AIR INDIA: Riding the winds of change

Just as it seemed that Hindenburg had sucked all the wind out of India’s growth balloon, Air India’s chest-thumping acquisition of 840 aeroplanes (470 confirmed orders with an option to buy 370 more) has put India back on the global radar. Completing this acquisition will put Air India at the lead table of the global airline industry, ideally between the four large US majors and their Chinese followers. American Airlines owned 881 aircraft which is currently the world’s largest fleet.

Airline fortunes face all the turbulence of external risks – from oil price shocks to diplomatic turfs and showdowns leading to everything from unviable routes, nonavailability of spare parts and crew to lack envisaged infrastructure – anything can bring down an airline, or create significant headwind and vortexes. 

Air India’s ambitious plan of running an airline with 840 aircraft will be a significant challenge in the next decade. Maintaining cash flow and capital adequacy ratios to raise operating funds will be the greatest challenge. The Tatas have a flourishing business empire with a footprint spread across 100 countries. Their heritage and goodwill will help them tie up with the world’s foremost financial houses. Running an airline at this scale can prove to be a significant challenge. Airlines require a highly specialized team of people. Their American counterparts have access to deep pockets and the Chinese airline majors are believed to operate with state support. Tata will need to take a strategic relook at this capital-raising plan on an ongoing basis. Airline accounts can go through long hibernations without any scope of profitability. 

The next challenge is hiring. Airlines need thousands of trained hands to run them. The new airline must hire over 6500 pilots to fly the newly ordered aircraft. Support staff - engineering, managers, accountants, software coders and data entry operators, customer support - the list is endless. Air India has approximately 22,000 people on board. Inducting the new aircraft will directly employ approximately 100,000 more. 

India currently does not have that skill pool. Therefore, labour costs in the airline sector will mount in the coming years. At present, there are 32 FTOs approved by the DGCA in the country, which has the capacity to train around 350 pilots every year. Air India will have to tie up with flying schools across Asia to train its pilots and set up its own facilities to type rate the pilots (further training required to handle specific aircraft models). These facilities will need investments of over US$ 600 million, say experts.

After the people challenge comes the parking and MRO challenges. Major Indian airports are choked with grounded aeroplanes. There is no parking slot available. Airports Authority of India is spending US$ 2.5 billion to set up 380 additional parking bays across Indian airports. But that is grossly inadequate as Air India is not the only airline that has ordered hundreds of planes. Indigo Airlines will also add another 500 aircraft between now and 2027. Indian Airline companies spend about 12-15% of their revenue on maintenance. That cost is estimated to be US$ 4.1 billion by 2031 according to a report by Niti Ayog. 

The pressing challenge here is going to be MRO availability. Each aircraft would need approximately 2000 man-hours of specialized inspection and maintenance every eighteen months. By 2031, that would amount to 3.4 million man-hours each year. This translates to about 3000 aircraft engineers working round the clock to keep aircraft flying fit. That is a tall order, by today's standards. Reskilling India’s military engineers is a way forward. They are already exposed to the latest technology. They are easier to train and have a good understanding of the maintenance protocols of aviation equipment manufacturers.

Then comes the challenge of getting flight route approvals and airport gates across the world – a closely held diplomatic asset traded in bilateral talks. India’s diplomats will have to bargain hard for the Tatas to secure the gates and airport slots to fly their planes. Doing so for the 1000-odd aircraft set to join Indian fleets will be a challenge for India’s ambassadors. The Ministry of External Affairs will have to work hard with the Ministry of Civil Aviation to sort out these issues. 

By 2025, Indian airlines will sell over 500 million domestic and foreign travel tickets says the Indian Civil Aviation Policy document. That is very much possible. Buoyed by a US$ 3 trillion economy that grows around 8% per annum, India’s airline companies are riding the tailwind. The sector will surely create millions of jobs in India. Conservative estimates show that the current direct employment in the aviation and aeronautical manufacturing sector is around 2,50,000 employees. This is expected to increase to around 3,50,000 by 2024," Reported PTI citing the MoCA. Each direct job also creates an additional indirect job. 

Air India has not been forthcoming with its deployment and fleet utilization strategies. But this acquisition and Indigo’s order for another 500 jets has put India on the radar of global growth. From the US to Japan, over 51 countries will benefit from the demands of Indian aviation companies. Other players are soon expected to order another 500 aircraft. After the pandemic-induced slumber, the Indian elephant is awake and treading a path for itself into the future. And, a nation 1.4 billion strong is merrily taking to the skies!

#airindia #indianaviation #indianeconomy #boeing #airbus #indigoairlines #moca #governmentofindia #india