleet of 62 airplanes comprising 28 Boeing737-800s, 13 Boeing737-700s, six B737-400s, two B737-900s, one A330-200, three S340-300s and eight ATR72-500. The average age of the fleet is 5.3 years, making the operator maintaining youngest aircraft fleet in Asia. •

Air Deccan

Air Deccan is the first low-cost airline in India. It was promoted by Air Deccan Pvt Ltd in 2002. It currently operates five A320s along with its original fleet of 13 ATR42 aircrafts. Air Deccan hopes to add another 30 A320s and possibly 30 ATR42s to its fleet in the next five years. Recently, Air Deccan slashed its fares on select routes in a bid to attract premium customers of Indian Railways.

37


New Low-cost Carriers •

Go-Airways:

•

Spice Jet

• •

Indigo Paramount

4.7 Recent Trends US opens skies for India

Till recently, Indian players had limited access to the international airspace. A recent open skies agreement with the US, however, provides Indian airlines unrestricted access to key American destinations such as New York and Los Angeles. Indeed the upshot of open skies agreement is improved air connectivity, higher flight frequency, lower fares and stronger ties with the US. A closer interaction with Federal Aviation Authority and other related organisations in the US will lead to an improvement in safety and security standards as well. ASEAN

The Indian government has decided to permit designated airlines from ten nations belonging to the Association of South East Asian Nations (ASEAN) to operate up to n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

seven services to four metros—New Delhi, Mumbai, Chennai and Kolkata—subject to receiving equal reciprocal rights. The airlines from ASEAN countries can also operate unlimited services to 18 other destinations in India, subject to receiving equal reciprocal rights. For instance, Sri Lanka has been allowed to operate daily services to Delhi, Mumbai, Chennai, Bangalore, Hyderabad and Kolkata and unspecified number of services to 18 other destinations in the country.

Private carriers to fly on international routes

From December 2004, the Indian government started allowing private carriers in India to operate services to select destinations in the South Asian Association for Regional Cooperation region(SAARC). The government permitted Indian scheduled carriers, operating continuously for five years and possessing a fleet of 20 aircraft, to provide

38


services to other international destinations. However, private carriers are not allowed to operate services to Middle East destinations such as UAE, Qatar, Oman, Bahrain, Kuwait and Saudi Arabia as they have been reserved for Air India and Indian Airlines for three years. Merger of Air India-Indian (formerly Indian Airlines)

Ministry of Civil Aviation’s proposed merger of Air India and Indian is likely to take place during the first quarter of 2007-08, which will lend the competitive advantage for the government-owned airline service provider to improve their market share. The Union Cabinet has recently cleared the merger of the two national carriers. The combined revenue in 2004-05 of the two airlines was around Rs130.40 billion, which would place the merged entity at 35th position in the world ranking as against the present ranking of 48th in case of Air India and 70th in case of Indian Airlines. The ranking of the merged entity would further improve to 20th with induction of new fleet. The market power that would accrue from the financial muscle would fortify the ability of the merged unit to take on competition even in the international market, which has been witnessing increasing dominance of global airlines alliances. Jet Airways acquires Air Sahara

Jet Airways, India’s largest private sector airline service provider has a cquired Air Sahara n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

39

in all cash deal for Rs14.50 billion, 40% less than the price Rs23.00 billion that Jet Airways had agreed to pay for the acquisition of Air Sahara in January 2006. The acquisition is the largest deal in Indian aviation industry. With the acquisition, Jet-Sahara would change the Indian aviation industry business scenario in the coming years.


5. Intermediaries and Support Service Providers With the rapid changes in the business environment, logistics has emerged into a separate function. Presently, most of the companies understand the importance of logistics in the overall cost structure and competitiveness. A large number of companies have already gone ahead and set up a separate department for handling the logistics functions. Now such companies, if they choose to, can outsource their logistics function thanks to the emergence of third party logistics (3PL) service companies. The third party logistics involves hiring of outside specialists to handle the logistics function. This option enables companies to focus on their core activities, instead of getting bogged down in non-core activities. Unlike the outsourcing of other business processes where cost reduction is the prime driver, the outsourcing of logistics function is motivated by both cost benefits and efficiency gains in the supply chain management. As the business environment grows ever more complex and dynamic, the importance of logistics function will increase and so will the practice of outsourcing logistics function to the 3PL provider.

5.1 Reasons to Outsource Logistics Functions The factors that drive the outsourcing of logistics function to the 3PL provider can be grouped into three categories: strategic, operational and financial (see box). n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

1. Strategic Factors Focus on core competency, delegating supply chain management to specialists Improve customer service Enhance flexibility of business operations •

• •

2. Operational Factors Improved process execution at all levels Optimum use of technology for improving operations • •

3. Financial Factors Significant reduction in costs Reduction in capital costs • •

40


The adoption of modern manufacturing practices such as just-in-time and built-to-order together with the rise of global manufacturing network is also driving demand for 3PL services.

5.2 3PL Market Size With the starting of operations by multinational companies in the Indian market, the 3PL market is blooming in India. Along with their multinational counterparts,

major

domestic

companies also started outsourcing

Services frequently outsourced to 3PLs • • • • • •

their

basic

logistics

functions.

•

Direct Transportation Services Customs Brokerage Freight Payment Services Freight Forwarding Warehouse Management Distribution Facilities Shipment Consolidation

Realising the significant benefits like cost reductions and just-in-time delivery gained by these companies, a large numbers of small and medium companies are also gearing up to use 3PL services in their logistic functions. According to Frost & Sullivan’s research report entitled, “Third Party Logistics – the Way Forward for Indian Logistics Market ”, the Indian 3PL market was estimated at n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

41

about US$890.3m in 2005, which is expected to grow at a CAGR of 21.9% to reach US$3,556.7m by 2012. This is owing to the growing presence of multinationals and the renewed thrust on exports.

5.3 Function of Third Party Logistics The services of 3PL providers can encompass the entire supply chain or parts of it. If a company opts for the outsourcing of the transportation process, the 3PL providers extend services such network design, carrier contracting, shipment optimization, shipment tracking and freight payments.


In the distribution sphere, the 3PL providers design the distribution facility and take care of project management. The 3PL providers undertake core warehousing activities besides providing value-added services such as kitting and packing. In the overseas trade, the 3PL provider’s co-ordinate global freight movements and handle customs clearancefreight forwarding.

5.4 State of 3PL in India The 3PL market in India is relatively still in an emerging stage, with multinational companies in all industries being the predominant users of these services. According to Frost & Sullivan’s research, the largest end-user industry for 3PL services in India, as of 2005, is the automobile and auto component industry. This is because multinational automobile giants like Suzuki, Hyundai, Honda and Ford have set up their manufacturing bases in India and have been the major users of 3PL services. Other sectors that have contributed substantially to 3PL market in India include the IT hardware and electronics, fast moving consumer goods, textiles and retail. The factors that are driving the Indian logistics industry towards 3PL market are; 

Indian governments Value Added Tax - a uniform tax regime that is expected to drive Indian industries towards using more 3PL services. A full implementation of this regime would necessitate having centralized large warehouses to achieve best


efficiency in logistics. Since it requires huge investments, most domestic companies would like to outsource the warehousing function, which creates immense potential for 3PL service providers. 

India’s increased focus on improving logistics infrastructure is expected to have a huge positive impact on 3PL market in the country. In this context, government has invested US$17 billion to upgrade highways with the implementation of two major projects, namely the Golden Quadrilateral Network and the North-SouthEast-West (NSEW) Corridor.



Apart from these factors, the entering of multinational companies like BMW, Flextronics, and Wal-Mart etc in India is expected to fuel the growth of 3PL market and contribute to considerable growth of 3PL usage in their respective industry sectors.

42


5.5 Fourth Party Logistics (4PL) Recently, the Indian market is witnessing the emergence of fourth party logistics (4PL) service providers. The rise of 4PL service represents the next step in the evolution of supply chain management in India. The 4PL service provider takes over the entire logistics function, obviating the need to deal with multiple 3PL service providers. The 4PL service providers provide the entire logistics solution on their own or take the help of multiple 3PL providers.

The 4PL service providers serve as single-point reference for all logistics services. Such providers have the logistics expertise to provide effective solutions; possess quality manpower resources to supervise vendors and ensure continuous process improvements; and information technology skills to network customer systems. In short, the 4PL service providers extend comprehensive supply chain solutions to clients. In the developed markets, such 4PL providers procure total supply chain management mandates from companies and hive them off to multiple 3PL service providers. So far, 3PL service providers failed to deliver total supply chain management solution. The 4PL service providers may fare better on this count.

5.6 Clearing & Forwarding Agents n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

To help companies in fulfilling legal formalities of transportation a separate class of clearing agents or freight forwarders have emerged over the years. The cargo clearing agents or freight forwarders also acts as a consolidator of shipments.

The freight forwarders deliver most air cargo shipments to airlines in consolidated bundles. Therefore, the freight forwarder serves in two ways. A freight forwarder is at once a customer and sales partner of the airlines. The freight forwarders specialize in routing shipments on scheduled flights even while organizing chartered flights for shippers. The freight forwarder, meanwhile, organize all-cargo charter flights. The integrators offer door-to-door services to shippers. An integrator controls the sales channel and the transportation processes.

43


The freight forwarders offer a range of logistics services to the shipper. The Indian companies involved in freight forwarding business include Patel Roadways, Balmer Lawrie, Blue Dart, Safe Express, DHL, and Gati Limited.

5.7 Warehousing The warehousing discharges an important role in business. It creates time utility by bridging the time gap between production and the consumption of goods. Warehousing refers to the systematic storing of goods with the goal of making them available on demand. In other words, warehousing refers to the storing of goods from the time of their purchase or production to their actual use or sale. Types of Warehouses

The warehouses can be classified into the following categories:


44

•

Private Warehouses

•

Public Warehouses

•

Government Warehouses

•

Bonded Warehouses

•

Co-operative Warehouses

Functions of warehouses

Warehouses perform the following functions: •

Storage of goods

•

Protection of goods

•

Bearing risk

•

Financing

•

Processing

•

Grading and branding

•

Transportation


6. Market Dynamics 6.1 Overview of Indian Aviation Industry Increased competition, economic expansion and capacity augmentation have bolstered Indian aviation industry. During 2005-06, Indian airports have handled total 73.34m passengers, registering a growth rate of 23.7%. Out of the total passengers handled, domestic passenger traffic was 50.98m, a growth rate of 27.9% and international passenger traffic went up by 15.1% to 22.36m against the previous year, mainly due to ecstatic growth of IT/ITES, retail and manufacturing, tourism.

Indian air cargo market has also achieved an excellent growth rate over the last couple of years. During 2005-06, it registered a growth rate of 9.7% to 1.4m tonnes against 1.29m tonnes in 2004-05, whereas international air cargo registered a growth rate of 11.7% and domestic air cargo of 5.9%.

