Indian Aviation - New Civil Aviation Policy Initiatives

January 2012

Contents

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The Vision Aviation industry in India: challenges and key enablers 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 Airports Airlines Air Cargo Maintenance, Repair and Overhaul (MRO) General Aviation (GA) Slot Policy Aviation Training Infrastructure FDI by foreign carriers in Indian aviation Hub policy Airspace Management and Flexible Use of Airspace (FUA) Air Traffic Flow Management (ATFM)

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Way forward - few bold steps

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1 The Vision
The Indian civil aviation industry is proudly celebrating 100 years of its existence. The 11 th Plan has propelled the Indian aviation sector on a high growth path. Both passenger and cargo traffic have shown robust growth and there has been modernization and augmentation of capacities, in a major way, at various metro and non-metro airports. In FY 11, India has already made its place among the 10 largest aviation markets of the world. There is need now to consolidate the gains and further increase the air travel penetration in India. Under this backdrop, the vision for Indian civil aviation industry for the new civil aviation policy period should be:

To handle more than 300 million passengers and propel India among the top three civil aviation markets in the world by 2020
In order to facilitate this significant growth potential, India will need more airports, higher capacity, supporting infrastructure, finance and human resources. All this would require progressive policies and collaborative approach between the government, industry and the public at large.

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Aviation industry in India: challenges and key enablers

2.1 Airports
The growth in the passenger and cargo traffic requires significant investments in terms of construction of new airports, expansion and modernization of existing airports, improvement in connecting infrastructure (road, metro, sea link, etc.) and better airspace management. The passenger handling capacity has risen two-fold from 72 million (FY 06) to 143 million (FY 11)1. Notwithstanding this growth, there are challenges facing this sector and initiatives are needed to make India a leading hub for passenger traffic. Key enablers to achieve the projected growth are as follows: a) Allow no-frills airport model to lower the fixed cost of airport development and improve the financial viability of tier II/III airports b) Enable stable, transparent, predictable and investor-friendly regulatory regime with a mechanism for time-bound resolution of issues c) Upgrade Air Traffic Control (ATC) infrastructure and allow all weather operations including night landing facility at Indian airports, to provide impetus to tourist traffic d) Introduce fiscal incentives and innovative funding solutions are needed to overcome the funding constraints, being faced by airport operators

2.2 Airlines
Airline landscape has changed dramatically during the past decade. Indian carriers catered to 54 million domestic and 13 million international passengers in FY 20112. The last few years saw an increasing trend among domestic carriers to embrace the Low Cost Carrier (LCC) model. In spite of this enormous growth, the Indian carriers incurred operational losses of more than Rs. 20,000 during the last three years3. Some key enablers that can facilitate the growth are as follows: a) Rationalize ATF charges with international benchmarks thorugh policy changes b) Connect less lucrative Tier II/III cities through government incentives c) Allow more Indian carriers to fly overseas by utilizing full quota of bilateral agreements

2.3 Air Cargo

Indias impressive growth in international and domestic trade over past few years has augured well for the air-cargo industry in India. Total freight traffic handled by Indian airports increased at a CAGR of 10.9% in last five years to reach 2.33 mmtpa by FY -114. Still, the current share of air-cargo compared to other modes of cargo-transportation is fairly low in India. The present operating parameters (daily throughput, dwell times) at most air-cargo terminals of the country are far from international best-practices. Some key enablers for growth of air cargo industry are as follows: a) Augment air cargo complex infrastructure through higher automation, increasing number of screening machines, 24X7 security etc. b) Make India a transshipment hub for east-west cargo through creation of dedicated transshipment hub and streamlining customs procedures for the same c) Mandate CBEC to switch over to multiple shifts of customs operations and augment the number of customs personnel to cater to the increasing trade requirements

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Source: AAI Source: DGCA 3 Source: Annual report of the air carriers 4 Source: AAI

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d) Make suitable amendments in EDI ver. 1.5 for efficient information flow between different stakeholders

