Nov 20 2015 , New Delhi
Chartered air operators are hit by poor infrastructure, outdated regulation and taxation issues
This Rs 2,500 crore GA sector that once rode high on bullish business sentiments characterised by a slew of merger and acquisitions and an increasing number of Indian billionaires seeking private jets, is now looking down the barrel of the gun.
The story of the nosedive lies in its numbers. The one-time jump in the number of such operators — from 67 in 2007 to 104 in 2008 — has proved to be the proverbial flash in a pan, a one-time show. Since then, there have been periodic increases in the number of operators, but no sooner than one came in, another went out.
Since the last three years, the number of chartered operators as well as aircraft has plateaued. The years of double-digit growth morphed into single digit in 2010 and slipped into negative territory in 2013. The inventory or number of aircraft owned by chartered operators has remained stagnant at 552 since 2013. This is despite the fact that the economy has recovered and business prospects looked brighter in 2014.
In the last calendar year, operators are estimated to have added 15-20 aircraft to their combined fleet. But an equal number of jets and helicopters have been deregistered, moving out of country. Clearly, the buoyancy of this crucial segment has proved to be short-lived.
What’s worse, this bad spell does not look like ending anytime soon. One of the world's leading aerospace and defence companies, Honeywell International, has forecast global demand for luxury jets sagging in the coming years. Demand in India and other Bric countries are projected to remain subdued.
In its global business aviation outlook released this week, Honeywell Aerospace has projected up to 9,200 new business jet deliveries worth $270 billion from 2015 to 2025, with a 3-5 per cent reduction over the value noted in the 2014 forecast.
Atiesh Mishra, director of operations at Tata group firm Taj Air, considers high customs duty, infrastructural constraints and excessively stringent regulatory procedures impeding the growth of the country's smaller air-taxi and charter operators.
“While we are witnessing negative growth, countries such as Indonesia, Malaysia and China are registering 5-10 per cent growth. In order to facilitate growth in this crucial sector, the government should reduce customs duty and frame separate regulatory procedure. Infrastructure development should be taken up on a priority basis,” notes Mishra.
Analysts believe this is the reason why global players like VistaJet and NetJet have been hesitant in positioning aircraft in India for the local market. No surprise then that the industry body representing Indian air-charter companies, the Business Aircraft Operators Association (BAOA), has revised its projections downward.
The lobby, which started policy advocacy in 2011, is only five years old. It now expects the industry to add only 922 aircraft till 2020 as against its earlier forecast of 1,793.
They are, of course, projecting only the reality. It is estimated that nearly 37 non-scheduled air operators have folded up since 2012. To name a few, Skyfisher Aviation, India International Airways, Golden Wings, Ventura AirConnect and Fast Heli Charters have all closed shop.
“We made a major mistake by taking a 10-seater single engine aircraft for air-taxi services. The single engine raised safety concerns among passengers and our flight occupancy was always low. It was not sustainable and we shut it down,” admits Ventura AirConnect chairman Pradeep Agrawal, sourly.
Industry experts say they were always at the receiving end of the economic recession, which received a further jolt in 2011 when the government introduced custom duty of 2.5 per cent on aircraft imported for non-schedule operations. Aircraft imported under private category attracts around 20 per cent customs duty.
But as the gloom set in following the global downturn, it started taking its toll on their fledgling market. What marked the industry’s unmistakable decline was when fleet induction was outpaced by deregistration. In 2013, non-schedule operators returned 19 aircraft against a combined induction of 13.
There are many reasons why these small air service providers continue to struggle. Companies, whose bulk business — nearly 50-60 per cent — came from customer services, are yet to break even. The remaining business comes from seasonal tourists, medical evacuation and chartered flights.
As a matter of fact, the entire domestic aviation industry has gone through turbulence with noticeable recovery seen only since September 2014 with the gradual fall in price of jet fuel that is down 40 per cent, helping airlines improve their bottom lines.
Jet fuel accounts for nearly 30-40 per cent of an airline's cost. While this has significantly helped scheduled commercial airlines like Jet Airways and IndiGo, small jet operators under non-scheduled air operator’s permit (NSOP) are yet to reap any substantial benefits.
One of the roadblocks is excessive compliance requirement by aviation regulator directorate general of civil aviation (DGCA). Non-scheduled aviation companies frequently complain of delay in clearances leading to lower fleet utilisation and, therefore, increase in cost.
Fleet utilisation of smaller jets is a study in contrast when compared with developed countries. As against 600 hours of operation of a business jet in the US and Europe, Indian companies generally manage to keep their flying machines in the air only for 300-350 hours a year, almost 50 per cent lower than their global peers.
A restrictive approach by the DGCA further complicates the problem. For instance, consider the extended diversion time operations (EDTO) approval for business jets. The DGCA requires twin-engine aircraft to maintain a 60-minute threshold time (flight range expressed in time) from a functional airport forcing airlines to take a zigzag route. This is against the global norm of 120-180 minutes.
What this means is that even though aircrafts are capable of flying directly to Singapore or Bangkok taking the straight route over the sea, they are made to take longer curve routes in order to maintain 60 minutes flight distance from an airport.
Global norms have been laid down on the basis of certification by original equipment manufacturers (OEMs) for aircraft like Hawker 850XP and Falcon.
Says Sanjay Menzies, chief pilot at Poonawala Aviation, “The DGCA's unwillingness to extend the threshold limit has significant impact for long-range corporate jets such as the Gulfstream G550/G650 and the Bombardier Global 6000, which have a performance range of more than 6,500 nautical miles and are certified by the manufacturer and the FAA/CAA for 120 minutes EDTO.”
