Civil Aviation

BY ROHIT SINGH TOMAR The much anticipated Budget 2021 was recently announced by the Finance Minister of India Nirmala Sitharaman. Pre-budget months had seen a significant push from the Prime Minister for the Aatma Nirbhar Bharat Abhiyaan. It is expected that under this prerogative, manufacturing and in-country capabilities to perform aircraft maintenance would see a significant boost in the arm. With these expectations among the many aviation players, it was disappointing that the aviation sector did not find a mention in the budget. The incentives and policy to support India’s aircraft leasing industry were the silver lining in the budget speech. The aviation leasing market controls more than 65 per cent of the global fleet as of today. More than 35 per cent of the international deliveries in the next ten (10) years will be absorbed in Asia. While Singapore and Hong Kong continue their push in the aviation leasing sector, it seems an apt time to move into the aircraft leasing business. Recently, IFSCA (International Financial Services Centres Authority) published the draft regulations for aircraft leasing and opened it for public comments. Further, the Union Budget of 2021 explains Indian government’s interest in this sector. However, we still have a long mile to walk in meeting the global standards required to make aircraft leasing attractive in India. Among the many things, an independent aircraft registry managed under Gift City with records of aircraft asset owners and parties with a financial interest in the asset is an important starting point. The Gift city’s ability to succeed in setting up its own securities and trading company will be critical for the aircraft leasing company’s access. Lessors deploy a significant amount of debt and for India to be seen attractive, will have to offer competitive cost of debt. For comparative numbers, Air lease raised debt in November 2020 via an issue of 10 years bond with a coupon of 3.13 per cent which is 200 basis points lower than the Indian Government G-Sec bonds with a yield of above 5 percent. Strong Competition Among Lessors An aircraft like A320 Neo with a typical purchase price of about 54 Million USD is leased at a monthly lease rental factor (LRF) of 0.65 per cent ~ 0.7 per cent. Even at these LRFs, there is strong competition among lessors. At such low LRF’s, the average return per year on the value of an asset is estimated to be about 8 per cent. This return is inclusive of the various risks, including country risk, operators risk, and other risk adjustments. Of this 8 per cent, the Lessors have to provide for the expenses of running the leasing organization plus returns to the equity holders (which is typically upwards of 20 per cent). The net available return to apportion towards cost of debt has a small margin of 0.5 to 1 per cent. For banks and investment firms in India, a 10-year G-sec bond issued by the Government of India provide yields above 5 per cent, compared to the Hong Kong government’s 10-year bond yield of 0.8 per cent. At this juncture, we have not even factored in the currency fluctuation risks between the freely tradable currency as proposed (in USD or EUR) Vs INR. While the policy’s objective and the incentives are to bring foreign lessors to India, the government must learn from the past mistakes in aviation and realize that such movement will only be possible if and only if domestic banks are incentivized to lend capital at lower preferred rates. Incentivisation on lending is crucial for domestic capital being deployed and made available to leasing companies at par with international standards. Moving away from leasing, the budget fell short of implementing much-needed reforms and policy changes for developing the MRO infrastructure in India. With more than 90 per cent of the aircraft component MRO business being outsourced to companies outside India, it is high time that developing in-house capabilities becomes a strategic objective of the Aatma Nirbhar Abhiyaan. Large scale policy and reforms are needed in the MRO capability development in India. The UDAAN scheme, under which India was successfully able to upscale and make operational many regional airports across India, also provided the strategic objective for the government to develop far-flung regional airport alternatives to existing defence airports, which adds the flexibility of movement of defence forces at the shortest time across these airports. Value Incentivisation Approach Global OEMs have realised that success in this space is because of the strategy of playing one OEM against the other. Pursuant to which, China-a country with the perennial perchance to emerge as a leader, has aggressively entered into the aircraft manufacturing sector, aiming to share the market space with Boeing & Airbus. To ward off such future challenges, OEMs across the aviation value chain have started acquiring & consolidating the competition. Such consolidated entity wins a monopolist position placing it at a strategically stronger position to negotiate with both the customers and the governments alike. China with its competitive wage rates will be the only new entrant in this space in the forthcoming years leaving India behind with significant opportunity to encapsulate in this space. The government needs to get its think tank together on how and what policies need to be implemented to create a value incentivisation approach for these OEMs and build a strong, robust, resilient and self-reliant MRO ecosystem in India. While the government has reduced GST on MRO Services to make them competitive, it misses building long-term objectives. As time passes by for India, the only lever it has are the endusers of these OEM’s, that is, the airlines. The need of the hour that a comprehensive policy is developed which works on incentivizing the airlines for the work they carry out in India. For airlines, the opportunity for cost reduction should not only be limited to the labor cost arbitrage but also towards developing and supporting the transfer of work from their supplier to Indian players. For the

