Spreading its Wings: Plans and prospects under Vision 2040

Plans and prospects under Vision 2040

Airport infrastructure development has witnessed modest progress in the past few years. Policy conduciveness, regulatory ease and evolving business models mark the current scenario. During 2018-19, total passenger traffic to, from and within India grew by around 12 per cent year on year as compared to global growth rates of 7-8 per cent. Also, as of December 2018, the sector completed 52 consecutive months of a double-digit growth rate. If this trend continues, India is expected to become a top civil aviation hub soon. At present, the country is the seventh largest aviation market, with 344.69 million passengers, and is expected to become the third largest by 2022.

In January 2019, the Ministry of Civil Aviation (MoCA), for the very first time, unveiled a well-laid-out long-term plan – Vision 2040. The document charts out a roadmap to make India a global aviation hub, highlighting the growth potential in different subsectors of the aviation industry and detailing the action steps required to achieve the desired objective.

Traffic projections

Vision 2040 envisages a sixfold growth in the total passenger traffic – from 187 million in financial year 2018 to around 1,124 million in financial year 2040. Of this, around 821 million will comprise domestic passengers while the remaining 303 million will be international passengers (travelling to and from India). To handle this quantum of traffic, a massive increase in airport infrastructure is a necessity.

Capacity expansion

Though over 100 airports are operational in the country at present, most of the large airports are expected to be saturated by 2040 including the second airports at Delhi and Mumbai that are currently under construction at Jewar and Navi Mumbai respectively. To overcome the capacity constraint, the development of 190-200 airports has been proposed by 2040. This includes the plan to develop third airports at both Delhi and Mumbai and second airports at 31 other cities. The proposed development entails an incremental land requirement of around 150,000 acres that can be acquired on a land-pooling basis. In terms of capital expenditure, funds to the tune of $40 billion-$50 billion will be invested. However, such huge investments cannot be borne by the government alone and therefore the document also proposes public-private partnerships for airport development with innovative funding models such as the hybrid-till model or through the NABH Nirman Fund.

Faster adoption of the aerotropolis model of airport development has also been proposed. Further, the roadmap pushes for adoption of technologies such as biometrics for gradual reduction of operating expenditure at airports.

Strengthening airline capacities

Plans have also been laid out for strengthening Indian carriers. At present, the airline industry, despite strong traction in demand, is facing challenges due to volatile aviation turbine fuel [ATF] prices (the highest in the world and accounting for 30-40 per cent of airlines’ operating expenses), exchange rate volatility, inability to hike fares resulting in reduced profit margins, lack of trained pilots, and an infrastructure deficit. Nonetheless, carriers have been eager to capture the demand by acquiring new aircraft (both narrow-body and wide-body).

As of March 2018, a fleet of around 622 aircraft has been operational. By 2040, the aircraft fleet is expected to increase to 2,359 (of these, 306 will be wide-bodied, 1,817 narrow-bodied and 236 turboprops) and will be valued at about $126 billion.

Vision 2040 also puts forward the idea of bringing ATF under the ambit of the goods and services tax regime to help reduce the high local taxes (in the range of 24-30 per cent) currently being paid by airlines.

Leveraging technologies such as artificial intelligence, machine learning, automation, biometrics, 3D printing and robotics will also help airlines reduce operating costs incurred on activities that are manual and repetitive in nature. Besides, privatisation of Air India is needed as soon as possible to tap the value of high potential slots allocated to the airline at both international and domestic airports.

Tapping air cargo

Air cargo has been viewed as an area with high-growth potential as the revenue on a per kg basis is higher as compared to passenger tickets. With the acquisition of wide-bodied aircraft, the share of international cargo, which currently hovers at about 20.5 per cent, is expected to rise. Further, a boom in the e-commerce and express delivery segment with the possible introduction of freighters and express cargo operators at airports will also enhance domestic cargo.

To further facilitate cargo movement, cargo processing is expected to be made completely paperless thereby reducing the dwell time for exports to just one-two hours. Digital innovations can also be undertaken for faster cargo processing. With these measures, the throughput is projected to quadruple from 3.35 million metric tonnes per annum (mmtpa) to 17 mmtpa by 2040.

Free trade warehousing zones also need to be created inside airports to make India a transshipment hub. With this, transshipment will account for at least 30 per cent of the country’s total international cargo throughput.

Other priorities

Facilitation of domestic aero manufacturing facilities rather than just component supplies and provision of domestic leasing and maintenance, repair and overhaul (MRO) facilities has also been prioritised to curb outflow of foreign exchange and reap the advantage of low labour costs. Airlines in India typically spend 12-15 per cent of their revenues on maintenance, which is the second highest cost item after fuel. Generally, airlines carry out on-tarmac inspections in-house and work with third-party MROs for engine and heavy maintenance. There is also a need to set up MRO zones and notify them as special economic zones with zero taxation to handle nearly 90 per cent of the MRO requirements domestically by 2040.

With respect to domestic aero manufacturing, the National Civil Aviation Policy, 2016, has already promoted this through provision of fiscal and monetary benefits. Further, Vision 2040 stipulates setting up aircraft assembly facilities in India. Co-development of aircraft engines indigenously and manufacturing of 90 per cent of the components for commercial aircraft in India are some of the other goals.

Automation in ground handling and airport operations such as check-in, bag drop, immigration clearance, and retail shopping needs to be introduced to minimise human intervention. At airports, dedicated oil pipelines and exclusive terminals for airlines have also been proposed in the long term. Coastal tourism is another area of focus, given that the coastline is over 7,500 km long. In this regard, the introduction of amphibious aircraft is being considered.

The way forward

The plans and priorities laid out by the government under Vision 2040 are ambitious and are expected to steadily enhance India’s footing in the global aviation market. However, in the long term, factors such as grounding of airlines, a global slowdown, and crude oil volatility, are unpredictable and thus their trickle-down effect on India’s aviation industry is difficult to ascertain. Therefore, challenges need to be handled with resilience for which financial stability is a key factor. Understanding the issues faced by the stakeholders involved and taking the right course of action is of utmost importance. Further, conducive policies for aero manufacturing, course correction in taxation and streamlining of customs procedures will also go a long way in overcoming the turbulence the industry is currently facing.