The Airports Authority of India announced late last year that it will release a 10-year aviation policy this summer to address private-sector investments and air cargo developments. The sea change toward private investments, however, is already underway.
For the past few years, the government has been transitioning India’s airports from public institutions to private-sector life, and this has allowed companies to implement massive upgrades to airports in Mumbai, Chennai and elsewhere.
With the organization projecting a 10-percent annual Indian aviation growth for the next five years — and with cargo expected to rise 0.8 million tonnes by 2017 — demand is not an issue. But seemingly massive challenges remain. Infrastructure growth has been slow, historically, and the country’s largest airlines, Air India and Kingfisher, are saddled with their own issues.
The authority’s current draft strategic plan takes a long look at cargo and outlines how Indian cargo can adapt to the changing world. According to Anil Khanna, managing director of Blue Dart Express, the policy details the creation of a cargo-terminal infrastructure in the country’s airports, which will include separate areas for non-courier express shipments; the development of cargo villages; the establishment of free-trade zones at airports; guidelines for cargo automation and governance; and the creation of top-notch maintenance and repair facilities.
Addressing these issues will go a long way toward upgrading India’s aviation outlook, Khanna says. A lack of air and surface infrastructure are the biggest problems he sees right now, with clogged airports adversely impacting his express business. As his tonnage increases, the size of the airport stays the same. Fuel prices, of course, are a perennial issue.
On top of all this, carriers in India tend to pay higher prices than their colleagues in other countries. When analyzing the fees airports charge carriers for cargo movements, he says South Korea dropped its fees by 20 percent in the last two years. In that same period, India rose its fees by a factor of eight.
“Transport infrastructure and lack of understanding of supply chains are major obstacles to growth in India’s express market. We are glad, however, that government has taken up the issue of infrastructural challenges seriously,” he says. “The government of India has planned for phase-wise airport development and creating world-class airport infrastructure in some major places. This is likely to boost airline and cargo sectors. Many airlines are planning to create full-fledged cargo operations.”
The new aviation strategy, Khanna says, should go beyond surface problems to address a host of other issues. Indian aviation is a bit behind in safety and security, and he says the government should constantly look to other nations in order to mirror industry standards. He also calls for giving fuel a declared goods status that would impose a uniform VAT of 4 percent for the entire country. Finally, he wants the government to bring back parts of the country’s income tax act, which made it easier for foreign companies to lease aircraft to Indian firms.
“The Income Tax Act provided for income tax exemption to foreign companies on lease rentals paid by an Indian company. This exemption was withdrawn in 2007, which has, as a result, increased the cost of air operations,” he says.
A spokesman for Mumbai-based freight forwarder Allied Aviation Pvt. is worried about the number of freighter aircraft in the country and the scarcity of skilled labor. He thinks the new aviation strategy should address these issues along with facilities and handling, but also of concern is the growing price competition among industry shareholders and the rise in labor costs. These issues can be addressed, he says, by reconfiguring the regulatory structure, eliminating the fuel tax and, of course, improving the quality of and access to airports and cargo facilities.
But some regulations, he admits, could help Indian aviation companies. Allied sees huge growth potential in the domestic Indian market, which is off limits to foreigners. “Allied Aviation would concentrate more on the domestic market, and then the international market,” the spokesman says. “The growth at the domestic market is fast, as it offers greater potential since regulations prevent foreign airlines from competing in the domestic air cargo market.”
Allied also approves of the government’s recent move to increase the amount of investment allowed by foreign companies in the air cargo sector from 49 percent to 74 percent. According to the spokesman, the rule change “will bring in the much-needed capital and global best practices to the Indian air cargo industry. Proactive and favorable government policies will greatly encourage investments in the air cargo industry and facilitate the setting up of the required amenities and infrastructure.”
U.S.-based forwarder BDG International opened its Indian office in 2007, and in the ensuing years, Lisa Victoria Waller, BDG’s vice president, has experienced the slow transition of the aviation sector as an outsider looking in.
The move to privatize airports, she says, was absolutely necessary to the industry’s continued growth, but she cautions that there are still airports that need to be handed over to the private sector. “They have a long road ahead of them,” she says. “But the Indian government knows that they are better off privatizing than trying to manage them themselves because they have a really hard time managing major projects like this for infrastructure improvement.”
The government, of course, can’t step out of the picture entirely. Like her colleagues at Allied and Blue Dart, Waller says the government needs to pave a new path on security, Customs processing and a host of other regulatory measures. She adds that the government also needs to help private aviation shareholders prosper.
With all these issues still brewing, progress in India can seem slow at times, but Waller has also seen what seem like massive structural issues resolved in no time at all. India is funny like that, she says, adding that five years down the road, air services in India will likely be vastly different than they are today.
“In India, the changes are night and day. Today you don’t have a service you want, and tomorrow you do,” she says. “That’s the cool part of India.”