Behind the hype at Aero India: civil aviation - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 12 February 2007

Behind the hype at Aero India: civil aviation

Obscured by the roar of fighter aerobatics at the Aero India 2007 air show in Bangalore from 7th-11th February, is the buzz of business being done in a far less glamorous field: civil aviation. Visitors feast visually on the red-and-white Russian MiG-35 and the American F-18 and F-16 on the display tarmac, but a new generation of moneyed Indian businessmen prefers to inspect the largest display of executive jets ever seen at an air show in India.

The third biggest aircraft company in the world, Canadian manufacturer Bombardier is here, along with US giant, Raytheon, that has brought an unprecedented four executive aircraft to consolidate its 60% hold on the Indian market. Aiming at selling more than fifty executive jets over the next three years, Raytheon Vice-President Ted Farid says that Aero India is different from any air show he's ever seen before. Here, businessmen come to buy, he says, not to watch.

Mr Farid says Raytheon has already sold five jets in three days and the numbers could rise. "Indian businessmen, unlike their American counterparts, don't flaunt wealth. American corporations buy aircraft at an earlier stage on the income curve; but as Indian business is going global, corporate heads really need their own jets".

Civil aviation is seeing even larger spending than military aviation. Despite last year's big signings for airliners --- Air India's $11 bn order for 68 Boeings, Indian Airlines' purchase of 43 Airbus aircraft for $2.2 billion, and similar purchases by newer airlines like Kingfisher and GoAir --- companies like EADS (the parent company of Airbus) at Aero India eye bigger bucks ahead. EADS pegs India's demand for airliners at 1100 aircraft, worth $105 billion, over the next 20 years.

These airliners cover just one segment of the market: the metro and inter-city shuttles between 61 airports that are presently connected by scheduled airlines. Flights still do not operate to the majority of India's 450 airports, 126 of them run by the Airports Authority of India. This is the segment that low cost carriers (LCCs) like Air Deccan are building growth on. Air Deccan Chief Operating Officer, Warwick Brady, points to a McKinsey study indicating that 50% of India's highly qualified graduates live in towns and cities that are not serviced by airlines. This could change: Minister for Civil Aviation, Praful Patel, announced on Tuesday clearance for private operators to set up new regional airports, " built on privately owned lands, within permissible civil aviation parameters." Mr Patel also said New Delhi would discuss with state governments the activation of 300 airstrips lying unused across the country.

Targeting this demand are exhibitors like Sukhoi Aviation with its 95-seater Superjet 100, developed in Russia as the Russia Regional Jet (RRJ). Sukhoi pegs India's future demand for regional jets at 150 aircraft. Flaunting an international order book of sixty aircraft, Sukhoi declares that newer Indian airlines like Air Deccan and Kingfisher have expressed interest in the Superjet 100, and that there will be signings soon.

Another buzz surrounds the cargo business, currently at a microscopic 4200 tons per day. Aviation analysts at a two-day civil aviation conference during Aero India 2007 agreed that India's cargo infrastructure was practically non-existent. But plans to build cargo terminals as part of new airports are changing the cargo landscape. Boeing announced a major expansion in its cargo presence; confronting Boeing head on is Russia's Tupolov Aircraft Industries. Marketing Director, Evgeny Efimov candidly declares his intention to out-punch Boeing's "second-hand 757 cargo planes on offer" with brand new Tupolev Tu-204C aircraft that can lift a cargo of 30-35 tons. An unidentified Indian airline, says Efimov, will be signing up later this month in Moscow for five Tu-204Cs with an option for ten more.

Another major area of business is in the field of Maintenance, Repair and Overhaul (MRO). Despite labour costs being 60% lower in India, the major MRO facilities in the region are at Dubai and Singapore. Now Kingfisher has announced a joint venture MRO, which will come up next year in partnership with Hindustan Aeronautics Ltd and a foreign partner. Deccan Aviation has announced the setting up of Deccan Technical Services to meet its own MRO demand.

With pilots in short supply, training facilities are coming up quickly. Boeing has announced a $185 million investment in training facilities, while Air Deccan has announced a partnership with French manufacturer ATR for a training centre in Bangalore, with the latest generation of flight simulators. This will service Air Deccan pilots as well as other carriers.

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