Airlines Deals

Indian aviation has taken time to get off the ground. Unlike other sectors where reforms began soon after liberalisation started in 1991, major reforms hit the aviation sector very recently, in 2002, when low-cost carriers were allowed. This happened nearly a decade after 1994.
Though aviation still remains largely under state control, the opening up of the skies for private carriers to fly in both domestic and international sectors, and the entry of low-cost carries, have led to quick growth in traffic. Overall passenger traffic grew by over 20% in 2004-05 and 2005-06. But domestic traffic registered almost 25% growth in 2005-06.Low-cost carriers debuted with Air Deccan starting operations in 2003. With government approval, 2005 alone saw the entry of four new carriers in the domestic segment—SpiceJet, Kingfisher Airlines, GoAir and Paramount Airways. The last year also sawAir-India launching its low-cost Air-India Express.

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The first step the government took to liberalise the aviation sector was the repeal of the Air Corporations Act, 1953, which had nationalised the airline industry, paving the way for private airlines. But many of the private players, who had gained almost 40% of market share, could not sustain their operations. In 1997, the government set up a committee to review the “sickness of the private domestic airlines”. To eliminate non-serious entrepreneurs and achieve economies of scale, the minimum fleet size for a scheduled operator was raised from three to five aircraft and the minimum amount of shareholders’ funds was also enhanced.

An airport infrastructure policy was also announced the same year to allow private equity participation in developing airports besides allowing 40% foreign investment in domestic carriers. But no foreign carrier is allowed to hold a stake in domestic companies.With the sector registering phenomenal growth, the government set up the Naresh Chandra Committee and the Kaw Committee in 2003 and 2005,respectively, to help strengthen regulations in the sector.

The government, after a gap of over 10 years, is now spending $10 billion on buying 111 new aircraft for state-owned carriers Indian Airlines and Air-India.On the ground, modernisation of existing airports and the setting up of new ones have also been initiated. According to estimates, investments of Rs 40,000 crore will be needed to develop and modernise airports by 2010. The Delhi and Mumbai airports alone will require Rs 15,000 crore.

The modernisation of other two metro airports, Chennai and Kolkata, is being examined. The government has also firmed up plans for upgradation of the non-metro airports. This will be done jointly by the Airports Authority of India and private players