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Aviation charter — Next big idea in the air
‘Indian business leaders are realising that a business aircraft is not a luxury but contributes directly to the bottomline by enabling them to use their time more productively and respond to opportunities with agility, whether within the country or across the world.’
Shubhra Tandon
Aviation in India is an evolving story. When low-cost carriers made an entry into the sector, it touched a new high with the changing profile of the passengers, and the sheer volume of people for whom air became the preferred mode of travel.
Off course, the boom in the economy had a significant role to play as well. As businesses moved beyond the confines of Mumbai, Delhi, Bangalore, etc., to tier-two and tier-three cities, aviation expanded further. Now with 35 non-metro airports in the pipeline, the Indian aviation story is only going to get more interesting.
However, as increasing numbers of people take to air travel and the number of aircraft grows in the country, travel through scheduled carriers is becoming time-consuming for business and first-class travellers. And that’s where another era in Indian aviation begins — that of general aviation.
India forms 12 per cent of the worldwide business jets market, says an Ernst & Young report “Indian Aviation Sector Competition — Consolidation — Efficiency,” quoting Embraer, the Brazil-based executive jet manufacturer. According to the report, the demand for private or business jets in India is expected to grow at 50 per cent on an annual basis over the next few years.
The main reason for this sudden spurt is that “Indian business leaders have begun to realise that a business aircraft is not a luxury but a productivity tool that contributes directly to the bottomline by allowing them to use their time more productively and respond to opportunities with agility, whether they are across the country or across the world,” Mr Edward T. Smith, Senior Vice-President, International Affairs of the US-based General Aviation Manufacturers Association, told Business Line.
Growing opportunities
North America has been the key market for charter aviation traditionally; but recent slowdown in the US economy and growing business opportunities in the Asia-Pacific region has led to a transition of the market towards the latter.
As part of the regional boom, India will also see quite a lot of activity in the area. “This growth in general aviation will be backed by the increasing number of global business jet players entering India. Consolidation and some tie-ups will be witnessed soon,” said Mr Kapil Arora, Partner, Ernst & Young.
Tata Group recently picked up a significant stake in Bjets — a business jet operator that plans to start aircraft charter and fractional ownership programmes in the country.
Last year, 30 business jets were delivered in the country and another 45 are likely to be delivered in 2008, he said.
In March, Aerion Corporation, the US-based company developing supersonic business jets, said that it expects $640 million worth of orders from India by mid-2008. The company has already received letters of intent from five Indian customers worth $400 million.
Fractional ownership
The fractional aircraft market has also witnessed a strong demand in recent years, as customers (owners) have the option of buying a fractional ownership of the aircraft, which ensures cost-effectiveness as well as convenience of a private jet. As per the Ernst & Young report, owners have a guaranteed access to 50-400 aircraft hours annually, depending on their share size.
Charges are levied only when the owner or guest is on board, and not when the aircraft is flying to a pick-up point, or returning to base after completing a trip.
In the Indian context, Mr Arora said that fractional aircraft ownership a very novel concept and will take sometime to catch up. Club One Air, a Delhi-based private jet company is the only Indian player operating in the market.
Although NetJets, owned by Berkshire Hathaway, the investment arm of Warren Buffet also announced its foray in the Indian market as it appointed a local partner last month.
Another interesting aspect that the experts in general aviation highlight is that this upswing in the sector will not be limited to large Indian business houses alone.
“As we have seen elsewhere in the world, business aviation is booming because dynamic businesses of all types and sizes and in all sectors have come to appreciate the efficiencies, flexibilities and other benefits it brings in terms of productivity to any company.
Hence, business aviation growth in India will be fuelled not only by likes of Mittals, Tata, Reliance, and so on, but by the hundreds of other dynamic, globally-oriented new businesses coming up in India in many fields,” said Mr Smith of GAMA.
Fragmented market
However, despite favourable prospects for growth, the charter aviation market in India is fragmented. There are around 32 aircraft charter companies operating in the country, most of them having less than two aircraft each, says the E&Y study.
Infrastructure snarls in the form of access to the airports, congested air space and crunch for parking bays in big hubs of Mumbai, Delhi and other places would be impediments in the long run. Also, the shortage of technical staff and pilots would add to the problem, just like in the overall aviation sector.
Experts say a lot would depend on how the tier-two and secondary airports come up in the country.
On the regulatory side, there are some obstacles that are constraining growth, said Mr Smith. A countervailing duty of 16 per cent on the importation of general aviation aircraft for personal use, on top of other import duties, is a big dampener, he said.
“Some may respond that those who can afford to purchase a business jet can most likely afford the higher tax. However, this argument ignores the fact that this excessive taxation, in particular, makes the importation of the less expensive general aviation aircraft for pleasure prohibitive for the enthusiast or beginning aviator that has always formed the core of a strong aviation community.”
However, these obstacles do not seem a deterrent. Numerous private sector players are entering the air-charter business to leverage the opportunities offered.
The E&Y report says that Raymond, Mesco, Sahara, and Jindal Steel and Power have applied for charter service licence from the Director General of Civil Aviation.
Aircraft profile
Aircraft in the general aviation include business jets, turbo-props and pistons. There are over 3,20,000 general aviation aircraft worldwide, ranging from two-seat training airplanes to intercontinental business jets, are flying today; 2,21,000 of those planes are based in the US.
General Aviation contributes more than $150 billion to the US economy annually and employs more than 12,65,000 people.
General Aviation billings reached an all-time high of $21.9 billion in 2007, a 16.5 per cent increase from 2006 worldwide.
Worldwide shipments of general aviation aeroplanes totalled 4,272 units in 2007.
This is a 5.4 per cent increase over the previous year's total of 4,053 units and the strongest since 1981.
