Corporate Aviation in India – An emerging business opportunity

Introduction

India is one of the strongest markets for private jets with the strong economic growth, expanding business interests and increasing number of billionaires. The private jets market in India constitutes 12 per cent of the global market and is bigger than that in Asian superpowers China and Japan. India has the maximum number of private jets in Asia of around 140 against China's 93 and Japan's 76, and is expected to be doubled by 2020. As per Business Aviation Association of India, there are 680 business aviation aircrafts including private jets, helicopters, turboprops and piston engines and is expected to reach 2000 by 2020.

Current Scenario

Till date, the business aviation sector is most neglected in the civil aviation industry due to the increasing government focus towards the commercial aviation business. There are no separate guidelines for business aviation and no concept of FBO's (Fixed Base Operator), helicopters or separate Business Aviation terminals. Maximum use of Business Aviation is in corporate charters, followed by offshore operations through helicopters, tourism etc. However, realizing the benefits of business aircrafts with their accessibility to remote areas and areas not covered by scheduled airlines along with their easy access to small air strips and helipads, these are becoming popular among corporate travellers.

With economy booming and private industry flourishing, private jets have become a regular mode of transport for the leaders of Indian industry. The use of private planes and helicopters by companies is on rise as a result of the sustained economic recovery of the country. In order to save time and to realise value for money, the companies are moving towards buying their own Jets. The big industrialists on the list includes the Hinduja brothers, G.M. Rao, G.V.K. Reddy, Shishir Bajaj, Anil Ambani, Mukesh Ambani, Vijay Mallya, Rahul Bajaj , Sajjan Jindal and Ratan Tata who possess their own private jets.

Top Management (CEOs, CFOs) of the companies uses private jets more than the managerial level staff. However, the non-business travellers who fly for medical/ leisure activities do not travel much on the private jets and prefer the commercial airlines. 

Business Model

There are three main options for the private aviator: they can purchase a jet, lease/hire a jet or buy a share in a fractional membership scheme. The eventual decision to buy or lease the aircraft depends on the frequency of flying and the financial wealth of the company. Buying a jet makes economic sense for those who fly over about 400 hours a year. However, its maintenance is a very tough job and will require investment in hiring the staff required for operation. The pilot salaries, fuel cost, plane maintenance and storage are some of the major cost areas.

On the other hand, leasing a private jet is considered to be the best business model when it is required for personal usage. With plenty of liquidity available in the market for good credits, corporate aircraft leasing is becoming an increasingly attractive alternative to paying with cash. Leasing a jet does not involve a lengthy process and huge cost as seen in purchasing a private jet. In leasing process, a company or individual can take the private jet on lease from the leasing companies on a contract basis that varies as per the client needs. In general, leasing offers a number of compelling cash management and risk benefits over ownership.

The third alternative i.e. the fractional membership ownership scheme is gaining equal importance in the Indian private jet market along with leasing a jet. The fractional ownership model offers an individual or company the option to purchase a share of an aircraft which can be as little as 1/16 of an aircraft, which offers approximately 50 hours of flight time per year, to 1/2 of an aircraft, depending on the needs of the operator. In addition, the management company provides all scheduling, flight planning, staffing, catering, maintenance, communications, and insurance services. A fractional owner simply picks up the phone, calls a dispatcher, requests a flight, and drives to the airport.

In India, most of the private aviation aircrafts are being purchased by the companies/Individuals rather than leased. Purchasing of aircraft provides long-term benefits to the companies rather than short-term gains. However, risks are equally involved in the purchasing of the aircrafts.  

Demand Drivers

There are various factors that drive the demand for corporate aviation aircrafts in India. These are as following:

Globalization

Indian companies are continuously expanding their reach on a global scale to inherent efficiencies and expanding market opportunities. With the increasing role of globalization, the corporate travellers will require the usage of corporate jets to a large extent.

Security

It is evident that personal and corporate security will remain high profile issues for the companies today as well as in the future. Corporate Aviation offers significant enhancement for both.

Productivity

In order to increase their productivity and customize travel, the corporate travellers are looking forward towards buying corporate jets for their business purposes. A Bombardier study reveals that the use of a super-mid-size jet saves around 20 per cent of management time, compared to the use of regular airline services.

Peer Pressure

Owning a private jet has become a status symbol now days. This factor can be considered as a demand driver as many big market players are acquiring business jets for their personal usage.

Roadblocks

Following factors act as a roadblock for the corporate aviation business in India:

Lack of Infrastructure

The shortage of developed infrastructure and lack of easy access to airspace and landing permits can hinder the growth of business aviation in India. There is a need to increase the number of fixed-base operations and facilities for private jets. Airports tend to prevent business jets from landing at peak times, and without FBOs, business jet passengers are processed through the same terminal facilities as all other passengers that makes the airport overcrowded.

Taxes/Duties

The government move to restrict import duty of 25 percent only for the corporate aircrafts purchased for private use, will increase their cost and will act as a roadblock in the corporate aviation growth. Further, the involvement of too many agencies for licensing a private aircraft such as Ministry of Home Affairs, Ministry of Civil Aviation, and Directorate General of Civil Aviation, Bureau of Civil Aviation Security, and Airport Authority of India takes a long time for the aircraft to be operational. 

Shortage of Manpower

Indian aviation industry lacks in terms of manpower resources with technical expertise. There is an increasing demand of about 50,000 employees and 15000 engineers in the airline industry. To meet the manpower need, the business aviation companies are importing experienced staffs from foreign countries that incur huge cost.

Cost of Maintenance

Possessing a business jet requires investment for the other costs related to its operation and maintenance. The crew salaries, fuel cost, airport charges, hangar facilities are some of the cost areas associated with operating an aircraft which requires huge investment.

Way Forward

The concept of corporate aviation is growing rapidly both in the developed and developing countries. However, due to general misconceptions, non-awareness and miscommunication between government and public along with lack of infrastructure, India’s corporate aviation has failed to keep pace with the rest of the world. With the increasing number of billionaires in India growing at the rate of 20 per cent per year, corporate aviation sees huge potential.

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