Following the Inter-Ministerial Task Force recommendations for Operation, Management and Development of select airports on Public Private Partnership (PPP) basis, the Request For Qualification (RFQ) for selection of the prospective bidders for Chennai and Lucknow Airports has been invited. The Request for Qualification for these two airports are invited up to mid October, 2013 and Financial Bids are likely to be received by mid December, 2013.
The other four airports namely Kolkata, Guwahati, Jaipur and Ahmedabad are likely to be taken on the same pattern shortly. The scope includes the entire airport including the airside and city side facilities on long term concession.
The application for pre-qualifications are invited from single entity or a group of entities (the consortium coming together to implement the project). The SPV shall be formed for this purpose. In order to secure representation of the Airports Authority of India on the Board of the SPV, the Concession Agreement will include a provision for issue of a golden share in accordance with a Shareholders’ Agreement that would form part of the Concession Agreement.
The concessionaire can levy tariffs for aeronautical services including the User Development Fee (UDF) as may be determined by AERA to start with. Such charges would be revised normally once every five years by the Airports Economic Regulatory Authority (AERA) in accordance with the AREA Act. The RFP would indicate the parameters for determining charges for aeronautical services as well as the UDF Bids will be invited for the project on the basis of the premium in the form of revenue share to the authority for award of the concession. The authority may prescribe a ceiling of revenue share and a bidder who wishes to make an offer above such ceiling shall have the option of giving such bid on the additional parameters as may be specified in the RFP. The concession period shall be pre-determined, and will be indicated in the draft concession agreement. The premium shall constitute the sole criteria for evaluation of bids. The project shall be awarded to the bidder quoting the highest premium.
The selected bidder shall be required to protect the interest of the existing employees of the airports.
No applicant, including its associate, consortium member or an associate will be entitled with the award of more than two airports out of the six airports to be awarded by the authority. Also, applicant, including its associate, shall not be eligible for award of more than one airport from Kolkata, Chennai and Ahmedabad airports.
Regarding the technical capacity and financial capacity due weightage is given to project experience on eligible projects in airport sectors and other core sectors as well as the construction experience of eligible projects of airport sectors. Based on the experiences, score and the criteria specified in RFQ, the applicants shall then be ranked on the basis of their respective aggregate experience scores and short-listed for submission of financial bids. The authority expects to short-list upto seven pre-qualified applicants for participation in the financial bid stage.
India Releases First ever detailed Aviation Carbon Footprint Report
The Directorate General of Civil Aviation (DGCA) presented the 2011 Carbon Footprint Report for the Indian Aviation Industry, in line with India’s initiatives to address the climate change challenge.The report was released at the 49th Conference of Directors General of Civil Aviation (DGCA), Asia Pacific Regions being held in New Delhi.Compiled for the first time in such a detailed format, the report was prepared in cooperation with the major airlines and airports of the country and with the support of the European Union/India Civil Aviation Cooperation Project is another milestone for the Indian Civil Aviation strategy of developing a sustainable aviation framework
According to the report: a. The carbon footprint of Indian scheduled airlines for domestic and international operations was 12,704,000 tonnes of CO2; a 6% increase in comparison to 2010. b. The carbon footprint of foreign airlines serving international destinations from Indian airports, based on fuel uplift from India, reached 3,623,000 tonnes of CO2. c. CO2 emissions from Indian scheduled airline operations as well as from foreign airlines to international destinations represent less than 1% of the country’s total CO2 emissions. This number is significantly lower than the global average contribution of airlines, which represent approximately 2% of global anthropogenic emissions. d. In the business-as-usual scenario (i.e., no measures taken to reduce emissions), emissions of Indian scheduled airlines from domestic and international operationscould reach 27,000,000 tonnes of CO2 by 2020. e. Emissions from operations at Indian airportsare much less than airline emissions and are estimated at approximately 700,000 tonnes of CO2
Domestic Air Passenger Data for September 2012
As per the passenger traffic data submitted by various domestic airlines, the number of passengers carried by them were 438.39 lakhs between January-September 2012 (first three quarters of the calendar year) as against 442.18 lakhs during the corresponding period of the previous year showing the growth of -0.9%.