5th Feb, 2021, Bengaluru At Aero India 2021, Alliance Air has signed an MOU with HAL for operating civil Dornier – 228 for passenger flights. The MOU was signed in the presence of Rakhsa Mantri Rajnath Singh along with the top brass of the defence forces & defence organisations. Alliance Air has inducted two Dornier 228 turboprops manufactured by Hindustan Aeronautics Ltd to its fleet. Harpreet A De Singh, CEO, Alliance Air said “I am excited to say that in line with our Hon’ble Prime Minister’s vision of Atmanirbhar Bharat, Alliance Air will be the first airline in the country to fly HAL’s Made in India aircraft , Dornier 228. I look forward to leading Alliance Air with the vision of our PM and MOCA and serve the nation, make it Atmanirbhar, and operate Made in India aircraft. The alignment of goals of business and corporate social responsibility through a true ALLIANCE of hearts and divine energy with team work and faith in GOD will definitely bring success. Alliance Air has been a forerunner in UDAN ( Ude Desh ka Aam nagrik), Regional Connectivity Scheme of Government of India. This step would bring convergence with the scheme and will ensure the much needed air connectivity to the hinterland areas like North Eastern region of the country. MOCA is steering the entire efforts to complete the required activities as per the timeline. Present at the occasion Usha Padhee, Joint Secretary, MOCA complimented the efforts and initiative of Alliance Air for taking a major step towards Atmanirbhar Bharat and enhancing connectivity to remote areas of the country. The 19 seater non-pressurised Dornier 228 has a lavatory with an air-conditioned cabin capable of day & night operations. The light transport aircraft will facilitate regional connectivity and cater to solve the challenges of connecting hinterland areas of the country. The commercial passenger operations are expected to commence in Arunachal Pradesh by March 2021. Up till now Alliance Air has a fleet of 18 ATR 72 600, the Dornier aircrafts will expand the fleet and help in achieving Alliance Air’s vision of becoming the number one regional carrier in the country. (News published on the basis of press release shared by Alliance Air)

The aviation sector as a whole is undergoing a transformation and the need to adapt to an ever-changing environment like never before. Air travel was close to a standstill with airlines grounded and country borders closed, resulting in the subsequent downfall of travel demand. While the recovery of the passenger segment was expected to occur albeit, in a phased manner, fear, health concerns, varying quarantine requirements coupled with the economic impact and reduced disposable incomes might curtail the inclination to fly for some time to come. By Ramanathan Rajamani, CEO, AISATS As one of the hero industries, Aviation continued to remain functional and played a pivotal role in helping move people and cargo. This industry ensured that essential people, goods, and lifesaving interventions moved not only within our country but across the world.The Ground handling industry, one of the critical functions and backbone of air transportation has showcased remarkable adaptability and displayed higher levels of productivity and end-user connectivity despite working under restricted conditions.As an invisible value creator in the chain, during the lockdown and the ongoing pandemic, companies in this space with no financial support from the Government have had to reorganize its skilled resource and make structural changes to the organization to ensure the business remains sustainable. This experience has forced the industry to relook at their talent pool and embrace initiatives that have long-lasting value-added impact for our customers.In a nutshell, we are witnessing transformation across operational facets of the aviation industry that are unique and we expect the trend to continue to evolve as we go forward. The Unseen Story Converting the trust of nations and surviving at ground zero, the aviation industry’s Ground Handling Agents(GHA) emerged as a strong force to reckon with. Simply put, it was their sense of complete fearlessness, driven by the need to help and serve, and the sheer grit and determination to their work that perhaps was a major contributor in minimizing the devastating impact on customers and the business and has helped build a path to recovery. These brave front-line warriors who dared to step out when most of us had the privilege of settling in at safe places at home, deserve our highest recognition and gratitude. Our ground handling agents were the unsung heroes out there every step of the way to ensure all the repatriation and cargo flights flowing in and out of the country were attended to, managed professionally, and sanitized effectively. Their commitment and contribution helped nations globally carry on with the challenging task of keeping people and cargo mobilized even as the fight against the virus continues. Perhaps, I am one of the fortunate individuals who was close enough to have seen and felt the contributions made by these exceptional individuals. I was overwhelmed and thankful to see how our employees, our partners, and the industry came together to work relentlessly in making it a success. It is a contribution that I hope will not be forgotten. Embracing New Innovations to Drive Business Technology has and will continue to play a pivotal role in elevating different responsibilities of the airport and passenger management to minimise contact while supporting customers. A critical task to prevent the spread of COVID-19 is physical distancing and newer technologies are helping airports, and ground handling agencies to implement distancing solutions. Critical functions such as check-in, bag drop, security, and boarding check-in now demand modernizations like facial recognition and thermal scans as sustained routines to make the travel experience easier and faster for passengers. On-ground implementation of technological interventions such as passenger management solutions to keep passengers and operational staff safe using artificial intelligence that automates passenger counting and crowd concentration management as digital solutions should be given serious consideration. Similarly, the concept of “touchless” possibilities including touchless data-entry such as gesture control, touchless document scanning, and voice commands must be explored and implemented. This will help in supporting the collective mission of authorities and governments to keep travel patrons safe. Continuous operational upgrades in baggage handling and UVC cleaning for disinfection of aircraft and other related vehicles on the Apron are requirements that mandate enhanced digital solutions so as to increase safety and efficiency. With passengers already exposed to the need of increased self-service solutions such as the baggage drop, interactions between passengers and ground-handling staff can continue to be limited as a safety measure while efficiency and service stay top of mind. With a focus on the centralizing of key functions or services by Airport operators (where possible), a reduction in the duplication of resources and touch points will ultimately result in the reduction of manpower currently being deployed by Ground Hanldling Agencies and Airports/Airlines. This is an opportunity for all stakeholders to either re-deploy personnel to increasing customer service engagement and/or for GHA’s to ensure long-term sustainability of the business by scaling down on manpower requirements across key or cross-over roles and functions. Need For a Cross-Industry Partnership To overcome the new challenges ahead and to make things far more effective, cross-industry collaboration among the various stakeholders is the need of the hour. What could be called a blessing in disguise is that this pandemic has compelled the rethinking of priorities in Aviation and it is becoming increasingly clear that the need of the hour is for the Aviation industry at large to step forward and support each other as a society. The industry has thus far witnessed limited to minimal support by the relevant authorities and the opportunity for the Government to support innovative initiatives or investments in Aviation by stakeholders should be given serious consideration if this country’s Aviation story is to set new global standards in the years to come. Path to Recovery: Gearing Up For New Challenges Even though we continue to explore the new world together, there are still undiscovered factors, which may cause challenges in the future. We faced a number of these challenges under adverse conditions and became familiar with the evolving methods in how to tackle the many