6.2 Market Size of Air Transport System in India Figure 6.1: Industry Size of Air Transport System in India (at 1999-2000 prices)

Air transport has been emerging as one of the major mode of transport


60

system

50

industry

in at

India.

Air

constant

transport

(1999-2000

prices) has been growing at CAGR

)40 n b s 30 R n I (

7.6% from 2001-02 to 2006-07, driven by growing demand for air

20

transport system over the last five-

10

six years.

0 2001-02 2002-03 2003-04 2004-05

200506*

200607*

*Cygnus Estimates Source: Planning Commission of India

45


6.3. Demand-Supply Scenario The air cargo traffic is currently limited

to

low-volume

and

high-value products such as garments and pharmaceuticals in addition to perishables such as

flowers,

vegetables

and

fruits. The growth in cargo traffic,

both

domestic

international,

has

and been

encouraging in the last few years.

As

the

government

strikes new cross-border trade agreements, the cargo traffic is

Table 6.1: Total Cargo Traffic Trends (’000 tonnes) Airport Percentage 2004-05 2005-06 Category Change Fifteen Int'l 1,217.23 1,341.57 10..2 Airports Cochin Int’l Airport 22.17 21.24 -4.2 (CIAL) Seven Custom 18.06 19.26 6.7 Airports Twenty three 21.96 21.07 -4.0 Domestic Airports Other 0.845 0.805 -4.7 Domestic Airports Total

1,280.27

1,403.94

9.7

Source: Airport Authority of India

bound to rise. The capacity of Indian airports, however, is highly skewed. The major Indian airports are running out of capacity, whereas minor airports are under-utilised. The expansion of major airports is easier said than done due to financial constraints and physical limitations such as availability of land. The implementation of Greenfield projects in the international segment, however, holds out hope. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Figure 6.2: Air Cargo Capacity Utilisation (In percentage)

five

major

airports—Delhi,

Mumbai, Chennai, Kolkata and 160 140

Bangalore—grew at a CAGR of

120

9.9% between 2002-03 and 2005-

100

06.

80

Significantly,

Bangalore

International airport has witnessed

60 40

the highest CAGR of 14.93%

20

between 2002-03 and 2005-06,

0 2002-03

2003-04

2004-05

2005-06

Source: Planning Commission & Cygnus Research

46

The combined air cargo traffic of

followed by Chennai International Airport at 10.15%.


Mumbai International Airport accounts for more than 30.72% of the country’s total air cargo traffic in 2005-06, followed by Delhi International Airport with 27.28% share. In India, all the 15 international airports have a significant contribution in India’s booming air cargo market.

6.4 Market Share Figure 6.4: Market Share in Q2 2006

Figure 6.3: Chart- Market Share in Q1

Kingfisher, 8.30%

Spice Jet, 6%

Spice Jet, 6.90%

Others, 1.90%

Deccan, 15.20%

Source: DGCA

Deccan, 19.10% Sahara, 7.80%

Indian Airlines, 23.90%

Indian Airlines, 22%

Figure 6.5: Market Share in Q3 2006

Spice Jet, 6.90% Kingfisher, 8.80%


Jet Airways, 33.30%

Kingfisher, 7.70%

Jet A irways, 34.90%

Sahara, 9.30%

Others, 3.20%

Others, 4.20% Jet Airways, 30.40%

Deccan, 19.30% Sahara, 8.80%

Indian Airlines, 21.60%

Source: DGCA

Indian aviation sector has been experiencing rapid expansion in terms of number of players as well as fleet, location etc. Indian aviation sector has been revolutionised with the entry of Low Cost Carriers (LCC) in the domestic route, pa rticularly Air Deccan. Air Deccan’s market share is increasing gradually over the last couple of years due to its promotional and location activities. Moreover, the LCCs in the domestic route are

47


immensely getting benefited by boom in IT/ITES sector, retail industry and tourism sector. There has been a sharp shift in market share of Indian Airlines. During first quarter of 2005, its market share was 34.7%, which came down to 23.9% in first quarter of 2006. Similarly, Jet Airways’s market share has also come down sharply from 44.1% in first quarter of 2005 to 34.9% in first quarter of 2006, mainly due to emergence of LCCs such as Go Air, Paramount, Spice Jet and essentially, Deccan Airlines in the domestic market. The market share of Deccan Airlines has increased manifold from 7% in first quarter of 2005 to 15.2% in the corresponding quarter of 2006 due to promotional fare concessions and location.

6.4.1 Global Air Cargo Forecast International air cargo traffic is expected to grow at average annual growth rate of 5.8% between 2007 and 2009, driven by resurgent global economic conditions, booming international trade and several open sky policies signed between the countries. The AsiaPacific region would have the key trade routes for global air freight market, particularly countries like China and India. In addition, Middle East air freight is also expected to show strong growth over the next three years.


48

Table 6.2 : Global Air Cargo Forecast – 2007-2009 Region 2007 2008 2009 AAGR North Atlantic 4.5% 4.6% 4.4% 4.5% Trans-Pacific 5.6% 5.4% 5.2% 5.4% Europe-Asia Pacific 5.3% 5.1% 5.3% 5.3% Europe- Middle East 4.9% 4.5% 4.0% 4.5% Europe-Africa 4.6% 4.3% 4.2% 4.4% Within Asia Pacific 8.1% 8.7% 8.4% 8.4% N.A. – L.A/Caribbean 3.6% 3.5% 3.5% 3.6% Within Europe 3.7% 3.8% 3.9% 3.8% Within LA/Caribbean 6.4% 7.0% 5.7%% 6.4% Middle East –Asia Pacific 7.3% 7.5% 7.0 7.3% Total International 5.7% 5.8% 5.7% 5.8% Source: IATA


6.5 Growth drivers 6.5.1 Economic growth Economic growth drives the logistics

industry.

As

Fi ure 6.6: India's GDP Growth Rate

the

economy grows, spending on logistics

increases.

The

transport

of

and

goods

services will increase and so will

passenger

traffic.

A

surging economy places huge demands

on

the

air

and

surface transport industries.

10 9 8 ) e g 7 a t 6 n e 5 c r e 4 P n 3 I ( 2 1 0

9

8.5 7.5

3.8

2002-03

2003-04

2004-05 2005-06*

Demand for shipping is also dependant

on

growth.

economic

9.2

200607**

*Quick Estimates, ** Advanced Estimates Source: MOSPI

The Indian economy has been consistently growing over 7% for four consecutive years. With the economy positioning itself as the fourth largest economy (in terms of PPP) and 2nd fastest growing economy in the world, it gives enough scope for the logistics industry n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

to grow.

6.5.2 Global trade The foreign trade of India has been rising over the years though considerable scope for improvement exists. For instance, India had a 0.98% share of the global trade in 2005. The major imports include petroleum and petroleum products, uncut gems, machinery, capital goods, and fertilizer while major import destinations include USA, Belgium, Australia, China, Switzerland and Germany. India’s imports totaled US$149.17 billion (Rs 6.6 trillion) in 2005-06 as compared to US$111.52 billion (Rs 5.01 trillion) in 200405.

49


The principal exports include textiles;

leather

goods;

finished

jewellery;

engineered

and

leather

gems

and

chemicals

goods

Figure 6.7: India's Export-Import Growth Rate

45

and

(including

iron and steel) while major export USA,

destinations the

United

include Kingdom,

China, Japan, and the European

42.70

40 ) e g a t n e c r e P n I (

35 30.85

30

33.76

27.25

25 20.29 19.45

20

23.41

21.10

15 10 5 0 2002-03

Union (particularly Germany).

2003-04

2004-05

Export Growth Rate

2005-06

Import Growth Rate

In 2005-06, total exports were valued at US$103.09 billion (Rs

Source: DGFT

4.56 trillion) as compared to exports of US$83.54 billion (Rs 3.75 trillion) in 2004-05. As foreign trade increases, the demand for logistics services will increase.

India’s entry into the WTO and the signing of several ASEAN Free Trade Agreement (AFTA) and bi-lateral FTAs will increase foreign trade, which in turn will drive demand for logistics industry upwards. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

50

6.5.3 Corporate Trend With competitive pressure across the verticals, the companies today are focusing on core operations to cut down on cost and time. As a result companies preferred to outsource the logistics activities to 3PL. Moreover the Indian logistics industry is dominated by the unorganized sector, especially the road transport sector. The road transport sector is being dominated by truck owners having less than 5 trucks but contributes around 80% of the revenues. Similarly freight forwarding segment is also being dominated by small players who generally cater to the local requirement. In response to the present scenario it leaves a huge opportunity for contract logistics market.


6.5.4 Improved infrastructure The Indian Government is stepping up investment in roads, railways, power sector, ports and airports. The government has undertaken mega projects such as the National Highways Development Project to improve infrastructure. The government is also focusing on improving the rail-road-port connectivity. The government, realizing the enormity of the task, has sought the help of private sector.

The strengthening of

infrastructure is a big positive for the logistics industry.

6.5.5 Growth in the manufacturing sector and retail boom India with its 300m plus middle class and relatively low cost workers with technical skills backed with positive framework for infrastructure development is poised to becoming a manufacturing powerhouse in the next 5-10 years.

According to the data published by CSO, GOI India’s manufacturing output increased by 11.6% in January 2007 as compared with same period last year. The Index of Industrial production (IIP) in December 2006 went up by 11.1% as compared with the same period previous year. The manufacturing sector which has around 80% weightage in the index went up by 11.9%. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

With estimated investments of US$22 billion over the next five years, the retail sector is expected to grow 40% to US$427 billion by 2011. Organised retail, which is presently around 3% of the whole, is expected to grow to US$64 billion by 2015. The growth in manufacturing sector and retail sector will definitely benefit the logistics sector.

6.5.6 Emergence of global manufacturing networks and increased FDI The rise of global manufacturing networks will increase demand for logistics services. Intense competition, pressure on margins and the lowering of trade barriers together with advances in information technology and global transportation has led to the proliferation of global manufacturing networks. Now companies worldwide are intent on driving down costs by harnessing cheaper resources. A company might source components from one

51


country, assemble them in another country and sell them across the globe. In addition, an increasing number of companies are focusing on their core operations and outsourcing non-core operations. Global manufacturing networks lead to higher productivity, reduced workforce and lower costs for companies—and increased revenue for logistic companies. The MNC eying India is very much evident from the fact that the country witnessed a nearly six-fold increase in Foreign Direct Investment (FDI) inflows in December 2006 at US$2.04 billion as against US$350m in the same period in 2005. This marked the highest ever FDI inflow into the country in a single month.