The total domestic passengers carried by the scheduled domestic airlines for the month of September 2012 were 40.18 lakhs. The total domestic passengers carried by the scheduled domestic airlines in the month of August 2012 were 43.69 lakhs. The break-up for the month of September 2012 is as follows:
Air India – 7.75 lakhs, Jet Airways –7.29 lakhs, Jet Lite – 2.29 lakhs, IndiGo – 10.94 lakhs, Spice Jet – 7.43 lakhs, Go Air – 3.07 lakhs, Kingfisher – 1.41 lakhs, Mantra- 0.002 lakhs.
The market share of scheduled domestic airlines for the month of September 2012 is as follows: Air India- 19.3%, Jet Airways-18.1%, JetLite-5.7%, IndiGo-27.2%, Spice Jet- 18.5%, Go Air- 7.6% and Kingfisher- 3.5%.
Review of Policy on Foreign Direct Investment in Civil Aviation Sector
The Cabinet Committee on Economic Affairs has approved the proposal of the Department of Industrial Policy and Promotion for permitting foreign airlines to make foreign investment, up to 49 percent in scheduled and non-scheduled air transport services. Removing the existing restriction on investment by foreign airlines would assist in bringing in strategic investors into the civil aviation sector. Higher foreign investment inflows are necessary at the present juncture, in order to strengthen the sector. Introduction of global best practices, concomitant with the induction of FDI from foreign airlines, is expected to lead to higher service standards, international best practices and induction of state-of-the-art technologies, in the air transport sector.
Until now, foreign airlines were allowed to participate in the equity of companies operating cargo airlines, helicopter and seaplane services, but not in the equity of an air transport undertaking operating scheduled and non-scheduled air transport services. The Government has now permitted foreign airlines to invest, under the Government approval route, in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49 percent of their paid up capital. The 49 percent limit will subsume FDI and FII investment. The investments so made, would need to comply with the relevant regulations of SEBI, such as the Issue of Capital and Disclosure Requirements (ICDR) Regulations / Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as well as other applicable rules and regulations. Such investment would further be subject to the conditions that: (i) A Scheduled Operator’s Permit can be granted only to a company: a. That is registered and has its principal place of business within India, b. The Chairman and at least two-thirds of the Directors of which are citizens of India, and c. The substantial ownership and effective control of which is vested in Indian nationals. (ii) All foreign nationals likely to be associated with Indian Scheduled and Non-Scheduled air transport services, as a result of such investment, shall be cleared from security view point before deployment, and (ii) (iii) All technical equipment that might be imported into India, as a result of such investment, shall require clearance from the relevant authority in the Ministry of Civil Aviation (iii) The issue of permitting FDI by foreign airlines in the equity of an air transport undertaking operating Scheduled and Non-Scheduled air transport services has been under consideration of Government for some time. There has been a need to consider financing options available for private airlines in the country, for their operations and service upgradation, and to enable them to compete with other global carriers. Denial of access to foreign capital could result in the collapse of many of our domestic airlines, creating a systemic risk for financial institutions, and a vital gap in the country’s infrastructure. The total FDI inflows into the air transport sector, during January, 2000 – April, 2012, were US $ 434.75 million, constituting only 0.25 percent of the total FDI inflows into the country.
Source: Ministry of Civil Aviation
Changes in Aviation Sector
The Government has taken several measures to ameliorate the problems being faced by airlines and ensure long term viability of the sector. Some of the steps taken by the Government in this regard are as follows:
A Working Group has been constituted under the Chairmanship of Secretary, Civil Aviation with Finance Secretary, Secretary, Financial Services, Secretary, Ministry of Petroleum and Natural Gas and Director General of Foreign Trade to discuss the factors causing stress in civil aviation and to suggest solutions to the same.
The issue of rationalization of Value Added Tax (VAT) on Aviation Turbine Fuel (ATF), has been taken up with the State Governments.
