Plane makers Airbus and Boeing remain bullish on the demand for civilian aircraft from India despite a much slower GDP growth in the last two years. Analysts and industry experts, however, warn of a lower than anticipated passenger growth unless urgent measures are taken to revive the sector In the market forecast last year Airbus and Boeing estimated a demand for 1232 and 1450 planes respectively over the next two decades.These estimates were drawn up when Kingfisher Airlineswas still in service and have estimated India’s GDP growth at over 8%. Similarly a civil aviation ministry report for the formulation of the 12th five year plan (2012-17) factored 12 percent average annual growth in domestic air traffic between 2012-2017. In reality the GDP growth has slowed down to 5 percent in last fiscal and is estimated to grow around 6 percent this year. The domestic air traffic growth too is subdued and analysts and airlines are expecting around 6 % growth this year. Despite the obvious slowdown the plane makers remain optimistic about their India forecast. “Our forecasts, look at passenger traffic growth over a 20 year period which takes peaks and troughs into account. This growth is translated into demand for aircraft. India continues to be one of the fastest growing regions for aviation traffic growth in the world over the next 20 years, so our forecast for new aircraft in India will not dramatically be adjusted,” Airbus said in an email response. Similarly, a Boeing spokesperson said “Our airline customers have indicated that they will continue with their fleet plans. India is projected to have the highest passenger traffic growth in the world. Over the next twenty years, the forecast passenger growth is expected to be driven by an underlying economy with long-term growth projections of twice the world average and supported by the continued economic prosperity amongst a growing segment of the large Indian population, higher discretionary incomes, business progress and easier access to airports.” Domestic airlines did not respond to email on the subject but are unlikely to cut back their existing orders. A Jet Airways source said although domestic market is slow it can cross utilise the Boeing 737s for its international operations. Jet Airways has pending deliveries of 46 Boeing 737s expects to induct a plane each month over the next 3-4 years. Similarly rival IndiGo is expected to add another 50 planes to its existing 70 Airbus A320s till 2017. SpiceJet plans to add eleven Boeing 737s to its existing 55 plane fleet till end of FY 2015 and is seeking early deliveries, a source said. SpiceJet has an option to take additional 15 Bombardier Q400 turbo props but has held back the decision due to subdued passenger demand. Centre for Asia Pacific Aviation (CAPA) in 2010 estimated traffic in India will touch 450 Million( Domestic/ International) by 2020-21. CAPA is revising its 10 year India forecast in September. The 2010 forecast had a median projection of 450 million annual passengers and now CAPA is expecting the possibility of achieving lower end estimates of around 375-400 million passengers by end of 2020-21. “We expect the Industry fundamentals to be positive from 2015 onwards due to introduction of GAGAN and implementation of flexible use of air space which will reduce fuel consumption , I expect ATF will be given a declared good status in next 12- 18 months or the key states will reduce the sales tax to 4% and this will bring very significant cost advantages, the introduction of Airbus A320neos and later Boeing 737 Max will further reduce operating costs and the focus on building the ancillary business could create additional revenues of $ 400- 500 million per annum in next 2-3 years. CAPA expects Indian economy to be back on growth path from FY 15-16 which will bring growth back. However, next 12-18 months are critical because the trading conditions will be very tough, costs and risks will be at peak and the holding costs for some of the airlines will become unbearable. Raising funds will be fundamental to survival in the near term especially next 12 months,” Mr Kapil Kaul of CAPA said. “Air traffic in FY 13-14 is likely to have 5-8% growth, buoyed primarily by international traffic. The rising dollar has helped bring down cost of travel and accommodation in India for the foreign traveler. With the continued hammering of the rupee and the Indian economy in deep distress, domestic traffic growth might be nearly flat or in low single digit”, says Mr Amber Dubey, Partner and Head-Aerospace and Defense at global consultancy KPMG “Projections for FY 14-15 and thereafter will be pure speculation. Depends entirely on the outcome of the 2014 general elections and what the new government does to boost investment, aviation and tourism”, Mr Dubey added. “Indian carriers may have to take a hard look at their aircraft fleet expansion program. It may be better to delay induction partially and pay the penalty thereof than to run half empty planes and pay for high fuel cost and airport charges”, Mr Dubey added.
Source: Business standard