Total FDI inflows during April-December 2006 stood at US$9.3 billion; as compared with US$3.5 billion in the corresponding period last fiscal. According to certain estimates, India is likely to receive US$12 billion of FDI during the current financial year as compared to US$5.5 billion in the previous fiscal

6.5.7 Information technology Information technology has forced companies to become more customer-oriented and make their services more efficient. It has reduced both time-to-order and time-to-market. The information technology is triggering far-reaching changes in the logistics industry as n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

well. It has played a critical role in the advent of third-party logistics providers (3PLs), who offer an entire range of services from warehousing to transportation and include tracking, online order-processing and other value-added services, such as packaging, labelling and bar coding.

6.5.8 Liberalization and Deregulation The government initiative is in right direction; electricity act, draft maritime policy, draft civil aviation policy and liberalization in financing pattern of infrastructure projects (Public Private Partnership) will add positive framework for infrastructural development. The government is liberalizing the logistics sector. For instance, the Public Private partnership (PPP) model in the road sector is likely to hasten the growth and

52


modernisation of the roads sector. Better roads will help logistics industry improve the quality and the speed of services.

The open-sky policy in the aviation sector, meanwhile, will enable domestic airlines to spread their wings to countries outside India. The government is also mulling over the corporatisation of airports at Delhi, Mumbai, Chennai, and Calcutta airports to raise capital for upgrading them to global standards.

Increasing the foreign direct investment limit in aviation sector will improve the capacity and operational efficiency of airports. Similarly, the corporatisation of railways and ports will also make them commercially as well as transparent. Recent examples of corporatisation include Konkan Railway Corporation (KRC) and The Delhi Metro Rail Corporation, offering urban rail services in Delhi.

6.5.9 Development of E-commerce The E-commerce Industry in India has come a long way since its early days. Market has matured and new players have entered the market space. Retail on Internet is witnessing very positive growth trends and end users are having numerous choices to buy from. In the present dynamic scenario e-commerce market in the B2C space is growing in demand n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

as well as in service range. The B2B market on the other hand is also re-inventing new business models and has already begun to offer end-to-end e-commerce platform for the entire buy-cycle to business users. At the same time end users are also forcing vendors to expand their service-mix and to adopt new business models at a very fast pace. User demands drive the growth patterns for the e-commerce market.

According to estatsIndia.com, an internet research agency, Indian e-commerce market was around Rs41 billion in 2005-06. B2C e-commerce market is expected to touch Rs92.59 billion in 2009 whereas B2B is expected to touch Rs13.55 billion by 2009 leaving enough opportunities for supply chain management and logistics companies to grow.

53


7. Technology and Innovation There has been a rapid improvement in technological development in the country, which has benefited the Air Transport System in India to a great extent. Despite impressive expansion over the years, the air transport network is characterised by many deficiencies and a major exercise in expansion of capacity and modernisation is necessary. This will have to be accompanied by technological upgradation in many critical areas. The need for new technology acquires greater urgency because the transport sector in India has been suffering from slow technological development for a long time. This has led to a situation of high cost, low energy efficiency, and slow movement of passenger and freight traffic. The magnitude of the task of capacity augmentation and replacement of over-aged assets offers an opportunity for technological upgradation in air transport system in India. Some technological developments in Indian aviation sector are given below:

7.1 Air Traffic Management (ATM) Airport Authority of India has taken various steps to modernise Air Traffic Control services at Delhi and Mumbai. The modernisation work has almost been completed at a cost of more than US$100m. Following systems have been provided: Air Route Surveillance Radars, Monopulse Secondary Surveillance Radars (MSSRs), Airport n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

54

Surveillance Radars (ASRs), Airport Surface Detection Equipment, Radar Data Processing Systems, Flight Data Processing Systems, Automatic Message Switching Systems (AMSS), Automatic Self Briefing Systems (ASBS), 12 VORs/DVORs with Remote Monitoring and Maintenance facility co-located with High Power DMEs for unidirectional airways. Radar Facilities Covering Major Routes: Besides above, six more ASRs/MSSRs have

been installed one each at Kolkata, Chennai, Thiruvananthapuram, Hyderabad, Guwahati and Ahmedabad.


7.2 Communication/Navigation/Surveillance Airport Authority of India has decided for planning, procuring and commissioning of all Communication, Navigation and Surveillance (CNS) facilities and support systems for air navigation based on short-term and long-term requirements to synchronise the organisation’s plan with International Civil Aviation Organisation's (ICAO) approved plans being managed by CNS Planning Department.

Preparation of qualitative requirements and system specifications in coordination with all concerned agencies / organisations, preparation of estimates, invitation of tenders, tender evaluation of technical and commercial bids, placement of orders factory inspection of equipment and its subsequent installation and commissioning are the responsibilities discharged by the CNS Planning Department. Conducting site surveys for equipment location, from technical and operational suitability point of view, coordination with planning, civil and electrical engineering departments for associated construction activities for installation and commissioning, post installation performance checks and organising flight calibration before equipment commissioning are the aspects intrinsically involved in the process.

To meet the challenges posed by ICAO CNS/ ATM transition plans for SATCOM based n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Air Traffic Management, the CNS Planning Department has already accomplished.

Automatic Dependent Surveillance (ADS): A system at Chennai has already been installed

and successfully tested for operations of ADS / CPDLC with FDPS and an additional system is under testing at Kolkata, both to be commissioned soon.

7.3. Electronic Data Interchange Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is the inter-organisational exchange of business documentation in structured, machine processable form over computer communication networks. In India, EDI implementation agencies are Ministry of Civil Aviation and Airport Authority of India.

55


•

Automation of cargo processing activities

and online data capturing was

introduced in 1999 at four metro airports, viz 

Delhi



Mumbai



Kolkata



Chennai

AAI is assisting automation of cargo processing activities at three non-metro airports— Bangalore, Hyderabad and Thiruvananthapuram.

Benefits of EDI 

The latest information and status of import / export cargo will be made available to the trader on the Internet.



There will be a drastic reduction in the human power deployment by the agencies at the cargo terminal for processing of their consignments, which will ultimately reduce the transaction cost of import and export cargo.



The importing/exporting community will be able to know the AAI charges applicable on a particular consignment at any given time through Internet.



Information about AAI and the regulatory and the facilitating agencies, cargo handling systems and procedures, facilities available, AAI-prescribed charges/rates,


do’s and don’ts etc. for the information and usage by the users are also available in the website.

7.4 Advance Passenger Information System (APIS) The Government of India had issued a notification for implementing INDIA-APIS from October 1, 2005 due to rise in volume of passenger traffic to India, although immigration counters and staff have not been increased at the same pace. Moreover, post 9/11, Border Control Agencies have to be more vigilant due to threat poised by global terrorism. In addition, inconvenience to passengers due to delays at immigration, customs and security also needs to be taken care of.

56


Operation process of INDIA-APIS 

The data in prescribed format captured at check-in time shall be transmitted by the Airlines within 15 minutes of take off of the aircraft to INDIA-APIS Data Centre





Data can be transmitted to INDIA-APIS Data Centre in two ways: o

From the Airlines Network to the Service Provider Network

o

Web-enabled data transmission, wherever such facility is not available

Data received by the service provider shall be transmitted to Immigration Central Hub and the Immigration system at the destination airport in India



Data received at the destination airport shall be processed and checked against the lists maintained by immigration authorities.



Immigration authorities at the destination airport shall be ready to clear the passengers expeditiously.

Implemented Technologies

Flight Data Processing System (FDPS) have been introduced at Nagpur, Trivandrum, Ahmedabad and Varanasi Airports to achieve improved automation of air traffic services.

Automatic Dependence System (ADS) with Control Pilot Data Link Communication (CPDLC) has been installed at Kolkata and Chennai Airports with similar systems also n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

57

being installed at Delhi and Mumbai Airports which will further enhance the surveillance over Indian Air Space. New Technologies

The following technologies will be deployed for implementation in airport environment. These technologies are proposed to be taken up during the 11th Five Year Plan for the development of the Civil Aviation Sector: 

IT based system to assess vehicular traffic volume for airport public access



LED based airport lighting and display technology



Intelligent Digital Surveillance



Integration techniques for Information




Information dissemination and On-line Payments through Internet



Radio Frequency based identification techniques



Wireless information technologies



Smart Card technology



Common Use IT systems



On-line Simulation of terminal congestion



Electronic Perimeter Security System and intrusion prevention



Explosive Detection technology



Satellite based CNS/ATM systems.


58


8. Major Players Introduction

Major players profiled in this section are selected from air transport system of logistics services in India. Information about these companies is taken from published secondary sources as well as through primary surveys, wherever needed. Airline companies covered represent the major ones, with significant presence in the domestic market.

Although a few multinational companies (like AFL, DHL and Fedex) are operating in India, they are not included in the list, as they are privately incorporated in India and hence their financial and other performance data is not published.

List of the major players profiled is given below: •

Indian (Indian Airlines)

•

Air India

•

Jet Airways

•

Blue Dart


59


8.1 Indian (Indian Airlines Ltd) 8.1.1 Corporate Profile Corporate Address: 113, Gurudwara Rakabganj Road New Delhi-110001 Telephone: 91-11-25675121 Fax : 91-11-23711730 Website: www.indian-airlines.nic.in Year of Incorporation: 1953 Sales Revenue: Rs62.48bn (Year ending 2005-06, anticipated) Fleet Size: 70 Key Activities: Passenger-oriented airlines

Subsidiaries •

Alliance Air

8.1.2 Business Profile Indian (formerly known as Indian Airlines) operates along with its wholly-owned subsidiary Alliance Air, one of the largest airline service providers in India. Indian Airlines was set up under the Air Corporation Act 1953 and was fully entrusted to provide the air transportation facilities in the domestic as well as neighbo uring countries. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Indian, today, with its fully-owned subsidiary Alliance Air, has a fleet of 70 aircraft (3 wide-bodied Airbus A300s, 47 fly-by-wire Airbus A320s, three Airbus A319s, 11 Boeing 737s, two Dornier Do-228 aircraft and four ATR-42. The Airlines' network spans from Kuwait in the west to Singapore in the East and covers 76 destinations—58 within India and 18 abroad. Along with its subsidiary, Indian Airlines carries over 7.5m passengers annually. Cargo Operations

The Indian Airline Cargo covers 63 destinations in India and 17 abroad. It has the largest cargo capacity amongst the domestic carriers and a network capacity of 1,000 tonnes per

60


day. During 2004-05, Indian has carried 107,270 tonnes of cargo against 93,287 tonnes during 2003-04, recording a growth rate of 15%.