Director General of Foreign Trade has allowed import of ATF by airlines on actual user basis.
A Committee under the Chairmanship of Secretary, Civil Aviation has been constituted to undertake formulation of a Civil Aviation Policy.
According to Ministry of Civil Aviation, the Indian Air Transport Industry is burdened with higher operating cost than their counter parts globally. This is mainly due to the high costs of ATF and the distorted and high rate of taxes on all services and commodities associated with the sector. Fuel, aircraft leases, airport charges, air tickets, air navigation service charges, maintenance costs, fuel throughput fees, into-plane fuel charges, are also subjected to service taxes.
Contribution of Civil Aviation sector to India’s GDP in 2009 was estimated to be 1.5% as per the study carried out by Oxford Economics.Global comparison of air travel penetration shows that India (at 0.04 air-trips per capita per annum) stands far behind the developed countries like US and Australia (2 air-trips per capita per annum). China domestic traffi c is five times the size of India’s despite having a population just 10% larger. There is signifi cant growth potential for the Indian civil aviation industry given the projection of growth in middle class population, a rise in disposable incomes and overall growth of economy. Policy initiatives including modernization and up gradation of airport infrastructure in the country coupled with active private sector participation during the last 7 years has propelled the Indian aviation sector on a high growth path. In FY 11, India has already made its place among the 10 largest aviation markets of the world.India has witnessed a signifi cant growth in the number of non-scheduled airline operators with total number of operators having crossed 200 in 2011 from 36 operators in 2000. The present ownership pattern indicates a fragmented sector with majority of the players owning less than 4 aircrafts. As per DGCA, the General Aviation (GA) fl eet in India comprises around 800 small aircrafts and 300 helicopters. Around 20% of this fl eet size is expected to be more than 25 years old and may not be operational. Industry sources indicate that revenues of the General Aviation industry in India are expected to grow to more than Rs 1,100 crores by end of 11th Plan growing at an impressive annual rate of 15%.
The Civil Aviation Sector is broadly structured into three distinct functional entities, regulatory cum-developmental, operational and infrastructural. The safety and secutiry regulatory functions are performed by Directorate General of Civil Aviation and Bureau of Civil Aviation Security. Operational functions are performed by Air India, Pawan Hans Helicopters Limited and other
scheduled/non-scheduled Airline Operators. The infrastructural facilities are provided by the Airports Authority of India and other Private Airport Developers.
Investment in Airport Projects
The growth in the investment in the airport infrastructure in the country has been higher than the growth of economy because air passengers traffic has been consistently growing at a higher growth rate than the growth rate of GDP. The passengers traffic from 2001-2002 to 2011-12 (last 10 years) has grown @ 15% as against the GDP growth rate of 7% to 9%. To cope up with the higher growth of air traffic, the investment in airports was made keeping with the growth in the traffic. At the end of XI Plan (2007-2012), total passenger handling capacity at all Indian airports was 197.77 million against the demand of 162.30 million passengers i.e. capacity is ahead of demand.
Domestic Passengers Carried by Indian Scheduled Airlines in the Month of July 2012
As per passenger traffic data submitted by various domestic airlines, the number of passengers carried by them were 354.52 lakhs between January-July 2012 as against 348.47 lakhs during the corresponding period of the previous year showing the passenger traffic growth of 1.74%. The total domestic passengers carried by the scheduled domestic airlines for the month of July 2012 were 45.37 lakhs. The total domestic passengers carried by the scheduled domestic airlines in the month of June 2012 were 51.08 lakhs. The break-up for the month of July 2012 is as follows: Air India – 8.24 lakhs, Jet Airways –8.82 lakhs, Jet Lite – 3.25 lakhs, IndiGo – 12.26 lakhs, Spice Jet – 8.08 lakhs, Go Air – 3.16 lakhs, Kingfisher – 1.56 lakhs. The market share of scheduled domestic airlines for the month of July 2012 is as follows: Air India-18.2%, Jet Airways-19.4%, JetLite-7.2%, IndiGo-27%, Spice Jet- 17.8%, Go Air- 7% and Kingfisher- 3.4%.
