Touch Base with Indian A&D Industry

Iconic business strategist Ram Charan is boarding Capt GR Gopinath’s start-up logistics company Deccan Express as an advisor. The new
venture is expected to kick off in May next year with a fleet of six cargo aircraft connecting 14 locations and supported by a trucking service that will reach out to 68 places across the country.

“Ram Charan will be on the company’s advisory panel, guiding the CEO and operational team every quarter. We are gearing up to launch services in May-June, with a fleet of three Airbus 310s and three ATRs having 14 air touchpoints. We will be the largest and double the size of existing industry players on day one,” Capt Gopinath, chairman & managing director, Deccan Express Logistics, said. Three more ATRs will be added to the fleet subsequently.

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Indian aviation industry may be going through turbulent weather, yet experts see a growing potential for the maintenance, repair and o
verhaul (MRO) segment of the industry, with projected revenue of $1.07 billion by 2013.

Many companies, including Boeing in a tie-up with the state-run Air India, have announced joint ventures in MRO business and others are waiting in the wings for the government to address some tax issues to jump into the market, the experts added.

Speaking during an MRO Asia symposium here, C.S. Tomar, vice president of engineering and maintenance for Kingfisher Airlines, said the MRO market in the country was currently valued at $405 million with a potential for $1.6 billion by 2018.

"It makes economical sense for us to set up an MRO facility," Sitham Nadarajah, vice president for technical development with Jet Airways, told IANS. "With volumes increasing, we will be looking at D-checks for narrow bodied aircraft like Boeing-737s."

The D-checks are done on aircraft every four-five years, during which the aircraft is completely stripped, checked and then restored.

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The technology-driven Indian aerospace sector would generate around $30 billion in offsets opportunities in India in the coming years, according to Indian Air Force (IAF) chief, Air Chief Marshal Fali Homi Major.

The India Strategic show daily for the India Aviation 2008 released here Tuesday quoted the air chief as saying that the IAF was under an unprecedented "transformation" requiring an investment of around $100 billion for aircraft, equipment and infrastructure over the next couple of decades.

Under the Defence Procurement Policy (DPP), first enunciated in 2006 and fine-tuned earlier this year, 30 percent of the value of all defence contracts has to be reinvested in the country.

The IAF has already inked a $1 billion deal with US aerospace major Lockheed Martin for purchasing six C-130J transport aircraft. In addition to this, it is evaluating bids for 126 combat jets in a deal that is valued at around $10 billion.

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The Indian subsidiary of Boeing Co, Boeing International Corporation India Private Ltd (BICIPL), is looking to bid for the $20-billion worth defence aircraft orders expected in India over the next 10-15 years.

“As a company half of our revenues come from the defence sector, so we are actively working with the Ministry of Defence to compete for a number of opportunities in India,” Dr Ian Thomas, President, Boeing India, said on the sidelines of a conference here on Thursday.
Patrol aircraft

The company plans to bid for the maritime patrol aircraft, fighters in the form of the F-18 Super Hornets, heavy lift helicopters, attack helicopters and host of other opportunities that the sector offers.

In addition, it is also eyeing orders for 1,001 commercial airplanes worth over $105 billion that India would require over the next 20 years.

Dr Thomas said, Boeing in India is also very much engaged in the productivity side by building a number of long-term strategic partnerships in key areas such as information technology, business process and knowledge sourcing, engineering, R&D activities and components.

It is also in talks with Tata Industries for its proposed joint venture company that will make aerospace components.

Boeing and Tata had signed a pact to form a joint-venture company that will initially invest $500 million for defence-related aerospace component manufacturing in India.

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With the European aerospace industry looking at cutting costs, India can become an important outsourcing destination, an official of aircraft major Airbus Industries said here on Friday.

“Airbus is into cutting costs by outsourcing components. In future, we will outsource engineering as well as production jobs,” Martin Kraus, who heads Airbus A400 Military Systems, said here.

According to him, the challenges faced by Airbus in the civilian segment are increased competition from aircraft manufacturers in Brazil and China, low value of the American dollar and volatility in oil prices.

In the military segment, the defence budgets of European countries are coming down; Kraus said during his address at Connect 2008, an information, communication and technology meet organised by the Confederation of Indian Industry (CII).

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Satyam Computer Services Ltd has roped in senior officials, including retired, from Boeing, Airbus, Cadence and Bombardier to strengthen its aviation practice.

Mr John Douglass, former president and Chief Executive Officer of Aerospace Industries Association of America, which represents US aerospace manufacturers, will join Satyam as an advisor. He is also an advisor to the Senator, Mr Barack Obama, the Democrats’ Presidential candidate.