8.1.3 Physical Performance of Indian 2002-03 Targets Ach

Available tonne km 1,303.44 1,308.02 (m) Revenue tonne km 842.28 845.1 (m) Overall Load 64.6 64.6 Factor (%) Avail. Seat 12,913.43 13,063.09 km (m) Rev. Pass. 8,132.46 7,777.69 km (m) Pass Load 63 59.5 Factor (%) Source: Planning Commission

2003-04 Targets Ach

2004-05 Targets Ach

2005-06 Targets Ach

1,340.33

1,334.07

1,439.84

1,472.06

2,168.01

1,594.05

897.44

877.5

959.78

1,017.3

1,370.21

1,134.56

67.0

65.8

66.7

69.1

63.2

71.2

13,500.8 14,645.57

14,891.32

1,9413.86

16256.04

13,478.11 8,484.8

8,168.04

9,036.1

9,598.2

12,622.97

10,893.73

63

60.5

61.7

64.5

65

67

8.1.4 Financial performance 

For the financial year ending March 31, 2005, operating revenue of Indian Airlines increased by 14.7% against the same period of the previous year.


61



For the financial year ending March 31, 2005, Indian Airlines recorded a net profit of Rs0.66 billion against Rs0.44 billion in 2003-04 (See Figure 8.2), owing to cost control measures, improved on-time performance, and increased utilisation of aircraft.


Figure 8.1: Revenues (Rs bn)

Figure 8.2: PAT (Rs bn)

1

60

53.63

0.5

47.26

50

0.44

41.74

0.66

0

40

2002-03

-0.5

30

-1

20

-1.5

2003-04

2004-05

-2

10

1.96 -2.5

0 2002-03

2003-04

2004-05

Source: Ministry of Civil Aviation, Annual Report 2005-06, 2004-05

Financial Highlights Table 8.1 : Financial Highlights 2002-03

2003-04

Rs m 2004-05

Total Revenue

41,735.2

47,256.7

53,625.7

Employee Cost

10,737.6

11,542.9

NA

PBDIT

33,97.4

5,544.6

NA

Depreciation

31,79.4

3,061.8

NA

Interest & Financial Charges

2,129.7

1,953.5

NA

PBT

-1,965.6

481.7

716.1

PAT

-1,965.6

441.7

656.1

1,267.7

3,551.1

NA

-4,469.4

-3,990.5

-3,333.6

1,071.4

1,071.4

NA

Fixed Assets (Gross Block )

54,849.4

54,624.2

NA

Total Debt

11,393.3

7,229.6

NA

Net Working Capital

-1,941.88

-1,927.16

NA

Key Ratios

2002-03

2003-04

2004-05

-

-

-

0.48

0.45

0.48

Operating Profit Margin (%)

-3.28

2.69

1.16

Net Profit Margin (%)

-4.69

0.93

1.22

P&L


Cash Profit Balance Sheet

Net Worth Capital Employed

Debt-Equity Ratio Current Ratio

Source:www.moneypore.com

62


8.1.5 Business Strategies Indian has decided to augment its fleet size in view of robust demand. For the 11th Five Year Plan (2007-08 to 2011-12), the premier carrier has decided to increase its fleet strength to another 43 aircrafts with an estimated cost of Rs78.59 billion.

In a major development in MRO, Indian, formerly Indian Airlines signed an agreement with the Bangalore-based Jupiter Aviation and Logistics for the latter to set up an MRO facility for its aircraft airframe maintenance. Aircraft manufacturer Airbus/EADS will provide necessary support. EADS had signed an MoU with Jupiter Aviation and Logistics. A strategic MoU was signed for setting up the facility, initially to cover Airbus A320 family aircraft. Indian is a major operator of Airbus aircraft and is all set to induct 43 new Airbus A320 family aircrafts into its fleet. Currently, it operates 48 A320s, six A319 and three A300 aircrafts. The MRO facility will be extended to Airbus aircraft of other airlines and also to aircraft other than Airbus family. Cargo Promotion and Marketing •

Indian has signed an agreement to automate its cargo processes

•

Indian has also signed Special Prorate Agreement (Cargo) with British Midland, UPS, Virgin Atlantic and Austrian Airlines and renewed the agreement with


63

Federal Express, Kuwait Airways and Cathay Pacific •

Strategic tie ups with M/s European Cargo Services (Asia Pte Ltd), M/s EAS International

Transportation

(Singapore

Pte

Ltd)

and

M/s

GATI

on

Singapore/India route were executed •

Special ‘on board courier’ rates ex-Indian and International stations and Indian network

•

Tender for conversion of five B-737-200 aircraft into freighter has already been released


8.2 Air India Ltd 8.2.1 Corporate Profile Corporate Address: Air India Building Nariman Point, Mumbai Telephone: 91-22-2279 6666 WebSite: www.airindia.com Year of Incorporation: 1932 Sales Revenue: Rs93.45bn (2005-06,) Fleet Size: 34 Key Activities: Passenger-oriented airlines

Air India is India's national flag carrier. Tata Airlines, as Air India was earlier known, consisted of one Puss Moth, one Leopard Moth, one palm-thatched shed, one whole time pilot assisted by Tata and Vincent, one part-time engineer, two apprentice-mechanics and unlimited optimism.

In 1933, the first full year of its operations, Tata Airlines flew 160,000 miles, carried 155 passengers and 10.71 tonnes of mail. Tata Airlines was converted into a public company under the name of Air India in July 29, 1946. In 1947, it had submitted a plan to the n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Government of India for the formation of Air India International Ltd with Government participation to operate international route and finally in 1948, Air India International launched its first service to London via Cairo and Geneva on June 08, 1948. In 1952, the Government of India nationalised the air transport industry on the recommendation of Planning Commission, which created two nationalised corporations viz Air India International Ltd for international route and Indian Airlines to operate domestic services. In May 1992, Air India Ltd was incorporated as public limited company under the Companies Act, 1956.

8.2.2 Business Profile Air India Ltd, the state-owned carrier, has fleet of 34 aircrafts, comprising eight B747400 including two aircrafts on lease, one B747-400 (COMBI) on dry lease, two B747-

64


300 (COMBI), four B777-200 on dry lease and 19 A310-300 and 11 of total 19 Airbus aircrafts are on lease. In addition, Air India Express, the wholly-owned/operated subsidiary of Air India Ltd owns 13 B737-800 out of which, seven aircrafts are on dry lease. Air India started with three destinations during the time of nationalisation; today it covers 44 destinations by operating services with its own aircraft and through code-shared flights. Cargo Operations

Air India has the infrastructure and the network to ensure smooth transportation and delivery of cargo across the world. In India, it serves 13-city networks, which provide hassle-free and direct customs clearance to both export and import cargo. In India, it operates to Mumbai, Delhi, Chennai, Thiruvananthapuram, Hyderabad, Bangalore, Kolkata, Ahmedabad, Goa, Kochi, Kozhikode and Lucknow. Internationally, Air India has tied up with various foreign airlines and trucking companies for smooth operation of air cargo.

8.2.3 Physical Performance of Air India Ltd Table 8.2: Physical Performance of Air India Ltd n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

2002-03 Targets

2003-04

Ach

Targets

2004-05

Ach

Targets

2005-06

Ach

Targets

Ach

Available tonne km (m)

2393.9

2415.9

2759.8

2897.5

3317.3

3600.4

2126.1

4191.4

Revenue tonne km (m)

1481.2

1561.0

1712.4

1774.0

2025.9

2218.0

1320.8

2369.5

Overall Load Factor (%)

61.9

64.6

62

61.2

61.1

61.6

62.1

58.5

Avail. Seat km (m)

17714.6

18093. 2

20256.3

21624.6

24435.2

27137.6

15602.4

30973.4

Rev. Pass. km (m)

12145.2

12962. 7

14278.9

15249.9

17351.0

18950.0

11121.3

20558.6

68.6

71.6

70.5

70.5

71.0

69.8

71.3

66.4

Pass Load Factor (%)

Source: Planning Commission

65


8.2.4 Financial Performance Figure 8.3 : Revenue (Rs bn)

Revenue up by 19.27% in FY06

For the financial year ending March

100 90

31, 2006, the total revenue of the

80 70

company

60 50 40

consisting

of

passenger,

excess baggage, mail, cargo, charter and handling /services/miscellaneous was Rs93.45 billion, grew by 19.27%

93.46 78.35 63.41

30 20 10 0 2003-04

2004-05

2005-06

against the same period previous year (See Figure 8.3).

Figure 8.4 Net Profit (Rs bn) 1.2

PAT declines in FY06

For the financial year ending March 31, 2006, Air India recorded a net profit of Rs0.15 billion against Rs0.96 billion, sharp fall in net profit due to rise in international fuel prices as well rise in other operational charges, particularly landing charges, rise in n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

66

1

0.93

0.96

0.8 0.6 0.4 0.15

0.2 0 2003-04

2004-05

2005-06

Source: www.moneypore.com

employee cost etc (See Figure 8.4).


Financial Highlights Table 8.3: Financial Highlights P&L

2003-04

2004-05

Total Revenue

63411.7 11130.4

78352.2 11821.4

Rs m 2005-06 93455.1 12443.7

PBDIT

5766.1

5549.5

5050.1

Depreciation

4433.1

4260.3

4061.9


396.3

323.8

838.8

PBT

936.7

965.4

149.4

PAT

925.3

963.6

149.4

5223.9

4211.3

Employee Cost

Cash Profit

5358.4

Balance Sheet

Net Worth

2458.5

3249.6

3398.0

Capital Employed

1538.4

1538.4

1538.4

Fixed Assets (Gross Block ) Total Debt

71166.3

71397.2

82885.9

14785.7

12619.6

36228.2

Net Working Capital

23805.2

26016.0

36984.2

2003-04

2004-05

2005-06

Debt-Equity Ratio

9.13

4.80

7.35

Current Ratio

0.76

0.82

1.34


9.38

7.31

5.58


1.51

1.27

0.03

Key Ratios

Source:www.moneypore.com n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

8.2.5 Business Strategies Air India, the public sector airline operator, which currently has leased belly space on Falcon Aviation to fulfil the demand on the Kerala-Gulf and the India-Germany sectors, is in the process of converting two of its A310 aircrafts into freighter aircrafts by September 2007. In addition, the airline is expecting addition of some new fleet for the quarter ended December 2006. This is likely to enhance its cargo capacity. India is emerging as a major air cargo hub in Asia. Air India Ltd has recently formed a joint venture with Singapore Airport Terminal Services Ltd (SATS). The cargo-handling facility of AI-SATS will have two warehouse floors with a gross floor area of 18,000sq m. In addition, it will have a design capacity to handle more than 150,000 tonnes of

67


cargo. Both the entities will jointly invest more than Rs800m in the development of this project. Merger of Air India and Indian

The Ministry of Civil Aviation has decided to merge the state-owned two air carriers, Air India and Indian; the merger has been under consideration for quite sometime. The merger would be in the interest of both Air India and Indian Airlines and the advantages that are likely to follow are as under: •

Competitive Strength: The combined revenue of the two airlines was around

Rs130.4 billion in 2004-05 and that would place the merged entity at 35 in the world ranking as against the present ranking of 48 in case of Air India and 70 in case of Indian Airlines. The ranking would further improve to 20 with induction of new fleet, which would help the merged entity to be more competitive in the international market. •

Controlling Cost: High operating cost in airline business is an important

characteristic and smaller or inefficient airlines often find difficult to control cost. The merged entity would help in eliminating number of common costs such as marketing, advertisement etc and that will help them to control the cost and stay competitive •


68

Improving Market Share: There has been a sharp fall in the market share of both

Air India and Indian, which has declined from 24.5% and 100% respectively in 1990 to 19.5% and 31% in 2005, mainly due to rising competition from private players. Both the airlines have been competing with each other in some of the sectors and eroding market share. Therefore, the merger will eliminate this kind of unproductive competition and would definitely help in improving combined market share.