Source: General Aviation Manufacturers' Association
‘Indian business leaders are realising that a business aircraft is not a luxury but contributes directly to the bottomline by enabling them to use their time more productively and respond to opportunities with agility, whether within the country or across the world.’
Shubhra Tandon
Aviation in India is an evolving story. When low-cost carriers made an entry into the sector, it touched a new high with the changing profile of the passengers, and the sheer volume of people for whom air became the preferred mode of travel.
Off course, the boom in the economy had a significant role to play as well. As businesses moved beyond the confines of Mumbai, Delhi, Bangalore, etc., to tier-two and tier-three cities, aviation expanded further. Now with 35 non-metro airports in the pipeline, the Indian aviation story is only going to get more interesting.
However, as increasing numbers of people take to air travel and the number of aircraft grows in the country, travel through scheduled carriers is becoming time-consuming for business and first-class travellers. And that’s where another era in Indian aviation begins — that of general aviation.
India forms 12 per cent of the worldwide business jets market, says an Ernst & Young report “Indian Aviation Sector Competition — Consolidation — Efficiency,” quoting Embraer, the Brazil-based executive jet manufacturer. According to the report, the demand for private or business jets in India is expected to grow at 50 per cent on an annual basis over the next few years.
The main reason for this sudden spurt is that “Indian business leaders have begun to realise that a business aircraft is not a luxury but a productivity tool that contributes directly to the bottomline by allowing them to use their time more productively and respond to opportunities with agility, whether they are across the country or across the world,” Mr Edward T. Smith, Senior Vice-President, International Affairs of the US-based General Aviation Manufacturers Association, told Business Line.
Growing opportunities
North America has been the key market for charter aviation traditionally; but recent slowdown in the US economy and growing business opportunities in the Asia-Pacific region has led to a transition of the market towards the latter.
As part of the regional boom, India will also see quite a lot of activity in the area. “This growth in general aviation will be backed by the increasing number of global business jet players entering India. Consolidation and some tie-ups will be witnessed soon,” said Mr Kapil Arora, Partner, Ernst & Young.
Tata Group recently picked up a significant stake in Bjets — a business jet operator that plans to start aircraft charter and fractional ownership programmes in the country.
Last year, 30 business jets were delivered in the country and another 45 are likely to be delivered in 2008, he said.
In March, Aerion Corporation, the US-based company developing supersonic business jets, said that it expects $640 million worth of orders from India by mid-2008. The company has already received letters of intent from five Indian customers worth $400 million.
Fractional ownership
The fractional aircraft market has also witnessed a strong demand in recent years, as customers (owners) have the option of buying a fractional ownership of the aircraft, which ensures cost-effectiveness as well as convenience of a private jet. As per the Ernst & Young report, owners have a guaranteed access to 50-400 aircraft hours annually, depending on their share size.
Charges are levied only when the owner or guest is on board, and not when the aircraft is flying to a pick-up point, or returning to base after completing a trip.
In the Indian context, Mr Arora said that fractional aircraft ownership a very novel concept and will take sometime to catch up. Club One Air, a Delhi-based private jet company is the only Indian player operating in the market.
Although NetJets, owned by Berkshire Hathaway, the investment arm of Warren Buffet also announced its foray in the Indian market as it appointed a local partner last month.
Another interesting aspect that the experts in general aviation highlight is that this upswing in the sector will not be limited to large Indian business houses alone.
“As we have seen elsewhere in the world, business aviation is booming because dynamic businesses of all types and sizes and in all sectors have come to appreciate the efficiencies, flexibilities and other benefits it brings in terms of productivity to any company.
Hence, business aviation growth in India will be fuelled not only by likes of Mittals, Tata, Reliance, and so on, but by the hundreds of other dynamic, globally-oriented new businesses coming up in India in many fields,” said Mr Smith of GAMA.
Fragmented market
However, despite favourable prospects for growth, the charter aviation market in India is fragmented. There are around 32 aircraft charter companies operating in the country, most of them having less than two aircraft each, says the E&Y study.
Infrastructure snarls in the form of access to the airports, congested air space and crunch for parking bays in big hubs of Mumbai, Delhi and other places would be impediments in the long run. Also, the shortage of technical staff and pilots would add to the problem, just like in the overall aviation sector.
Experts say a lot would depend on how the tier-two and secondary airports come up in the country.
On the regulatory side, there are some obstacles that are constraining growth, said Mr Smith. A countervailing duty of 16 per cent on the importation of general aviation aircraft for personal use, on top of other import duties, is a big dampener, he said.
“Some may respond that those who can afford to purchase a business jet can most likely afford the higher tax. However, this argument ignores the fact that this excessive taxation, in particular, makes the importation of the less expensive general aviation aircraft for pleasure prohibitive for the enthusiast or beginning aviator that has always formed the core of a strong aviation community.”
However, these obstacles do not seem a deterrent. Numerous private sector players are entering the air-charter business to leverage the opportunities offered.
The E&Y report says that Raymond, Mesco, Sahara, and Jindal Steel and Power have applied for charter service licence from the Director General of Civil Aviation.
Aircraft profile
Aircraft in the general aviation include business jets, turbo-props and pistons. There are over 3,20,000 general aviation aircraft worldwide, ranging from two-seat training airplanes to intercontinental business jets, are flying today; 2,21,000 of those planes are based in the US.
General Aviation contributes more than $150 billion to the US economy annually and employs more than 12,65,000 people.
General Aviation billings reached an all-time high of $21.9 billion in 2007, a 16.5 per cent increase from 2006 worldwide.
Worldwide shipments of general aviation aeroplanes totalled 4,272 units in 2007.
This is a 5.4 per cent increase over the previous year's total of 4,053 units and the strongest since 1981.
Source: General Aviation Manufacturers' Association