“Mr Douglass has accepted our offer,” said Mr Subu D. Subramanian, Director and Senior Vice-President, Satyam.

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The government, on Thursday, finalized the guidelines for setting up greenfield airports. All the proposals for the new airports will be routed through the steering committee. The civilian aviation ministry will serve as the secretariat of the starting committee of the Greenfield policy.

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Indian aviation may be in the dumps currently with airlines cutting down on operations and passengers gravitating towards trains, but aircraft manufacturer Airbus continues to remain upbeat about its future in India. Not only is the European major expecting the next wave of orders from India’s airlines in three to four years’ time, it is also considering the country as one of the key centres for design and development of its long-haul A350 plane, set to take on rival Boeing’s much publicized 787 Dreamliner.

”As Air India, Jet Airways and Kingfisher Airlines look to compete in the international arena there is likely to be need for more aircraft. We expect that the next big wave of orders will come in 2011-12 by when these airlines will have completed the delivery of the aircraft already ordered. The airlines will need aircraft to continue on the growth path that they have embarked on. Besides, there will also be need for freighter aircraft,” Dr Kiran Rao, Executive Vice- President, Sales and Marketing, Airbus, said.

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The government on Thursday approved modernisation of the Chennai and Kolkata airports. Expansion of the two airports is estimated to cost over Rs 3,750 crore and these projects are to be completed within three years. The entire modernisation work would be taken up by the Airports Authority of India (AAI) beginning September this year. AAI will invest 80% of the required capital through internal resources, and the remaining 20% would be borrowed.

While the Kolkata airport would be developed at an estimated cost of Rs 1,942.51 crore, modernisation of the Chennai airport would cost Rs 1,808 crore. The Kolkata project would be completed within 30 months of awarding the contract, while the Chennai project would have a lower implementation period of 26 months.

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Global aviation training and recruitment major, Cabin Crew Direct, will set up seven cabin crew training and recruitment centres in the country. The UK-headquartered firm said it would run the centres in collaboration with Kouni India, a subsidiary of Switzerland-based Kouni International.

The service provider said it plans to place around 70-80 cabin crew executives with major global airlines by end of the year. “We have just set up the first centre in collaboration with Kouni at New Delhi and would be opening six other centres at Mumbai, Chennai, Bangalore, Ahmedabad, Hyderabad and Chandigarh soon,” Cabin Crew Direct chief executive officer, John Ellis, said.

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Deccan Express Logistics, an air and ground distribution network company formed by Capt. G.R. Gopinath, plans to raise $200 million to fund the project, which is expected to become operational by the first quarter of the next financial year.

The company has appointed Edelweiss, an investment banking and financial services company, to arrange for funding from private equity and help it with a business model to run its fully integrated logistics service.

Capt Gopinath told Business Line that he hopes to raise $70 million in the next four months, while the remaining funds were expected to be arranged within three years with the help of Edelweiss.

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Lease rentals for aircraft in global markets have fallen by 15-20 per cent over the past four months, which dealt a further blow to bleeding Indian carriers looking at sub-leasing their aircraft to other airlines in order to shed excess capacity.

With losses of over $ 2 billion expected by the aviation industry this year, airlines have been looking at various ways to cut capacity and reduce the number of flights. One way has been to sub-lease their existing aircraft to another carrier which wants quick delivery at a premium, especially if it comes with a crew and pilot also. This market is now drying up.

“Demand and supply equations have changed in the aviation market space because of the fact that 25 airlines have closed down and airlines worldwide are reducing and redrawing capacity. This has resulted in softening of the lease rental market by 15-20 per cent and is likely to slide further in the second quarter of the current fiscal,” said Kapil Kaul, CEO (Indian sub-continent and Middle East) Centre for Asia Pacific Aviation.

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Deccan Aviation, India’s first helicopter charter company on Tuesday launched a helicopter charter service to ferry people between the Bangalore International Airport (BIA) in Devanahalli and select IT hubs in the city.

The service, christened Skylimo, is the first of its kind air taxi service to be launched from any airport in the country.

The company will commence services from July 2. To begin with, it will fly between BIA and Electronics City, Whitefield and HAL Airprot. It will soon add Bangalore Palace grounds.

The company has deployed a four-seater Bell 206 JetRanger helicopter. Initially, the skylimos service is available only during the day, from 6.30 am to 6 pm, and will cover the distance in 15-20 minutes.

The fare for these charters is in the range of Rs 4,800 per person to Rs 5,800 per person per trip. Deccan Aviation has built a helipad within the BIAL premises, about a kilometre from the airport.