2.4 Maintenance, Repair and Overhaul (MRO)

Indian MRO industry is expected to triple in size from Rs 2,250 crores in 2010 to Rs 7,000 crores by 20205. India has the potential to be an MRO hub due to the growing aircraft fleet, location advantage and availability of talent. However, this future size may still be small compared to the present MRO industry size of other countries such as UAE (Rs 8,000 crores per annum) and China (Rs 10,000 crores per annum). The following key enablers would be imperative for India to become a preferred MRO hub: a) Eliminate discriminatory taxation policy for domestic MROs, as there is nearly 40% tax differential between domestic and foreign MROs b) Incentivize airlines to set up their dedicated MRO hubs in India through three-way joint ventures with MRO service providers and airport companies c) Consider abolishing import duties on spare parts

2.5 General Aviation (GA)

The General Aviation (GA) market in India is expected to grow at 10% per annum to cross Rs 1,600 crores by FY176. The key enablers required to achieve the projected growth are as follows: a) Review the existing regulatory and operational framework for equitable treatment to GA operators b) Develop the supporting infrastructure at airports in tier II/III cities, including night-landing facilities and provision of heliports, to boost the GA industry.

2.6 Slot Policy

Airport coordination is mostly done at the Level 3 airports where demand for airport infrastructure significantly exceeds the airports capacity, necessitating slot allocation process. In India, there are six designated Level 3 airports at Mumbai, Delhi, Hyderabad, Bengaluru, Chennai and Kolkata. Key guiding principles of slot allocation process, as followed in India are Slots are only allocated for planning purposes by a duly appointed coordinator at a Level 3 airport. IATAs WSG guidelines establish grandfather rights for runway slots, which permit airlines to use those slots in the future which they have already used in the past. Airlines lose grandfather rights if they do not operate them for at least 80% of the time of the respective flight period (use-it-or-lose-it)one flight period is six months Slots may be freely transferred or exchanged between airlines, or used as part of a shared operation, subject to the provisions of these guidelines and applicable regulations. However, current administrative method of slot allocation suffers from several inefficiencies. It denies newcomers the opportunity to enter the market and compete against major carriers. The key enablers to achieve the required growth are: a) Move towards market determined slot determination process. Slots could be better allocated through market mechanisms, including alternative primary trading (eg, auctions)
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Source: Ascend Source: DGCA

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and secondary trading mechanisms (barter or inter-airline trading), rather than through purely administrative criteria. Indian airports should also consider the current slot mechanism and move towards market determined process.

2.7 Aviation Training Infrastructure

The impressive growth in Indian aviation has resulted in a similar growth in employment opportunities in the sector. However, the supply of available skilled manpower has not been able to match the growth of traffic or aircraft movement and hence the sector faces shortage of skilled and trained manpower. These include pilots, engineers, air traffic controllers, cabin crew, trainers, and security personnel. With passengers and aircraft fleet likely to triple by 2025, the need to augment the skilled manpower supply is immediate. Some of the key enablers are: a) Increase the number of pilot training institutes and expand their capacities through government support, as capital subsidies. b) Encourage foreign investment in pilot training academies. The success of CAE at Rae Bareli and Gondia should be replicated at other locations also. Certificates issued by leading flying academies in the developed world should be made acceptable in India, subject to adequate checks by DGCA. c) Collaborate with Indian Air Force (IAF) for training infrastructure. The Indian Air Force (IAF) has one of the finest pilot training infrastructures in the country. There is a need to collaborate with them to explore ways in which their facilities and staff can be used for producing civilian pilots without affecting IAFs operational requirements. d) Give immediate priority to ATCO training and capacity building. Partnership options with international ATC training institutes should be explored to enhance capacity of CATC. The enhanced capacity can also help CATC, in the long run, earn additional revenue by training foreign ATCOs and

e) Consider the option of allowing private players to set up ATCO training facilities, subject to adequate supervision by AAI. This may be started in a PPP mode first and thereafter be made fully open to private sector in the long run. f) Addressing the shortage of aircraft engineers, technicians and cabin crew through opening more number of institutes offering courses related to aerospace engineering and cabin crew. Options of collaborating with the Indian Air Force to build capacity should be explored.

2.8 FDI by foreign carriers in Indian aviation

The proposal to allow 49% FDI by foreign airlines has been moved to the cabinet, which will take it up shortly. Then it will be debated in the Parliament, before finally being legislated. FDI by foreign airlines is a significant decision and can play a crucial role in improving the aviation landscape in India. Apart from the much needed fund infusion, it would also provide access to global routes, managerial expertise and synergy benefits. For global airlines, it is a great opportunity to enter one of the fastest growing aviation markets in the world. The low air penetration in India (4%) indicates the potential for growth.