8.3 Jet Airways 8.3.1 Corporate Profile Corporate Address: Jet Airways (India) Ltd. SM Centre, Andheri Kurla road, Andheri (East) Mumbai – 400059, India Fax: +91 22 2920 13 13 Phone: +91 22 4019 10 00 Website: www.jetairways.com Year of Incorporation: 1992 Sales Revenue: Rs61.35bn (Year ending Mar 31, 2006) Fleet Size: 62 Key Activities: 1. Domestic Aviation 2. Cargo 3. Recently started International Aviation

Management Naresh Goyal, Chairman Ali Ismail Ghandour, Director Victoriano P Dungca, Director Javed Akhtar, Director IM Kadri, Director Charles A Adams, Director PRS Oberoi, Director Aman Mehta, Director Vijay Laxman Kelkar, Director Satyan G Pitroda, Director Saroj K Datta, Executive Director

8.3.2 Business Profile Jet Airways (India) Limited was established by Mr. Naresh Goyal. It n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Figure 8.5 operating revenue break-up (2005-06)

started its commercial operation on May 05, 1993. It started off with a fleet of four aircrafts and grew to

become

India's

largest

airline

Cargo, 5.39% Extra Baggage, 0.89%

Others, 1.18%

service provider with a market share of 34.9% at end of December 2006. It has a fleet of 62 planes. Total fleet comprises 13 Boeing 737700s, 28 Boeing 737-800s, six Boeing 737-400s, two Boeing 737900s, two Airbus 330-200s, three

Passenger, 92.54%

Source: Jet Airways Annual Report 2005-06

Airbus 340-300E, and eight ATR 69


72-500. Jet Airways operates over 330 flights daily to 44 destinations across India and to six international destinations including London (Heathrow), Kuala Lumpur, Singapore, Bangkok, Colombo and Kathmandu. The company has nosed ahead of state-owned Indian Airlines, which for decades dominated the domestic air services.

8.3.3 Cargo Operations Jet Airways with its fleet of 62 modern and next generation aircraft offers seamless connection throughout the world on its own and with its partner airline network. Revenues from carriage of cargo increased by 65.2% from Rs1,856m in 2004-05 to Rs3,067m in 2005-06, primarily because tonnage carried increased from 98,840 tonnes in 2004-05 to 115,715 tonnes in 2005-06. This increase in tonnage was largely due to the commencement of long-haul international operations to London using wide-body aircraft, which have significantly higher cargo-carrying capacity than other aircraft in the fleet.

8.3.4 Financial Performance Riding

high

on

the

Figure 8.6 Total Revenue (Rs bn)

booming

economy, and growing IT/ITES and tourism sectors, total revenue for Jet Airways in 2005-06 witnessed an n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

70

70 60

40

reach Rs61.35 billion against Rs44.2

30

The

unprecedented

achieved

due

to

growth

was

operational

44.2

50

outstanding growth rate of 38.8% to

billion in 2004-05 (See Figure 8.6).

61.35

35.66

20 10 0 2003-04

2004-05

2005-06

efficiency, higher load factors and rise in fleet capacity with available seat kilometres (ASKMs), which has


gone up by 35.6% in 2005-06 against the same period of the previous year. In addition, rise in fare has attributed to this excellent growth in total revenues of Jet Airways.


Figure 8.7 PAT (Rs bn)

PAT rises by 15.6% in FY06

For the year ending March 31, 2006, Jet

5 4 .5 4 3 .5 3 2 .5 2 1 .5 1 0 .5 0

Airways posed a net profit of Rs4.52 billion as compared to Rs3.91 billion in the corresponding period of the previous year (See Figure 8.7).

4.52 3.91

1.63

200 3-0 4

2004- 05

2005-06


8.3.5. Financial Highlights

Table 8.4: Financial Highlights P&L

2003-04

2004-05

Rs mn 2005-06

Sales

35657.4

44201.7

61354.7

Employee Cost

2770.9

3669.3

5403.8

Selling & Administration Cost

7579.3

8995.3

14178.8

PBDIT

9824.0

12927.8

13702.0

Depreciation

5151.5

4570.0

4064.1


2891.4

2536.6

2416.0

PBT

1781.1

5820.9

7221.9

PAT

1631.1

3919.9

4520.4

22.63

44.99

51.52

6781.5

8480

8584.1

4174.1 27744 51770

20101.6 38951.1 52341.1

23058.8 58014.2 70377.3

32099.9

29648.4

48956

2852.5

5457.0

4499.0

EPS (Rs) Cash Profit n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Balance Sheet

Net Worth Capital Employed Fixed Assets (Gross Block + WIP) Total Debt Net Working Capital

2003-04

2004-05

2005-06

72.01

3.47

2.02

Current Ratio

1.91

3.47

3.06

Interest Cover Ratio

1.46

3.29

2.65

Debtors Turnover Ratio

14.70

17.19

13.14


27.16

29.80

18.39

3.51

9.04

4.31

11.69

20.70

10.90

320.74

42.87

12.60

Key Ratios

Debt-Equity Ratio

Net Profit Margin (%) Return on Capital Employed (%) Return on Net Worth (%) Source: www.moneypore.com

71


8.3.6 Business Strategies Jet Airways, India’s largest private sector airline service provider, acquired Air Sahara in all cash deal for Rs14.50 billion, of which a sum of Rs5 billion had already been paid to the selling shareholders in March 2006. The transaction is 40% less than the price Rs23.00 billion that Jet Airways had agreed to pay for the acquisition of Air Sahara in January 2006. The acquisition is the largest deal in Indian aviation industry. With the acquisition, Jet-Sahara would change the scenario of the Indian aviation industry in the coming years. According to the agreement, Jet Airways is supposed to pay Rs4 billion on or before April 20, 2007, the balance of Rs5.5 billion will be payable in instalments commencing from March 2008 and ending in March 2011. Benefits of Acquisition •

It offers a strong platform and a larger operational base for future growth.

•

Achieves a wider and a more effective coverage of the Indian market, giving the two airlines a very strong position, especially in the metro markets

•

Increased primetime departures and frequencies through a subsidiary

•

Obtaining access to skilled personnel such as pilots and engineers, for which there is a significant shortage in India at present.

•


72

Unit cost savings and improved levels of productivity due economies of scale and common utilisation of facilities and resources, arising particularly from common maintenance and training facilities, airport-handling facilities, enhanced purchasing power, finance and administrative set-ups

•

Clear value proposition for the customers in the form of wider network coverage, enhanced and convenient connections and better service levels on a larger scale of operations.

•

Increased availability of airport infrastructure facilities

•

Since Sahara Airlines will operate as an independent carrier with its own operating permit, it will have access to available traffic rights for international operations


Jet Airways has decided to augment its fleet by adding another 22 aircrafts by March 2009 to increase the total number of aircrafts in its fleet to 84. Jet Airways has plans to start a domestic cargo airline. The airliner has mooted a feasibility study for this purpose. The company would initially convert its old passenger aircraft into freighters to cater to the booming domestic air cargo market.


73


8.4 Blue Dart 8.4.1 Corporate Profile Corporate Address: Blue Dart Centre, Sahar Airport Road Andheri (E), Mumbai - 400099, Maharashtra, India Tel: +91 22 28396444 Fax: +91 22 28244131 Website: www.bluedart.com Year of Incorporation: 1983 Sales Revenue: Rs6.68bn (By the end of Dec 2006) Fleet Size: 7 (Freighter Aircraft)

Management Air Marshal SS Ramdas (Retd), Chairman Anil Khanna, Managing Director Malcolm Monteiro, Director Clyde C Cooper, Director Suresh Sheth, Director Greg Tanner, Director Ross Allen, Alternate Director to Mr Greg Tanner

Key Activities: Courier and integrated air cargo  and distribution company

Subsidiaries

Blue Dart Aviation

•

8.4.2 Business Profile Blue Dart Express Limited is a leading courier and integrated air express package n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

distribution company and premium logistics service provider in the county. In 1983, it started its operation. It possesses vast integrated infrastructure network. Currently, it operates 14,400 domestic locations and more than 220 international locations. In pursuit of sustainable leadership in quality services, the company has evolved an infrastructure unique in the country today. The main advantages associated with the company are: 

State-of-the-art technology, indigenously developed, for Track and Trace, MIS, ERP, Customer Service, Space Control and Reservations



Blue Dart Aviation, dedicated capacity to support time-definite morning deliveries through night freighter flight operations.



Warehouses at 38 locations across the country as well as bonded warehouses at the six major metros of Bangalore, Chennai, Delhi, Mumbai, Kolkata and

74


Hyderabad. It has joined hands with DHL Express besides forming a strategic partnership with Sri Lankan Airlines and Polar Air. 

In 2006, Blue Dart has handled 57m domestic and 630,000 international shipments weighing 152,000 tonnes. Figure 8.8: Sales (Rs bn)

Figure 8.9 Profit After Tax (Rs m)

600

8 7 8 6 . 6

6 5 8 5 . 4

4 3

5 5 . 3

500

3 . 2 0

400 300

5 1 . 4

200

2

. 4 3 4

4 . 0 9 3 8 . 4 6 2

100

1

0

0 2003-04

2004-05

2005 (9)

Source: www.monyepore.com

2006

2003-04

2004-05

2005 (9)

2006

Source: www.monyepore.com

8.4.3 Financial Performance  n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

75

The company has changed its financial year to calendar year basis from April 1, 2005. Accordingly, the current accounting period of the company is for the nine months ended December 31, 2005. During 2006, Blue Dart has leveraged its assets, infrastructure and investments, resulting in improved productivity and performance. The operating profits increased owing to higher sales and control over costs.



During 2006, Blue Dart’s net sales grew by 60.93% to Rs6.68 billion over the Rs4.15 billion for nine months period of 2005 (See Figure 8.8). During the same period, net profit also registered a 15.71% growth rate and touched a record Rs502.3m (See Figure 8.9).