He adds: “Since these airplanes are mature products and have been in the industry for more than 10 years, it makes absolutely no sense to restrict them to 60 and 90 minutes EDT operations.” That’s a point to be pondered over.
A request for extending the threshold time limit is pending with the aviation regulator. A DGCA official, speaking on condition of anonymity, confirms that they “have received a representation from the industry on revision of EDTO rules. The matter is currently under examination of an internal sub-committee.”
Apart from this big picture, there are other petty irritants, which has made life difficult for operators. For instance, they have to make rounds of the regulator's office for obtaining minor clearances. There are innumerable instances of logbooks and files of operators going missing, adding to their troubles.
While the focus of draft national civil aviation policy (NCAP-2015) seeks to reduce human interface for regulatory approvals and clearances, it remains to be seen when — and if — that happens.
Pleads Rohit Kapoor, MD Arrow Aircraft and Charters: “if there is one agency in this country that is crying out to be digitalised under Digital India, it is the DGCA. We dream of the day when crew licences are renewed within three days by applying and uploading all documents online.”
Kapoor adds: “Digital India can also ensure that most airworthiness and safety oversight is carried out by accessing data online, without the requirement of paying a hundred visits to DGCA offices and concerned officials. It would also be a pleasure to receive aircraft acquisition permissions within 10 working days, instead of the present six months, by filing a simple document online.’’
The civil aviation ministry’s top official says the matter is in the works. Union civil aviation secretary RN Choubey told Financial Chronicle: "We would fully implement eGCA or e-governance for civil aviation, by April 2016. This would enhance service delivery and speed up processing of applications in a transparent manner."
For companies, this is turning out to be a long haul. Last September, Supreme Aviation was forced to abort its plan to start air-taxi operations in Madhya Pradesh as it did not receive the necessary airworthiness certificate for its nine-seater Cessna aircraft from DGCA on time. The airline's plan to start services on World Tourism Day went for a toss in spite of all other preparations.
“If an operator comes for approval or clearance and meets the rules laid down in the civil aviation requirement (CAR), we never delay the case. Recently, we issued an air operator's permit to Turbo Megha within three months as they filed a complete application and responded quickly on each issue raised by us,” the DGCA official quoted earlier, points out.
The industry has been demanding separate regulation for general aviation to meet its specific requirement segregating it from scheduled commercial aviation.
Stressed out infrastructural constraints, as can be expected, is another key issue that has compounded the woes of air-charter companies. The country's busiest Mumbai airport does not allow any further parking space for general aviation aircraft, thanks to its saturated facilities. Airport operators have expressed their inability to allow any more jets to park at their hangars, forcing the smaller operators to keep their jets in Pune and Nashik.
Non-scheduled operators find Delhi airport parking and handling charges prohibitively high. But they have no option because most of their enquiries come from the city. If they station their aircraft at any nearby airport, it would significantly increase their flying cost, as their clients demand flights from the capital.
For firms, therefore, there is no incentive to expand. EIH Aviation, an Oberoi Group company, has been planning to induct one aircraft for some time now, but is unable to do so because of the paucity of parking space.
“We would like to position our aircraft either in Delhi or Mumbai. We cannot park our aircraft in Bhopal or elsewhere, as it does not suit our business model. Since parking space is not available we have been unable to import aircraft,” explains company director (operations) Pankaj Chopra.
He adds that out of 476 airports and airstrips in the country, only 102 are operational. Moreover, business jets can operate only at around 46 airports.
Taj Air, which has its base in Mumbai, is facing similar problems in expanding operations. “Parking problems at Mumbai and Delhi airports has existed since 2009. The airport operator has stopped giving parking space approval for either expansion by existing charter company or a new operator,” company’s Atiesh Mishra explains.
While busy metro airports remain a concern, some of the other airports that see round-the-year non-scheduled traffic are controlled by the defence ministry, restricting movement of flights from dusk-to- daybreak or watch hours.
Besides, the presence of a foreigner in a chartered flight requires advance intimation and prior clearance. Paperwork sometimes causes unnecessary delays, leaving corporate travelers and tourists miffed.
A good example of this red tape was on display in 2014. Real estate tycoon Donald Trump, and currently a Republican presidential hopeful in the US, had to wait for more than three hours at Mumbai as his personal Boeing 757-200 jet did not have prior clearance from the air force headquarters for flying to Pune.
Aviation experts believe that the sector has huge potential given the resurgence in business and economy, provided the government addresses the issues faced by it in the areas of infrastructure, regulation and taxation.
“Compared to 132 business jets in India, the UAE has about 68. Given the rising number of billionaires in the country and the economy on a high-growth trajectory, there is huge potential. But this will happen only if the government changes its mindset towards the sector and creates an enabling environment,” says Mark Martin, CEO and founder of aviation advisory Martin Consulting.
While the focus of the draft aviation policy has fallen short of proposing any specific steps for general aviation, the sector is expected to benefit from the government's mega plan to develop no-frills airports and a slew of initiatives to promote regional connectivity. The government has decided to offer subsidy to airlines providing regional connectivity at Rs 2,500 per passenger for an hour’s flight, a move set to help general aviation take off for the long haul.
In case they still skid, the government has eased foreign direct investment (FDI) norms for non-scheduled aviation companies operating jet and turboprop aircraft and allowed up to 100 per cent foreign investment through the automatic route.
Harshvardhan Sharma, director of Himalayan Heli services, says these steps would “definitely help the industry.”
He, however, points out that thus far there has been just one case of major FDI flowing into helicopter operations in the last 4-5 years, despite the government permitting 100 per cent FDI. UTair Aviation JSC, Russia, has set up its wholly owned subsidiary UTair India and operates with three AS350 B3 helicopters.
Small charter operators may be facing headwinds for now, but with these new steps and the economy looking up, hope rests eternal.