2.9 Hub policy

Government wants India as emerge as a major regional aviation hub. However, infrastructure has been a major handicap in the way of India emerging as a regional hub for aviation. Other major obstacles to having a hub in India include an inability to attract passengers, saturated airports and the poor health of Indian airlines. There is also a lack of efficient connectivity between the domestic and international terminals made transfers from domestic to international flights (and vice versa). Some of the enablers required to make India global aviation hub are:

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a) Enable an open bilateral regime to stimulate competition and traffic growth as shown by the global hubs of Singapore and Dubai. It can be instrumental in bringing down the overall cost of travel and promoting economic growth. b) Initiate broader partnership involving alliance partners, regulators, airport operators and local authorities to overcome the hurdles. c) Embark on a marketing overreach program by attracting airlines and freighters to set up base in India.

2.10 Airspace Management and Flexible Use of Airspace (FUA)

The civil and military are the prime users of the national airspace which is a finite asset and under the existing system the airspace is used by both in isolation from each other. However, with increased demand from both military and civil aviation sector of the available airspace needs to be effectively optimized to enhance the airspace capacity and to facilitate the demands of both the sectors. Some of the key enablers to achieve this vision are: a) Introduce Flexible Use of Airspace (FUA) in the countrys airspace. There is a need to segregate different types of traffic by airspace organization through setting the size, shape and time regulation of that airspace to minimize the impact on operations. Airspace sector boundaries should be adjusted to cater traffic flows and should not be constrained by sector boundaries. b) Set up efficient airspace management processes to accommodate dynamic flight trajectories and provide optimum system solutions. Airspace use will be coordinated and monitored in order to accommodate the conflicting legitimate requireme can be planned in advance with changes made dynamically whenever possible. The system can also accommodate unplanned requirements.

2.11 Air Traffic Flow Management (ATFM)

With the present and forecast growth at Indian airports and airspace, ATFM system is necessary to optimize the capacity vs. demand both strategically and dynamically by integrating various operational constraints and weather parameters. Some of the key enablers are: a) Collaborative decision making (CDM): Mitigating measures and alternate actions to avoid congestion and delay both in terminal and en-route airspace and airports can be achieved through collaborative decision making process involving all stakeholders. b) Implement Centralized ATFM system: AAI has accordingly decided to implement Central ATFM system for India which will integrate various subsystems for collaborative decision making and to ensure regulated flow of traffic to minimize delays and congestion. ATFM system being new and complex for Indian environment, the system development is being undertaken through technical support from FAA, USA.

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Way forward - few bold steps

The Indian civil aviation industry is on a high growth path. The vision is to make India one of the five largest civil aviation markets in the world by the end of the 12th Five Year Plan period. Key initiatives (giant leaps) needed to realize this dream are as follows:

Create an Aviation Infrastructure Development Fund (AIDF) to develop aviation infrastructure in tier II / III cities Bring immediate parity with global ATF prices, to start with at the metro airports Increase supervision on pricing policy by certain carriers, to bring relief to the airline sector Allow easier access to global routes by Indian carriers for increase their yields Enhance Air Traffic Management infrastructure and technology Create duly empowered Air Cargo Promotion Board (ACPB) to fix quality of service and responsibility of each of the stakeholders Develop world class National Aviation Academy through PPP, for creating pool of skilled manpower to cater to projected aviation growth

Allocate slots through market mechanisms, including alternative primary trading (egg, auctions) and secondary trading mechanisms ( barter or inter-airline trading)
Enable an open bilateral regime to stimulate competition and traffic growth and make India a regional aviation hub Introduce Flexible Use of Airspace (FUA) through segregating different types of traffic by airspace organization Operationlise Centralized ATFM system to optimize the capacity vs. demand to ensure regulated flow of traffic to minimize delays and congestion

The government, industry, mass media and the people at large need to work together to address the various opportunities and challenges. With the right vision, roadmap, policies, regulatory framework and a relentless focus on quality and cost, India would be well set to claim its rightful place in the global civil aviation industry.

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