1

Financial Highlights Table 8.5 : Financial Highlights

Rs m P&L

2003-04

Sales

2004-05

2005 (9)

2006

3548.6 536.6

4583.3 658.0

4150.9 573.2

6680.2 920.3

Selling & Administration Cost

290.1

428.5

305.5

470.4

PBDIT

558.3

808.1

816.6

1016.6

Depreciation

100.1

153.2

131.4

220.1

45.2

53.6

23.6

17.8

PBT

413.0

601.3

661.6

778.7

PAT

264.8

390.4

434.1

502.3

EPS (Rs)

10.57

16.01

24.08

21.00

Cash Profit

364.9

543.6

565.5

722.4

Employee Cost


Balance Sheet

Net Worth Capital Employed Fixed Assets (Gross Block + WIP) Total Debt

1324.2

2027.0

237.6

237.6

237.6

237.6

1922.1

2341.7

2417.2

2458.2

653.0

538.1

419.7

101.8

Net Working Capital

191.0

252.1

464.4

2004-05 0.40

2005 (9Month) 0.26

2006

Debt-Equity Ratio

2003-04 0.47

Current Ratio Interest Cover Ratio

2.24 10.14

1.76 12.22

2.10 29.03

2.18

Debtors Turnover Ratio

7.80

8.14

6.19

7.52


15.73

17.63

19.67

15.22


7.46

8.52

10.46

7.52

Return on Capital Employed (%)

25.07 21.15

31.67 26.40

39.64 31.62

31.57

Key Ratios


1633.4

Return on Net Worth (%)

2502.2

611.9

0.12 44.75

22.18

Source:www.moneypore.com

8.4.4 Recent Developments & Business strategies Blue Dart has made the transition from an international express consolidator to a focused domestic player. It is the only Indian air express company that has invested extensively in technology infrastructure to create differentiated delivery capabilities, quality services and customised solutions for the customer. Some of the technology-based business

76


offerings are as follows: Internet Dart, Shop Track, Pack Track, Mobile Dart, Ship Dart and Image Dart. Blue Dart Aviation Ltd (BDAL) added two leased Boeing 757 freighters to their fleet. The new aircrafts will be positioned at Chennai and Kolkata. The freighters will increase the capacity of the BDAL’s regular night flights to 250 tonnes from 166 tonnes. With the two new freighter aircrafts, BDAL’s total freighter aircraft fleet will reach seven.


77


9. Cost Structure

9.1 Cost Drivers Logistics plays a crucial role in India’s booming economy, trade and manufacturing sector. Transportation accounts for major share of logistics costs in India. In the entire logistics market, transport services that play a crucial role are aviation, shipping, road transport and railways. Some cost components are significant and constitute a major part of the entire operation. Undoubtedly, fuel cost accounts for the highest in all four segments and plays a crucial role in terms of profitability.

9.1.1 Air Transport System in India Aviation Turbine Fuel (ATF) constitutes the highest cost component in air transport system. The ATF cost has increased dramatically over the last couple of years due to rise in international crude oil prices. ATF constitutes around 36% of the total cost of aviation companies (See Figure 9.1). The price of this fuel is linked to international price of crude oil, which is often influenced by geopolitical issues, various supply and demand factors including periods of market surplus and shortage and government regulations. During 2005-06, India’s largest private airline operator Jet Airways’s fuel bill was Rs16,789m against Rs10,517m in 2004-05, up by 59.6%. This clearly indicates that the fuel bill is n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

eating away the major portion of their income. Percentage share of fuel to total cost for Air India Ltd has increased from 20.6% in 2002-03 to around 36% in 2005-06.

Rising staff cost is another important feature in Indian aviation industry due to shortages of skilled technical people in the country as well as rising demand for technical people which constitutes around 13% of the total cost of the sector. This has increased the employee attrition rate. Jet Airways’s cost of employees has increased from 8.16% in 2003-04 to 9.91% in 2005-06, which is mainly due to the difference between demand and supply of human resources for aviation sector in India. Companies are taking several measures to reduce the attrition in the sector by providing various incentives and bonus to the employees.

78


Repairs and maintenance

Figure 9.1: Cost Component of Air Transport in India

cost works out to about 12%

for

the

aviation

10.60%

companies mainly due to

4%

the high average age of

36%

10%

fleet in India. For instance, average age of Air India’s

5%

fleet is around 16.23 years,

2% 7.40%

Indian years

Airlines and

Jet

is

15.8

13% 12%

Airways

average fleet age is 5.3 years. Aircraft

rentals

have

relatively

declined

from

Air Turbine Fuel Repairs & Maintenance Insurance Financial charges Others

Employees Rentals Landing & other related charges Depreciation

Source: Cygnus Research

around 11% in 2002-03 to around 7.5% in 2005-06. There has been a dramatic rise in aircraft rentals for Jet Airways in 2005-06 to around Rs4,340m against Rs1,986m in 2004-05.


79

Operating expenses like landing charges, route navigation facility charges, terminal navigation landing charges and aircraft parking bay form 5% of total expenses. These charges are determined by Airports Authority of India, except for Cochin International Airport for which charges are determined by Cochin International Airport Limited, a private organisation. Financial charges form 10% of total expenses and depreciation expenses amount to around 4% of total expenses. Insurance expenses constitute around 2% of total expenses. Other expenses that include advertising and sales promotion activities, general and administrative expenses amount to 10.6% of total expenses.


10. Issues and Challenges

10.1 Major Indian Airports Running Out of Capacity Major Indian airports are facing huge capacity constraints in terms of passenger traffic as well as cargo traffic and on the other hand smaller Indian airports continue to be underutilised. According the Ministry of Civil Aviation, airports at Delhi and Mumbai a re either fully utilised or close to full utilisation. Both airports have parallel runways that limit aircraft movements and suffer from terminal as well as apron constraints. Indeed, insufficient cargo bays, inadequate ground-handling facilities and shortage of runways are resulting in considerable delays. The capacity utilisation at AAI airports in 2005-06 is more than 140%, which is further increasing. In India, Mumbai and Delhi airports handle lion share of the country’s passenger and cargo traffic. Both the airports handle only 30-35 aircraft take offs / landings per hour compared to 70-75 aircraft per hour in other major international airports.

10.2 High Waiting Time and Congestion in Airports In India, there is rise in congestion and waiting time, especially during peak hours due to lack of adequate technological development etc. As a result, airports suffer from high n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

waiting time and congestion. Average waiting time for export cargo is 2.11 days (50 hours 37 minutes) and for import cargo, it is around 7.58 days (182 hours 32 minutes). While, at the best of international airports, the average dwell time of exports is about 12 hours, while the average dwell time of imports is 24 hours. In India, ATC delays cost the sector immensely. The sector is incurring huge losses; 5-10% additional flying time cost is around US$80m per annum. Therefore, three areas require immediate attention from the government—upgradation of technology, simplification of procedures and reduction in waiting time. Growing air cargo traffic in India has thrown a challenge for existing cargo-handling facilities in the airports. There are several problems including poor warehousing facilities, complex procedures, various third-party interferences in cargo processing, improper execution of

80


Electronic Data Interchange, outdated handling equipment, lack of improved inventory system and absence of improved access to the cargo terminals. The cargo-handling terminals are unable to cope with a surge in volumes. Not surprisingly, the incumbent airlines with existing slots and parking capacity hold an edge over new entrants. With a number of new players set to enter the Indian aviation sector in the near future, the infrastructural constraints at major airports are likely to worsen and hinder the robust growth of the sector. A multi-pronged approach—involving activation of dormant airports, augmentation of existing capacity, switching to multiple-airport concept and the expansion of existing facilities—could relieve the pressure on major airports.

10.3 High Fuel Cost High fuel prices in India is one of the major challenges for the aviation industry. It is eating away the profits of the airline service providers. In India, the ATF prices continue to be much higher than global rates, making ATF account for 35-40% of operating cost, as against global average of 20-25%. The ATF in India is around 70% higher than the global figure, resulting in huge losses for the sector. During 2006-07, it is estimated that aviation industry losses were around US$500m. ATF cost per kilometre in Delhi is n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

81

US$755, in Mumbai it is US$780, while in Singapore, it is US$455 and in Dubai, it is US$497.

10.4 Taxation The sales tax on ATF varies from state to state. In some states, the sales tax is as high as 30%. The significance of this issue is underscored by the fact that the fuel bill typically accounts for around 35% of the operational costs. The Government of India had initially imposed 10.2% service tax (which has gone up to 12% in April 2006) on landing, airport and air navigation charges, which add to the total costs. (Comparative airport charges are given in table 10.1) These will have a negative impact on the country’s air transport


sector. However, the introduction of value-added tax on a nationwide basis from April 1, 2005 has removed some of these tax anomalies.

Country India Singapore Thailand Malaysia UAE (Dubai) UAE (Abu Dhabi) Oman Bangladesh Sri Lanka

Qatar Bahrain USA (Miami) Australia (Melbourne)

Table 10.1 Comparative Airport Charges Landing TNLC* RNFC* Charges 11996 5,749 5,823 17,458 NA NA 5,238 NA 16,108 5,865 NA 375 11,199 NA 230 10,582 NA 230 9,305 NA 4,968 4,723 NA 798 13,064 NA 4,600 Nepal 6,726 15,164 NA NA 12,127 NA 2,306 13,906 NA 2,342

NA

10,003

4,932

Total 23,568 17,458 21,346 6,240 11,429 10,812 14,273 5,521 17,664 NA 15,164 14,433 16,249

Average 23,568

13,250 NA

14,935 Difference Difference

10,318 78%

*RNFC- Route Navigation Facility Charges *TNLC- Terminal Navigation Landing Charges All charges calculated for domestic flights, for a B737-800 with MTOW of 71tonnes. For RNFC calculations, a stage length of 151 nautical miles (Mumbai-Aurangabad) has been used Source: IATA Airport & Air Navigational Charges Manual – March 2006

10.5 Aviation Security n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

82

Post 9/11 terrorist attacks, the aviation security has assumed importance worldwide. Indian airports, besides facing the usual security problems and challenges, are also confronted with unique problems. Now aviation security has to conform to international norms, which is a challenge for most Indian airports. An issue that is common to all Indian airports is the involvement of multiple agencies and lack of clear demarcation of roles. Now a variety of central and state agencies such as the state police, Central Industrial Security Force and AAI in addition to airlines themselves are involved in airport security. The security tasks are neither prioritised nor assigned to a specific agency, resulting in confusion.


6,726

Moreover, offences relating to aviation are tried under the Indian Penal Code, the Indian statutory act for criminal offences, which lacks special provisions to address issues unique to aviation. The Naresh Chandra Committee—appointed by the Indian government to prepare a road map for the civil aviation sector in July 2003—in its report submitted in two parts in 2003 and 2004, recommended that the Bureau of Civil Aviation Security and the security forces, providing aviation-related security, should be granted special powers.

