Rise of the Private Sector

Poised to emerge as the world’s third-largest aviation market by 2030 or earlier, India’s airline industry has seen a remarkable transformation in recent years. And, unsurprisingly, private enterprise has been the driving force.

For several decades after Independence, aviation was the exclusive domain of state-owned carriers. But following the liberalisation of the economy in the early 1990s, a number of private airlines were started at sporadic intervals. Various challenges including financial turmoil, regulatory issues, and fierce competition among the contenders, especially post 2003, meant that many of these private carriers had an all-too-brief existence. Even the big fish like Kingfisher Airlines and Jet Airways eventually fell by the wayside. But fast forward to 2023, and it is private enterprise all the way. Even Air India, the airline founded by JRD Tata in 1932 and nationalised in 1953, is back under Tata’s wing after seven decades.

STATE OF PLAY

The Tata Group is now attempting something unique – merging four airlines into two. Vistara will be absorbed by Air India as a full-service carrier while AirAsia India and Air India Express will be merged to form a single low-cost carrier (LCC) retaining the Air India Express name. The Group’s combined fleet size stands at 219 currently. Earlier this year, with the aim of rapidly growing its 24.8 per cent domestic market share and 22.96 per cent international market share, it placed what was till then the largest single order in aviation history – a mix of 470 Airbus and Boeing airliners, narrow-body as well as wide-body.

Not to be outdone IndiGo Airlines, the domestic market leader with a commanding 63.2 per cent market share in June 2023, placed a whopping order for 500 Airbus airliners – the largest order in the history of commercial aviation. And it cannily chose the high-profile Paris Air Show to do so. Against a fleet of 317 aircraft, IndiGo now has almost 1,000 jets on order.

The carrier in third place, Akasa Air, is following a meteoric trajectory. Having commenced commercial operations as recently as August 7, 2022, it raced ahead of SpiceJet and grabbed 4.9 per cent market share in June 2023. It will hit the magic figure of 20 aircraft by its first birthday, qualifying it to launch overseas operations. This is the fastest any airline has grown, both in terms of market share and fleet size, since Indian aviation was opened up to the private sector. Akasa has another 55 jets on order.

Domestic aviation is dominated by the LCCs that now control as much as 80 per cent of the market. That is all to the good. But the airline industry is fast becoming a duopoly with IndiGo and the Air India group cornering nearly 90 per cent of passenger traffic. And that is not good news because, whenever just two entities control the market, consumers rarely get competitive prices. The woes of LCC Go First have also highlighted the plight of small operators who are struggling to compete against the bigger ones. And LCC SpiceJet too is under severe pressure from lessors over unpaid dues.

PRIVATE INDUSTRY TO THE FORE

Be that as it may, commercial aircraft numbers are bound to surge. With government and private airport developers planning to infuse almost 75,000 crore over the next 8-10 years, airport infrastructure also seems likely to keep pace albeit with some lag. Next is the turn of manufacturing. And almost every global aerospace major already has a significant technological presence in India, lured by the availability of inexpensive yet quality talent in aeronautical engineering as well as in software, simulation and electronics.

In 2014, the government introduced several measures under the ‘Make in India’ initiative that signified a determined shift away from a reliance on imports. The aim was to establish India as a force in the aerospace and defence manufacturing industry. The Aatmanirbhar Bharat Abhiyan mission launched in 2020 had aerospace exports as a focus area. India aims to achieve a turnover of $25 billion from aerospace and defence goods and services by 2025, with exports accounting for $5 billion, or roughly 41,000 crore. Although the figure of almost 16,000 crore aerospace and defence exports achieved in FY23 was an all-time high, there is still a long way to go to meet the 2025 target. And there is no way the target can be achieved without massive participation by private industry.

FROM RTA TO DRONES

The National Aerospace Laboratories (NAL), under the Council of Scientific and Industrial Research (CSIR), has been tasked with the development of the ambitious Regional Transport Aircraft (RTA), a 90-seat turboprop passenger plane. Besides other public sector partners, NAL is also looking for private sector collaborators, domestic as well as foreign. The RTA’s project definition phase started in April 2022 and will conclude by September 2023. Here too TASL’s experience with the C295 programme could come in handy. And the RTA project could in turn be the launch pad for the development of an indigenous regional jet, a long-cherished dream of the country.

Much smaller in size physically, but of immense potential, is drone manufacturing. Both Prime Minister Narendra Modi and Minister of Civil Aviation Jyotiraditya Scindia have stated on various occasions that India aims to become a global drone hub by 2030. In August 2021, a new set of regulations was released as ‘Drone Rules 2021’. These liberalised rules greatly simplified the tedious official procedures for registration and operation of drones. The “DigitalSky platform” hosted by the Directorate General of Civil Aviation (DGCA) for various activities related to drones now serves as a single-window portal for drone manufacture approvals. Once again, it is private enterprise all the way. Take ideaForge, the Mumbai-based pioneering drone company. With a wide range of products for different applications it had a market share of approximately 50 per cent in FY 2022. Pune-based Bharat Forge is the largest repository of metallurgical knowhow, design and engineering expertise and manufacturing prowess in India. This is expected to help the country build a strong manufacturing ecosystem for high-end drones. According to an estimate by the Ministry of Civil Aviation, India’s drone sector will achieve a turnover of 12,000-15,000 crore by 2026, up from just 80 crore currently. Much of this spectacular growth will probably come from drone startups. For instance, Garuda Aerospace, founded in 2015, already has 750+ clients and over 30 different drones that offer more than 50 services across 84 cities in India. It is all set to partner with Naini Aerospace Engineering Ltd (NAeL), an HAL subsidiary, and develop advanced precision drones.

A FEAT WORTHY OF BEING REPLICATED

All the signs indicate that India’s aviation sector will be transformed in about a decade from now. Apart from the stunning aircraft orders, demand for air travel has moved beyond just the big cities and spilled over into tier 2 and 3 towns. Some analysts believe that IndiGo and Air India may have gone overboard with their orders in pursuit of the same pool of passengers. However, irrespective of the number of aircraft that actually materialise, all those planes will surely provide direct and indirect economic multiplier effects. And to complete the aviation ecosystem picture, this is the best time to enter the high-revenue aviation MRO and aircraft leasing segments. This requires some encouragement and incentives from the government, underpinned by action in the areas of policy and taxation. According to Deloitte, the Indian repair and overhaul industry is expected to grow to $4 billion by 2031, up from $1.7 billion in 2021.

In a recent interview, Minister of Civil Aviation Jyotiraditya Scindia stated, “India will have a fleet size of 1,200-1,400 planes by 2030, up from the current 700. We will have enough airport capacity. I am looking at the number of airports growing from 148 now to close to 230-240 during this period. I am also looking at passenger traffic growing from the current 14.5 crore (145 million) a year to almost 42 crore (420 million) by 2030, which means a three-fold increase. So yes, there is a long journey yet to be covered.”

Just 20 years ago no one could have predicted that India’s private airlines would achieve near-total domination of the skies so rapidly and that the two state-owned carriers would become history. The airline industry has again proved that whenever private enterprise is unleashed in any sector it takes that sector by storm. Defence and aerospace manufacturing could well replicate this feat within the next 20 years. After all, innovation and quality flow from competitiveness. Now that the stranglehold of the PSUs over aviation manufacturing has been decisively broken, private enterprise will surely deliver far more economically and effectively.