Indian aviation’s cloud 9 moment

The newly-privatised former national carrier Air India recently struck a historic 470-aircraft deal with the US’s Boeing and France’s Airbus. It’s the biggest ever single tranche commercial aviation deal in history. Air India also has an option to procure 370 additional aircraft, which takes the total count to 840 aircraft.

This is a big moment for Air India, as the order could place the full service carrier in the league of the world’s top airlines. Air India holds a clutch of premium landing and parking slots at some of the biggest airports globally. The carrier’s aircraft also fly nonstop to several destinations, even bypassing the Middle Eastern hubs. So, how exactly does this impact the Indian aviation industry? A few figures might help answer that.

Air India’s deal for 470 aircraft represents about 70% of the country’s current total passenger fleet (700 aircraft). Of these 470, 30 aircraft are set to be delivered in the second half of 2023. The order seems to have come in time as India’s air traffic will grow at a rate of 7% until 2041, which is greater than the global average. And India will need as many as 2,200 aircraft over the next two decades, of which 80% will be tasked with supporting the new growth wave. While this might seem encouraging, it’s not exactly a soft landing for the sector.

The domestic aviation business could be staring at yet another turbulent period in the backdrop of increase in costs and muted demand. Per aviation consultancy firm CAPA India, the losses of the Indian airline industry for FY23 has been revised to $2.5 bn from the previous estimate of $1.4-1.7 bn. The company has pegged the losses of the industry to about $10 bn over FY21, FY22 and FY23.

There will be a spike in multiples costs including fuel, labour, currency, airport charges, as well as ownership costs of aircraft. Here in India, the cost of fuel makes up for 45% of the operating expenses, which is steep compared to the global average of 30%. Also, owing to Central and State taxation, ATF prices in India are higher as compared to ASEAN and Middle East nations.

Also, at least 75 aircraft belonging to various operators, which essentially make up for 10-12% of the nation’s fleet, are set to be grounded soon owing to engine-or maintenance centric issues. The competition will surely get fiercer as low-cost carrier IndiGo, which has 55% of the market share, will also be picking up 500 new aircraft in the coming years.

Air India, which has 26% of the market share will need to manage the delivery schedules of its new aircraft, of which 113 will be replacements for its older fleet. As of January, 73 airports have been operationalised under the UDAN scheme to boost regional connectivity which opens up avenues for new arrivals like Akasa Air too. The government will have its hands full with the issue of slot allocation for the various airlines. There is also the question of airport management, which is now moving towards the PPP model, owing to lack of funds. The unavailability of space for airport expansion is a pain point as well.

Infrastructural shortcomings like the ineffective administration of air traffic control and navigation systems must also be looked into. On the airline front, the operators will need to address the issue of shortage of pilots and the gaps in skills vis-a-vis cabin crew members, pilots, engineers, technicians and ground-handling staff.