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India's Civil Aviation Minister Praful Patel has said that he expects the country's newly regulated airline sector to boom 20 per cent annually over the next five years on the back of surging investment and traffic.
Domestic and international passenger traffic would grow 20 per cent a year as the government and the private sector invest $20 billion over the next five years, including more than doubling the number of civilian passenger planes to 400, he said in an interview.
After years of crippling red tape, poor infrastructure and high costs, India is throwing open the sector to new carriers at home and abroad, deregulating routes, increasing traffic, developing its airports and modernising its fleets.
"Well, India's aviation sector has far too long been restricted. But now we have opened up, liberalised in a big way -- international traffic also has been liberalised to the extent that with the United States we have a near open skies policy, very liberal agreements with the United Kingdom, many other countries. And that is spurring demand internationally and within the domestic sector. We have allowed many new low-cost carriers and regular carriers also to start operations," Patel said.
New Delhi last month signed breakthrough deals with the lucrative United States and United Kingdom markets, doubling capacity to and from the UK and opening skies with the US.
India has also agreed to liberalise traffic with China. The two nations account for almost 40 per cent of the world's people.
Patel also said that India was pushing ahead with more bilateral agreements to increase international routes, including with Singapore, Hong Kong, the Netherlands and Belgium.
India's average annual air travel is 0.1 trip per person, a fraction of the global average of 2.0, industry figures show.
The latest entrant into the Indian market, Kingfisher Airlines, backed by the world's second largest spirits maker, India's UB Group, is due to take off this week.
India's leading domestic carrier, Jet Airways Ltd, which has begun flying overseas, recently raised $435 million in an initial public offering, that was heavily oversubscribed and the stock listed at a premium to the offer price.
Patel said the Left-backed government would push ahead with plans to sell up to 25 per cent of Air-India and Indian Airlines in 2005-06 (April-March) to help fund expansion in the face of growing competition, but would not privatise them.
"Well, there's no number fixed because the financial advisors to both the Air-India and Indian Airlines board will advise them what would be right percentage, but initially the thought process was in the vicinity of 20-25 per cent. That number could be flexible as per the advice given," Patel said.
"Well, I guess it should be completed in this fiscal 2005-06 and that is the only way we will be able to fund and raise resources for our ambitious acquisition plans," he added.
Patel -- 48-year-old founder and head of a business empire spanning home-made cigarettes, edible oils and health care -- is confident that the coalition's allies who support it from outside can be swayed for the part-sale of the struggling state carriers.
His comments came a week after Air-India approved the long-awaited purchase of up to 50 long-range planes from Boeing Co worth about $7 billion in a deal that has drawn public protest from European rival Airbus.
Patel would not be drawn, saying it is business rivalry. He, however, said that there were no geo-political considerations involved when the government gave the go ahead to the Air-India board to buy aircraft from Seattle-based Boeing.
Stating that the civil aviation ministry never gave any directions in this regard, Patel said that the deal with Boeing was purely based on techno-economic parameters.
Boeing's bitter rival Airbus Industries has demanded an inquiry by the Central Vigilance Commission into the deal alleging foul play.
"The process of acquiring planes for state carriers is based on government's existing system. ''On my request, Prime Minister Manmohan Singh had constituted an oversight committee which vetted the whole selection process for purchase of 43 Airbus A320 aircraft by Indian Airlines (IA). The same procedure will be followed for Air-India deal also,'' said Patel.
These specific comments came even as the American aircraft major claimed said on Wednesday that its deal with Air-India 'could stand any scrutiny' and was above board.
"This deal can stand any scrutiny. As a foreign company we cannot comment on any decision India might take towards conducting a CVC into the deal entered into by Boeing with Air-India. The matter is sovereign to India and not our prerogative," said Dinesh A Keskar, senior vice president, Boeing Commercial Airplanes.
Keskar said that Boeing as an aircraft manufacturer had presented its products before Air-India and it was only after a thorough study that it was considered for the deal over its European rival Airbus.
"Air-India has a strict evaluation procedure. And we were selected after Air-India had decided on all the factors and taken all the parameters into consideration. The package we offered was comprehensive and competitive, and needless to say, pricing is an important part of the package. But the bottomline is that our product is better than the competition," he said.
He said that the three new planes, namely the Boeing 777-300ER, 777-200LR and 787-8 (Dreamliner), was better than the products offered by its rival Airbus. The new innovations it was offering included, crown area for crew seat, state of the art computer systems in the 787-8s attached to the back seat of each aircraft, more seating space and composite parts which do not corrode and can withstand great pressure.
"Our newest airplanes for the medium-, long- and ultra-long haul markets are the right choice for Air-India because they are clearly positioned to provide the national carrier with higher revenue potential. Financial benefits by conducting objective calculations reveal that all Boeing airplanes, 777-300ER, 777-200LR and 787-8 have operating profits that far exceed those of competitors," he said.
He said that operating Boeing aircrafts will not only help Air-India earn more revenue, as the fuselage of these planes were larger than their Airbus rivals, but would also help it save more money, by lowering its operational costs.
"The fuselage in the 777-300ER is 78 cm wider than that of the A340-600. It can carry 333 passengers as against 305 that can be carried by A340-600. Also it has 12 per cent more cargo space," he said.
"Apart from all this 777-300ER is 20 tonnes lighter than its competitor and burns one million gallon less fuel, thereby lowering its operational costs. The 777-200LR and 787-8 burn 2 million gallons less fuel than its Airbus rivals, the A340-500s and the A330-200s, respectively. Maintenance costs are also lower," he added.
"Based on the projected route pattern and aircraft utilisation for Air-India, the operating profit per year of 27 787-8s is 81 million higher that that of the A330-200s, the eight 777-200LRs have an advantage over A340-500s by $44 million, and the 15 777-300 ERs generate $60 million greater annual profit than the A340-600s. Thus that cumulative operating profit per year for Air-India with a fleet of these 50 airplanes is $185 million greater than that of an Airbus fleet," he said.
He further said that the 787-8 will be coming in 2008, adding that Boeing was proud of the fact that India which has been among the first to have the 707s and the 747s in its fleet will also be among the first to have the 787-8 Dreamliner.
Patel said the Boeing purchase would not be derailed by the row. Underlining India's potential, Patel said the country had about 180 civilian passenger planes, compared with 750 in China and more than 6,000 in the United States.
Less than one per cent of India's more than one billion people fly each year, with tens of millions relying on cheaper, but outdated trains and road networks.
But competition, a flurry of new cut-price airlines and tax cuts in the sector have brought fares down dramatically -- in some cases rivalling trains -- and brought flying within reach of millions more people. Spending power is also surging in Asia's fourth largest economy.
Limited advance purchase tickets between major cities now sell for as little as just over $10 each way.
Patel said he was confident the government would further reduce taxes on aviation fuel over the next year or so to help bring down prices and make the sector more competitive.