10.6 Lack of Human Power India’s civil aviation sector has been experiencing acute shortage of human resources, especially in case of pilots, which is mainly due to unprecedented growth in air traffic (both passenger and cargo), and in view of the emergence of large number of air carriers including LCC in the last couple of years. According to Sub-Group on Human Resource Development for the Civil Aviation Sector, India would need 5,400 pilots by the end of the 11th Five Year Plan. Thereafter, there would be requirement of at least 150 pilots per year as replacements for retirements and normal attrition. Shortage of aircraft maintenance engineers/technicians (AME) in India is another important bottleneck for air carriers. Though AME institutes produce around 5,000 students every year, they provide only basic Ab Initio training for issuance of basic n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

licence. However, to meet the DGCA requirements, the trainees need to undergo an additional minimum one-year experience on heavy airplanes and get a type-rated licence. No other carriers except public carriers in India have developed an institutionalised system of training for aviation engineers. With MRO facilities being set up by M/s Boeing and M/s Airbus as a part of the package negotiated in connection with order of Air India and Indian Airlines for purchase of aircraft, the requirement of personnel for aviation engineers and technicians could only rise further. Air Traffic Control is a critical component of the civil aviation infrastructure. The surge in air traffic has exponentially increased the aircraft landing and take-offs at India’s airports and also the over-flights across the Indian skies. According to estimates, India would need around 1,150 controllers and an additional 1,000 new personnel by 2015 to keep up with the increasing number of flights and the new airports.

83


11. Government Initiatives, Schemes & Regulations

11.1 Introduction The Government of India, in a historic development, had enacted Air Transportation Act 1953 in order to boost the India’s aviation sector and hence overall economy by allowing the private players to enter in the domestic market besides the two state-owned airline service providers (Air India and Indian Airlines). Airports play a crucial role in shaping a country’s identity and act as a window to the world. Therefore, the Government of India has emphasized the significance of airport infrastructure in order to meeting the growing demand for better air transportation facilities and also to complement the increasing economic activity. The quality of airport infrastructure, which is a vital component of the overall transportation network, contributes directly to a country's international competitiveness and the flow of foreign investment.

The Government of India has been taking many positive steps in the post-liberalisation period to give a boost to the country’s vital infrastructure sector. The steps include allowing private sector participation in the infrastructure sector, which was in need of urgent augmentation. Over the past few years, India has also tried to attract Foreign Direct Investment (FDI) in the infrastructure sector especially in roads, seaports and n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

84

airports. The country has reached a situation wherein 100% FDI is now allowed in most of the infrastructure sectors. Significantly, in the aviation sector, 1 00% FDI is permissible for existing airports; FIPB approval is required for FDI beyond 74% and for Greenfield airports, 100% FDI under automatic route is permissible. Open Sky Policy of the Government and rapid air traffic growth have resulted in the entry of several new privately-owned airlines and increased frequency/flights for international airlines. There is 100% tax exemption for airport projects for a period p eriod of ten years.


11.2 Requirements for Becoming Air Cargo Operator An Air Cargo Operator's (ACO) Permit can be granted to:

1. Citizen of India; or 2. A Non-Resident Indian (NRI); or 3. A company, registered under the Companies Act, 1956, having its principal place of business within India and with or without foreign equity participation (excluding NRI equity) limited to 49%; or 4. The Central Government or state government or an Undertaking owned or controlled by either of the said Governments. •

Air Cargo Operations shall be carriers of cargo, mail. Passengers are not permissible in cargo operations.

•

It can be scheduled or non-scheduled operations.

•

Operations would be to destinations within India. For operations outside India, specific permission of the DGCA would be necessary demonstrating capability for conducting such operations.

•

Before applying of Air Cargo Operators' Permit, an applicant should be in possession of an aircraft with Certificate of Airworthiness in Normal Goods category.


•

Applicants should either have their own maintenance and repair facilities approved by the DGCA or should furnish proof of availability of such facilities and flight crew members and aircraft maintenance engineers, duly licensed by DGCA.

•

An applicant should conduct operations from approved operational and maintenance bases and should abide by the prescribed operational requirements.

•

An applicant should get the security programme approved by Bureau of Civil Aviation Security before grant of ACO permit.

•

The NOC for operating air transport services is valid for one year. Extension of validity of NOC is granted up to a period of six months on merits of each case. These period related restrictions apply in respect of dry lease and outright purchase of aircraft as well. However, when the aircraft, proposed to be

85


imported, is a new one with a definite delivery schedule, extension of NOC is allowed for the actual lead time of delivery, even if it exceeds the total period of one and half year. •

Air Cargo Operators' Permit is renewable every year.

•

Air Cargo Operators' Permit is not transferable.

11.3 Guidelines for Foreign Equity Participation in the Domestic Air Transport Sector The Domestic Air Transport Policy, approved by the government, provides for foreign equity participation up to 49% and investment by NRIs up to 100% in the domestic air transport services. Foreign airlines are, however, not permitted to pick up equity directly or indirectly.

1. Permission to operate scheduled services will be granted either: i.

to a citizen of India; or

ii.

to a company or a body corporate provided that; •

It is registered and has its principal place of business within India;

•

Its Chairman and at least two-thirds of its Directors are citizens of India; and


•

Its substantial ownership and effective control is vested in Indian nationals.

2. Foreign Financial Institutions and other entities that seek to hold equity in the domestic air transport sector shall not have foreign airlines as their shareho lders. 3. An applicant shall be required to furnish full and detailed information with regard to the shareholding of any airline in the foreign investing institution/entity, if any, and composition of the Board of Directors and senior management of the said foreign investing institution/entity. 4. An applicant who seeks permission to operate air transport services in the domestic sector shall be required to give a declaration that no foreign airline is in financial or commercial tie up with him/her or has the management/ownership interest in him/her.

86


5. While the foreign investing institution/entity, which seeks to hold equity in the domestic air transport sector, may have representation on the Board of Directors of the Company, such representation shall not exceed 1/3rd of the total. 6. Any Foreign Financial Institution/entity, which seeks to make investment in the domestic air transport sector, shall not be a subsidiary of a foreign airline. A leasing company leasing aircraft to an operator in the domestic air transport sector shall also not be a part of an airline. However, wet leasing of an aircraft may be allowed from any

source

subject

to

the

fulfilment

of

the

guidelines

issued

by

the

Government/DGCA. 7. Domestic sector air transport operators shall not have agreements such as shareholders

agreements

etc.

with

a

foreign

airline,

containing

provisions/arrangements empowering such foreign airlines or others on their behalf to have effective control in the management of the domestic airline. 8. A domestic air transport operator shall not enter into an agreement with a foreign airline, which may give such foreign airline the right to interfere in the management of the domestic operator. 9. A domestic air transport operator may enter into financial arrangements with a bank and/or other financial institutions for the purpose of lease finance, hire purchase or other loan arrangements, but such a tie up shall not be permitted with a foreign n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

airline. 10. Management contract with a foreign airline shall also not be permitted to a domestic air transport sector operator. 11. Marketing arrangements such as ground handling, general sales agency, code sharing, interlining will, however, be permitted. 12. A domestic air transport sector operator will also be permitted to get maintenance, overhaul, repair works done and training of pilots/engineers conducted either at the facilities available with other airlines or those certified by the Director General of Civil Aviation on such terms as may be prescribed. 13. A domestic air transport sector operator may be permitted to employ foreign pilots/engineers till s/he is able to train his own manpower. This shall, however, be

87


permitted with the express approval of the competent authority and for such period and terms as may be prescribed by the said authority. 14. An applicant who seeks permission for domestic air transport operations will be required to give a declaration that s/he fulfils all the requirements mentioned in the above guidelines and in case of any change, s/he shall notify the competent authority within one month of such change. In addition, the applicant will be required to furnish such a declaration every year. 15. A domestic air transport operator, who furnishes wrong information in respect of any of

the

above-prescribed

guidelines

at

any

stage,

shall

be

liable

for

suspension/cancellation of his/her operating permit.

11.4 PPP in Airport Infrastructure Initiatives •

The Committee on Infrastructure has initiated several policy measures that would ensure time-bound creation of world-class airports in India. The policy of open skies has already provided a powerful spurt in traffic growth that has exceeded 20% per annum during the past two years.

•

Greenfield international airports at Bangalore and Hyderabad have been approved and are currently under construction. These are likely to be commissioned by middle of


88

2008. Modernisation and expansion of the Delhi and Mumbai airports through PPPs has been awarded. Other major airports such as Chennai and Kolkata are also proposed to be taken up for modernisation through the PPP route. Similarly, to ensure balanced airport development around the country, a comprehensive plan for the development of other 35 non-metro airports is also under preparation through PPP route. These measures are expected to bring a total investment of Rs400 billion for modernisation of the airport infrastructure. •

On the analogy of the highways sector, a Model Concession Agreement is also being developed for standardising and simplifying the PPP transactions for airports.


According to Committee on Infrastructure, the airport development programme is given below. Table 11.1 Airport Development Programme in India Particulars

Airport

Restructuring / Modernisation for world-class airports Greenfield Airports

Delhi & Mumbai Chennai & Kolkata Bangalore, Hyderabad, Goa, Pune, Navi Mumbai, Nagpur (Hub) & Greater Noida 25 selected airports 55 airports

Upgradation Modernisation / Improvement Total Investment by 2010

Indicative Cost (Rs bn) 150.00 50.00 100.00

70..00 30.00 400.00

Source: Airport development programme presented to the Committee on Infrastructure (CoI)

11.5 Aviation Growth through Air Cargo The over utilisation in India’s air cargo traffic has come in the way of exploiting full potential of air cargo traffic. It is high time to augment the existing airport infrastructure in order to speed up the handling of air cargo and reduce the dwell time. Moreover, cargo clearance is also needed on 24-hour basis. In addition, infrastructure relating to cargo handling such as satellite freight cities with multi-modal transport, cargo terminals, cold storage, automatic storage and retrieval systems, mechanised transportation of cargo, computerisation and automation, etc. is required to be set up on top priority basis. Such facilities will also be provided at non-metro airports as well. n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

89

In order to develop India as a Regional Air Cargo hub, the following steps are recommended: •

‘Gateway’ status at all international airports

•

Cargo Village concept at all major airports

•

Forwarders Bonded Terminals at every gateway airport

•

Multi-modal connectivity, effectively serving the hinterland

•

Enhancing air capacity and connections to international destinations;

•

Handling capabilities for new generation aircraft;

•

Enhanced technology, handling equipment and information systems


•

Encouraging use of EDI in air cargo, thereby integrating all the players – Customs, AAI, Regulatory Agencies; Airlines, GHAs; Service Provider; and Shippers

•

E-Freight – the IATA program needs to be integrated in Indian Air Cargo initiatives

•

Compatibility with international laws and conventions; and Ratification of the Montreal Protocol, 1999

•

Customs linked initiatives like simplifying commodity coding; automating export/import license application and approval;

•

Open cargo ground handling contracts to avoid monopoly;

•

Specialised cold chain infrastructure and services for perishables, processed foods, pharmaceuticals;

•

Specialised facilities for valuable cargo, including diamonds and jewellery, bullion, currency etc.

