Tuesday, September 23, 2008

Humongous multi-billion dollar business opportunity

If one multiplies the average cost per aircraft with the number of planes required in future, s/he will realise what humongous multi-billion dollar business opportunity lies ahead for the global players if they get to bag the deal from Indian airline companies. Now India is obviously at an advantageous position as it can use this opportunity to negotiate other economic and political issues with the countries. “India needs to negotiate issues like transference of basic assembly work & technology. It is time for the country to become partner in aircraft manufacturing, and not remain a customer,” emphasized aviation expert Brij Bharadwaj. Moreover, the presence of Brazilian major, Embraer, Canada’s Bombardier, Russian Sukhoi & French ATR, to name a few, has explored options in India and the country is not merely confined to buying it from the US or EADS. Therefore, India would be in a position where it can seek for something extra in return of this sort of mammoth business deal. It could be anything ranging from asking the companies to set up MRO facilities to investing in infrastructure, providing support-staff, getting planes at a discounted price or any other form of support system.

That’s not all. Apart from this, Air Cargo is also slated to become another money-spinning segment. As per government’s figures by the year 2020, Indian airports are projected to handle cargo in range of 3.4 million tonnes annually. And with most Indian domestic players already envisaging entry into that segment, it could become another enticing business for global players. The recent relaxation in FDI norms allows foreign carriers upto 74% stake in cargo airlines. At present, Air India is the only one which has freight operations. Though, Jet Airways is all set to enter into that segment, it will take nearly 18 months for it to commence its cargo operations. Other players like Flyington Freighters & Aryan Cargo Express are also willing to enter cargo business. Of late, the Indian government has approved 100% FDI in MRO facilities, Flying Training Institutes (FTIs) & helicopter services, which was initially 49%. While in ground handling services and non-scheduled airlines, FDI cap has been increased to 74%. Though for scheduled airlines, FDI cap still is 49%, government is quite optimistic of more foreign players’ participation with this review in policy. “The new FDI policy is expected to greatly boost investments, not only by Americans, but also by other foreign companies too. The sector is expected to bring in investments to the tune of $115-120 billion in the near future,” said Praful Patel, Minister for Civil Aviation, at the sidelines of policy review. But on the other hand, India is also quite circumspect on the issue of allowing foreign airlines flying on domestic routes. Even in its recent policy review, government showed no sign of relaxing those norms. This is when many international airlines like Thailand’s Nok Air, Indonesia’s Lion Air, UAE’s Ras Al Khaima, Malaysia’s Air Asia & Chinese major players, are more than willing to enter Indian airspace, at the backdrop of robust growth that the sector has experienced in the recent past.

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Source :
IIPM Editorial, 2008

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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