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Having cut down on flights, Indian carriers are now faced with a new problem: What to do with the idle aircraft?

The worldwide softness in the sector has ensured there are few takers for these aircraft; those who had leased the aircraft to Indian carriers will invoke a hefty penalty if the machines are sent back to them.

Reeling under record jet fuel prices and rock-bottom fares, this is the latest thorn in the side of Indian airlines. None is yet to arrive at a solution.

The problem, to be sure, is not small. Out of the 300 odd aircraft with these airlines, there is an excess capacity of 15 per cent, or roughly 45, experts reckon.

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The financial turbulence that airlines are experiencing these days due to soaring fuel cost, is pushing airport developers to think on lines of building low cost airports.

GMR Group is looking at this model, where efficient greenfield airports could be built in smaller cities for anywhere between one-fifth to half the cost of the Rs 2,500-crore airport it has built in Hyderabad.

Such airports would mean lower charges for airlines, helping their survival and also no extra charges for passengers that would help reverse the trend of lower demand. Cities that already have an operational runway could get a new low-cost terminal for as low as Rs 150 crore, said a senior GMR official.

This thinking comes shortly after airlines are bleeding heavily due to high global oil prices and delayed payments to airports by them have become common. Recovering costs of fancy airports through levy of user development fee (UDF) has also become a touchy issue in these times of high surcharges and taxes.

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Karnataka’s proposal to set up four greenfield airports at Gulbarga, Bijapur, Hassan and Shimoga have been given an ‘in-principle’ approval by the Centre. This clears the way for the promoters of Hassan and Shimoga airports to directly approach the Directorate General of Civil Aviation (DGCA) for a licence to make the airport operational.

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The Bombay High Court has ordered cancellation of DFS India’s contract for duty-free operations at the Mumbai Airport and asked the Mumbai International Airport Limited (MIAL), the GVK-led private consortium developing the airport, to go for fresh bidding.

DFS India is a wholly-owned subsidiary of DFS Venture Singapore Pte, one of the major duty-free operators at the Changi International Airport, Singapore.

The judgement was passed on an appeal of one of the bidders, Flemingo Duty Free Shop. Flemingo had challenged MIAL’s decision to award the contract to DFS India in February 2007. In its petition, Flemingo had challenged the very process adopted by MIAL for awarding the contract. The company had found faults in every step of the process, starting from the expression of interest to issuance of request for proposal to award of the contract to ITDC-Aldeasa first and later to DFS India, when the contract with the former was cancelled. ITDC-Aldeasa is a consortium between Spanish company Aldeasa SA and Indian Tourism Development Corporation.

"We had called the process arbitrary and the High Court has accepted that," said Atul Ahuja, director, Flemingo.

The company had entered into a consortium arrangement with Aer Rianta International, a dedicated international division of the Dublin Airport Authority, to bid for the duty-free contract. "The contract awarded to Respondent No. 5 (DFS Venture Singapore Pte) on November 29, 2007 and its subsequent novation in favour of Respondent No. 6 (DFS India) is set aside," the judgement said.

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The government on Wednesday announced a slew of measures to help the troubled aviation industry, which is expected to report losses of Rs 8,000 crore during this fiscal on account of rising fuel prices.

Government has permitted airlines to continue with their ground-handling operations till December this year, while it will start a new Performance Navigation System at Mumbai and Delhi Airport, from August 1 to ease congestion and bring down the air traffic delays by 50%.

It has also set the same deadline for appointment of Ombudsman by all airlines to address passenger complaints and problems. It has also formalised a 10 member group of airlines and airports operators’ to discuss w

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Aerospace giant EADS is in talks with airline tycoon Vijay Mallya to revive its single piston engine aircraft manufacturing business, as a potential tie-up offers cost advantage to the European firm and entry into general aviation for the Indian billionaire.

Socata, the business jetliner arm of EADS, made public its project to relaunch its single piston engine line of product and is on the look out for a partner involving an entity willing to resume production at a much lower cost than the one in France.

"This is the very point that was approached in initial talks with Mallya in the course of current discussions between him and Airbus (subsidiary of EADS)," Socata Vice-President (Sales and Marketing) Nicolas Chabbert said.

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From June 1, India’s commercial aircraft will not have foreign co-pilots on board. This will open fresh opportunities for thousands of aspiring pilots in the airline industry, said a government official.

The development comes in the wake of the government’s decision that Indian airlines should have only Indian co-pilots from June 1. The carriers are also required to discontinue the services of senior foreign pilots, designated as commanders, by July 2010, the official said.

According to official sources, leading private airline Jet Airways received over 900 applications for the 10 posts it had advertised for hiring co-pilots.

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