11.6 Initiatives for Safety Ministry of Civil Aviation has taken several initiatives for 11th Plan for safety of flights: •

Director General of Civil Aviation has directed to all the Scheduled and NonScheduled operators to monitor performance of the crew by analysing DFDR data


for exceedence. •

Computerised monitoring of FDTL, Training, Medical and Licence validity:

All the airlines are supposed to computerise the records pertaining to flight crew duty time limitation, their training, qualification, medical and licence validity. •

Dedicated and trained safety audit teams of DGCA officers carry out the safety audit and surveillance inspection of the Indian operators and maintenance organisations in the country. The deficiencies pointed out in the safety audit reports are immediately brought to the notice of the management of the operators for taking necessary remedial actions.

•

Establishment of Unidirectional Air Traffic routes in place of bi-directional routes for enhancement of safety of operations

90


•

Installation of Airborne Collision Avoidance System

•

Installation of Ground Proximity Warning System in order to provide automatically a timely and distinctive warning to the flight crew when the aircraft is in potentially hazardous proximity to the earth's surface.

11.7 Regulations 11.7.1 Guidelines for the movement of hazardous goods by air transport The guidelines related to transport of hazardous goods by air have been laid down by the Ministry of Civil Aviation under the Aircraft (Carriage of Dangerous Goods) Rules, 2003. The salient points include: 1.

To aircraft registered in India or aircraft operated by an operator who has his principal place of business or permanent place of residence in India, wherever they may be;

2.

To all aircrafts for the time being in or over India; and

3.

To persons operating air transport services to, from, within and over India, shippers of dangerous goods or their agents.

Carriage of dangerous goods by air n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

•

Save as otherwise provided in these rules, no person shall carry or cause or permit to be carried in any aircraft to, from, within or over India or deliver or cause to be delivered for loading on such aircraft any dangerous goods, except in accordance with and subject to the terms and conditions of a permission in writing granted by the Central Government (or by an officer authorised in this behalf by the Central Government).

•

The following classes of dangerous goods may be carried in aircraft subject to following provisions: 1. Articles and substances, which are required to be aboard the aircraft in accordance with the pertinent airworthiness requirements and operating regulations or that are authorised by the State of the operator to meet special requirements.

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2. Such goods as required for the propulsion of the means of transport or the operation of its specialised equipment during transport (e.g. refrigeration units) or those that are required in accordance with the operating regulations (e.g. fire extinguishers). 3. Aerosols, alcoholic beverages, perfumes, colognes, safety matches and liquefied gas lighters carried aboard a passenger aircraft by the operator for use or sale on the aircraft during the flight or series of flights, but excluding non-refillable gas lighters and those lighters liable to leak when exposed to reduced pressure. 4. Dry ice intended for use in food and beverage service on board the aircraft. 5. Such goods as required to provide during flight, medical aid to a person or veterinary aid or a humane killer for an animal. 6. Such goods as required for dropping in connection with agricultural, horticultural, forestry or pollution control activities. 7. Such goods as required to provide, during flight, aid in connection with search and rescue operations. 8. Articles and substances such as small gaseous oxygen or air cylinders required for medical use, radio isotopic cardiac pacemakers or other devices, wheelchairs or other battery-powered mobility aids, safety matches or a lighter and nonradioactive medicinal or toilet articles like medicines containing alcohols, hair n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

sprays, perfumes and colognes etc. in small quantities as permissible to be carried by passengers and crew in accordance with the ‘Technical Instructions.’ Note: “Technical Instructions” refer to Technical Instructions for the Safe Transport of Dangerous Goods by Air” issued by the International Civil Aviation Organisation. •

Where the carriage of dangerous goods is permitted it shall be the duty of the shipper, of the operator and of every person concerned with packing, marking, labelling, acceptance, handling, loading, unloading, storage, transportation or any other process connected directly or indirectly with carriage of such dangerous goods, to take all precautions to avoid danger to aircraft or to persons therein or to any other person or property and in particular to ensure:

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1.

That the dangerous goods are so packed, protected and secured as to avoid the possibility of their being a source of danger.

2.

That the dangerous goods are carried so as not be accessible to the passengers on the aircraft.

3.

That the nature of the dangerous goods is plainly and conspicuously marked on the outside of the package containing them.

4.

That all other provisions of the Technical Instructions and the terms and conditions of the permission granted by the Central Government are strictly complied with.

Custody of unauthorised dangerous goods

Where any officer authorised by the Central Government for this purpose, has reason to believe that the provisions of this rule are, or are about to be, contravened, s/he may cause the dangerous goods in question to be placed under his/her custody pending detailed examination of the nature of the goods or pending a decision regarding the action, if any, to be taken in the matter.


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12. Outlook

12.1 Global Air Cargo Market Global air freight industry has

Figure 12.1 Global Air Cargo Market (FTKs bn)

witnessed a growth rate of 5.1% in 2006, driven by resurgent

220

global

activities.

210

Boeing

200

Company, the components of total

190

air

180

economic

According

traffic

positively

to

are

the

strongly

correlated

and

with

the

world gross domestic product (GDP). Air cargo accounts for 2%

208 196.6 185.6 175.6

170 160 150 2006

2007E

2008E

2009E

of international trade by volume and around 40% by value. Global air cargo traffic has gone up at

E- Estimated Source: MGI Global Air Freight Flow Model

CAGR of 5.53% during 2001-06 (See Figure 12.1). Industry consulting firm Air Cargo Management Group projected that world air cargo volume would reach 208 billion Freight Tonne Kilometres (FTKs) by n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

2009 from the present 175.6 billion FTKs. The air freight demand is concentrated geographically since it is based on the economic activity. In 2004, more than 96% of world FTKs moved within the three pillars of the world economy—Asia Pacific, Europe and North America. Due to slower growth in Intra-Europe and North America, Asia and Intra-Asia are emerging as the prime engines for growth in the air cargo sector. This is because the Intra-Europe and North American markets have matured. According to International Monetary Fund, the global GDP growth is expected to average at 3% per annum through 2023, after exceeding 2% annual average growth over the last couple of years. This major driver of international trade growth will help stimulate the

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global air freight growth rate. Other factors that contribute to the airborne freight growth rate include the continuous process of globalisation, relative currency strength, government regulations and national industrial initiatives. •

Economic activity: Economic activity, which is measured in terms of world GDP,

remains the primary growth driver for air cargo industry’s growth. •

Globalisation: At present, about 20% of all manufactured goods cross borders.

According to McKinsey estimates, with the growing trend of globalisation and market liberalisation, by 2020, around 80% of these good will cross borders. This development will have a greater impact on the global air cargo sector. •

Growth of Asian Economies: Asian markets are growing; the domestic Chinese and

intra-Asian markets are expanding at average annual rates of 10.1% and 8.5% per annum, respectively. The growth momentum will continue for the next two decades. This will be driven by high growth rates of these economies and the increasing proportion of their GDP, which results from trade growth. Since there is a positive correlation between GDP growth and growth of air cargo, the momentum would boost the sector in the Asian region.

12.2 Indian Air Cargo Outlook n o i t a i v A t h g i s n I y r t s u d n I s c i t s i g o L n a i d n I

Figure 12.2 Indian Air Cargo Market FTKs bn

Indian aviation industry is emerging as one of the fastest growing markets in the world both in terms of passenger as well as cargo traffic. According to AAI, Indian air cargo

2000 1800 1600 1400 1200

market (in terms of volume) is

1000

expected to grow at CAGR of 11.5%

600

from 2007-08 to 2011-12, of which

200

800 400

5 . 5 4 4 1

6 2 . 9 8 2 1

5 0 . 1 5 1 1 1 6 . 4 8 5

1 3 . 3 4 6

9 6 . 2 2 8 1

3 3 . 2 2 6 1

9 3 . 8 0 7

6 . 0 8 7

8 7 . 0 6 8

0

the CAGR of international air cargo is

expected

to

be

12.2%

and

2007-08E 2008-09E 2009-10E 2010-11E 2011-12E Inter national

Domes tic

domestic air cargo would be 10.15% E- Estimated Source: Airport Authority of India

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during the same period (See Figure 12.2).

In view of the forecasted (9%) GDP growth during 11th Five Year Plan, India’s air cargo market is looking for a big leap forward over the next five years. Since India is emerging as one of the favourable destinations for manufacturing outsourcing, it provides greater opportunity to the air cargo industry to airlift the high-value items. At present, although the base for air cargo movement in the country is low, it is expected to get a major fillip due to the burgeoning overseas trade, customer service orientation, inventory concern and E-commerce development.


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Annexure I: List of Abbreviations


97

3PL

Third Party Logistics

4PL

Fourth Party Logistics

AAI

Airport Authority of India

ACO

Air Cargo Operators

ADS

Automatic Dependence System

AME

Aircraft Maintenance Engineers

AMSS

Automatic Message Switching System

APIS

Advance Passenger Information System

ASBS

Automatic Self Briefing System

ASEAN

Association of South East Asian Nations

ASKMs

Available Seat Kilometres

ASR

Airport Surveillance Radar

ATM

Air Traffic Management

AWB

Airway Bill

BDAL

Blue Dart Aviation Ltd

CAGR

Compounded Annual Growth Rate

CNS

Communication, Navigation and Surveillance

CPDLC

Control Pilot Data Link Communication

CSO

Central Statistical Organisation

DGCA

Director General of Civil Aviation

DVOR

Doppler Very High Frequency Omni-Directional Range

EDI

Electronic Data Interchange

FDI

Foreign Direct Investment

FDPS

Flight Data Processing System

FDTL

Flight Time Limitation

FIPB

Foreign Investment Promotion Board

FTK

Freight Tonne Kilometres

GDP

Gross Domestic Product

HAL

Hindustan Aeronautics Ltd

ICAO

International Civil Aviation Organisation © Cygnus Business Consulting & Research 2007

IGI

Indira Gandhi International

IIP

Index of Industrial Production

JACC

Joint Air Cargo Complex

KRC

Konkan Railway Corporation

LCC

Low Cost Carriers

MIS

Management Information Systems

MoU

Memorandum of Understanding

MRO

Maintenance, Repair and Overhaul

MSSR

Monopulse Secondary Surveillance Radar

NOC

No Objection Certificate

NRI

Non Resident Indian

NSEW

North-South-East-West

PPP

Public Private Partnership

SAARC

South Asian Association for Regional Cooperation

SATS

Singapore Airport Terminal Services

ULD

Unit Load Devices

WTO

World Trade Organisation


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Indian Logistics Industry Insight-Aviation

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