Aviation Growth Trends
According to KPMG estimates, and annual reports of airlines, Indian carriers catered to 54 million domestic passengers during FY 2011. International traffi c to and from India was 38 million passengers during the same period. The traffi c growth has resulted in increased capacity of domestic carriers in the form of Available Seat Kilo meters (ASKM) at around 8% along with capacity utilization with average passenger load factor having crossed the 75% mark by 2011. Despite the phenomenal growth in traffi c, most Indian carriers are reeling under losses. During the three year period between 1 Apr 2007 and 31 Mar 2010, Indian carriers incurred an accumulated operational loss in excess of Rs 26,000 crores, of which three large airlines accounted for nearly Rs 23,000 crores. Total freight traffi c handled by Indian airports increased at a CAGR of over 11% in last five years to reach 2.33 MMTPA by 2011.Forecast of air traffi c carried out for 12th plan period suggests that domestic passenger through put would grow at an average annual rate of around 12%. The domestic passenger throughput is expected to touch around 209 million by FY-17 from 106 million in FY-11. Similarly, international passenger throughput is estimated to grow at an average annual rate of 8% during the 12th Plan period to reach 60 million passengers by FY-17 from 38 million in FY-11.The General Aviation (GA) market in India is expected to grow at 10% per annum to cross Rs 1,600 crores by FY-17. Industry sources indicate that around 300 business jets, 300 small aircrafts and 250 helicopters are expected to be added in the current GA fl eet by FY-17. A total investment of more than Rs 20,000 crores in General Aviation is expected during the 12th Plan period. Anticipating signifi cant growth in traffi c, mostIndian carriers have placed orders to augment their aircraft fl eet. As per KPMG estimates, airlines in India are expected to add around 370 aircrafts worth Rs 150,000 crores to their fl eet by FY-17. Fleet expansion at this scale would require airlines to explore multiple funding options including capital markets, long-term borrowings and leasing etc. Two Indian carriers have already expressed their plans to raise Rs 2,500 crores each through Initial Public Offers by FY-12. The decade 2000-2010 witnessed a profi tless growth phase of the air lines industry. FY 2010-2011 witnessed revival of strong market growth resulting in profi tability for some domestic carriers. However, the recovery proved to be short lived. Airline Industry in India suffers fromhuge debt burden – close to US $ 20 billion(estimated for 2011-12). Half of this debt is aircraft related and the rest for working capital loans / payments to airport operators and fuel companies. Three airline groups account for a large proportion of this debt and they need to raise capital to boost equity and liquidity. Huge losses are being reported by Scheduled Carriers. During the period between 1 Apr 2007 and 31 Mar 2010, Indian carriers are reported to have incurred an accumulated operational loss in excess of Rs 26,000 crores, of which three large airlines accounted for nearly Rs 23,000 crores. High operating cost coupled with competitive pricing by airlines witnessed in the domestic sector is adversely impacting the fi nancials of theairline sector and the very viability of operationshas become a question mark. The future of India’s aviation growth is critically linked to the health of the airline industry. While there are number of structural factors that are responsible for this phenomenon, the operating cost environment Aviation sector in India face many taxes on the inputs to production – fuel, aircraft leases, airport charges, air passenger tickets, air navigation service charges, maintenance costs, fuel throughput fees, into-plane fuel fees, and other items subject to service taxes. These fees and taxes on inputs are either not present in other matured aviation markets, or are much lower there. The Indian air transportation industry is thus laden with very high costs and larger operating losses than their other counterparts globally. The rates of value added tax on Aviation Turbine Fuel is high which affects the fi nancial viability of their operations. In most of the States VAT applicable on ATF is in the region of 25- 30%. Fuel cost alone constitutes nearly 40% of the operating cost of the airlines in India. As per KPMG analysis, ATF prices in India are nearly 60% costlier than competing hubs like Dubai, Singapore and Kuala Lumpur which hurts India’s competitiveness.