Recent Developments

NCAP, 2016 to provide impetus to sector

The year 2015-16 saw increased focus on regional connectivity, with the launch of new regional airlines as well as new flights on existing and new routes. However, movement on airport projects has been slow. Like 2014-15, the budget allocation to the sector was reduced. Nonetheless, the year saw the near completion of Shirdi and Kannur airports – two key greenfield projects – while state governments continued to encourage airport development. Besides, a spurt in the fare war has been driving down the price of air tickets and propelling growth in air travel.

The following is a glimpse of recent developments in the sector…

Government initiatives

  •  Budget 2016-17 allocated Rs 44.17 billion to the Ministry of Civil Aviation (MoCA), marking a 29.95 per cent fall over the Rs 63.06 billion (revised estimate) allocated for 2015-16. Of the total amount allocated, Rs 20 billion is for plan expenditure while Rs 5.91 billion is for non-plan expenditure. The budget also allocated Rs 17.13 billion for equity infusion in Air India Limited. In addition, the Airports Authority of India (AAI) has been allocated Rs 20.66 billion under the budget, as compared to the Rs 18.2 billion allocated for 2015-16.
  •  A major development during the year under review has been the launch of the National Civil Aviation Policy (NCAP), 2016 aimed at the transformation of the sector. Further, the Directorate General of Civil Aviation (DGCA) amended aircraft import norms under which domestic airlines have been permitted to import aircraft which are up to 18 years old.
  • Meanwhile, in a bid to attract greater inflow of funds, the government has increased the foreign direct investment (FDI) limit to 100 per cent from the current 74 per cent, for certain segments such as foreign general aviation charter operators and ground handling companies. As per the new norms, the government has also allowed 49 per cent FDI for regional air transport services under the automatic route.

Airports

  •  GMR Airports Limited has won the bid to develop the greenfield airport in Mopa, Goa on a build-operate-transfer basis. The concession period for the project will be 40 years with a possible extension for another 20 years. The airport, which will be developed in four phases, is expected to have a capacity to handle 13.1 million passengers per annum by 2045. Commercial operations are expected to begin by 2020.
  • The MoCA has sought a budgetary provision of Rs 46.5 billion from the Ministry of Finance to revive 50 unserved and underserved airports and airstrips in the country, in order to boost regional air connectivity. A proposal for the same has been submitted to the latter by the MoCA.
  • Kannur International Airport Limited (KIAL) is considering floating public shares worth Rs 300 million in the market to generate additional funds. An investor will have to subscribe to a minimum of 500 shares worth Rs 100 each. AAI’s reluctance to increase its equity stake in KIAL from the present 10 per cent has prompted the management to consider other sources of funding.
  • New terminal buildings were inaugurated at Tirupati, Chandigarh and Cochin airports during 2015-16. Besides, work on a new terminal building of Vijayawada airport has started and plans to construct a fourth runway and a new domestic terminal at the Indira Gandhi International Airport have also been announced.
  • During the past year, bids were invited for the construction/expansion/upgradation of terminals at Tiruchirapalli, Bagdogra, Vadodara, Goa (Dabolim), Calicut, Nagpur, Kishangarh, Jharsuguda, Gorakhpur, Gulbarga and Lucknow  airports, among others.

Airlines

  • IndiGo placed a firm order for 100 single-aisle A321neo aircraft worth $12.5 billion at list prices from Airbus. The deal has taken the total number of the A320 family aircraft ordered to 575, of which over 170 have been delivered.
  • Meanwhile, GoAir has announced plans to launch a Rs 10 billion initial public offering (IPO) in 2016-17, post clarity on the delivery of new Airbus aircraft. The airline has appointed Goldman Sachs, Bank of America Merrill Lynch and Kotak Mahindra Bank for managing the proposed IPO.
  • Equity shareholders of Jet Airways approved the merger of the airline with its wholly owned subsidiary JetLite. Post amalgamation, the existing equity shares of Jet Airways and its nominees in JetLite will stand cancelled without any financial consideration and JetLite will stand dissolved without winding up. Further, JetLite’s flying permit will be retained and it will be operated as a separate division of Jet Airways.
  • The DGCA sanctioned an air operator permit to Coimbatore-based Air Carnival, making it the fourth regional airline. The airline has started operations on four routes – Coimbatore-Chennai, Chennai-Madurai, Madurai-Chennai and Chennai-Coimbatore, and has plans to expand operations to Tirupati, Hubli, Visakhapatnam, Rajahmundry and Mangaluru.

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