Aug 31, 2006

India's Aviation Sector: Heads or Tails?

From the outside it looks like its boom time for aviation industry in India. It is not only the 25% annual growth in this sector that’s exciting but the aviation majors, Boeing and Airbus have plans to invest a total of Rs.20,000 crores in India.

India is emerging as the back-office and investment hub for global aviation majors, with aerospace majors EADS and Boeing committing investments to the tune of Rs 20,000 crore.


Boeing, which at present works with companies like Wipro, Infosys, TCS and HCL Technologies, is looking at increasing the amount of work given out to these technology companies.

The US-based aerospace company is also looking at expanding its scope of operations in the country. The company, which largely sells commercial airplanes in India, is also drawing up plans to tap the defence market.

EADS’s Rs 11,000 crore investment will largely go into setting up an engineering and research centre in India, while for Boeing the investment will be in the form of direct investment in facilities, research and development, sourcing of software and other equipment.

In addition, both the companies are looking at airplane maintenance facilities in India. Boeing has gone ahead with a Rs 185-crore announcement to set up a maintenance facility in Nagpur. Airbus is also expected to come out with a similar facility in the country soon.

A significant part of EADS’s investment will be for opening the EADS Technology Centre India, which will undertake work for all EADS companies, including Airbus, Eurocopter and the defence divisions.

It will also have Indian partners working on engineering and information technology services. The EADS Technology Centre India will create up to 2,000 jobs.[Business Standard]

Unfortunately, the future of aviation sector - growing at 25% annually and projected to grow at 20% annually for next few years - is bleak as long as it remains under govt control. Already the govt has stopped granting licences to new airlines to operate, as the present aviation infrastructure in the country is simply not enough. Under govt control its domestic airline “Indian” is at the #3 position. Indians when flying abroad want to avoid “Air India” like the plague. It is never the first choice of Indians. Moreover, the private airlines that are now flying are going deep into red due to rising fuel costs and lower airfares. The congestion of our airspace and at airports is also not helping the sector. To top it all, orders for about 400 new aircrafts are pending with Boeing and Airbus. As Indian govt is notoriously slow in decision-making, new aviation infrastructure will only come up at snail’s pace. By this time many of the players will find it simply unviable and pull out.

Complete privatisation at the earliest is the only answer. Sell off "Air India", "Air India Express", "Indian", and "Alliance Air". Then sell off all the airports except the strategically important ones. Allow private investment in developing existing airports and in building new ones.
Unfortunately this is not going to happen anytime soon because of the Left parties’ belligerent opposition as the employees belonging to Left Unions are a good source of moolah to fill up their coffers. Their fear of job loss in case of privatisation just won’t hold water in a sector that is growing at 25% annually. As new private airlines would need experienced personnel, excess staff of govt airlines would easily find jobs in the new private airlines. So it is in the best interest of the Left parties too to allow the UPA govt to privatise the aviation sector now. The Indian middle-class will also be eternally grateful to the Left parties if they allow the privatisation of our aviation sector.

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