Aviation

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OVERVIEW

India has the ninth largest civil aviation market in the world. As per the data from the International Air Transport Association (IATA), aviation sector in India recorded the fastest domestic market growth for the fourth year in a row (18.6 percent), followed by China. The sector currently supports 8 million jobs in the country. Overall, the industry contributes an average of US$30 billion annually to India’s GDP.

Capacity and Traffic

Aviation is an important means for both passenger and freight transportation in India. A substantial share of both domestic and international passenger and freight movement is carried out through JV International airports.

Passenger traffic at domestic and international airport has shown a positive trend over the years as a result of rising working population and middle class in the country. The number of domestic passengers stood at 274.50 million in 2019-20 as compared to 169.29 million in 2015-16, registering a CAGR of 12.84 percent. The international passenger traffic on the other hand recorded CAGR of 5.04 percent, increasing from 54.66 million passengers in 2015-16 to 66.53 million passengers in 2019-20. The overall passenger traffic stood at 341.03 million passengers during 2019-20.

Domestic Traffic (Passenger Movements) at Airports in India

(Number in millions)

Airports 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY16-20)
International Airports 51.59 64.45 78.46 90.91 89.09 14.63
JV International Airports 93.77 111.67 127.61 139.2 137.17 9.97
Custom Airports 11.95 15.23 19.11 22.02 26.3 21.80
Domestic Airports 11.8 14.09 17.6 22.34 20.58 14.91
State Govt./Pvt. Airports 0.18 0.24 0.35 0.74 1.26 62.65
Other Airports 0 0 0.15 0 0 0.00
Total 169.29 205.68 243.28 275.22 274.50 12.84
Source: Airports Authority of India, Exim Bank Research

International Traffic (Passenger Movements) at Airports in India

(Number in millions)

Airports 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY16-20)
International Airports 16.85 18.42 20.44 21.73 21.24 5.96
JV International Airports 37.03 40.02 44.01 46.7 44.28 4.57
Custom Airports 0.77 0.84 1.01 1.04 1 6.75
Domestic Airports 0.01 0.01 0.01 0.01 0 0.00
State Govt./Pvt. Airports 0 0 0 0 0 0.00
Other Airports 0 0 0 0 0 0.00
Total 54.66 59.28 65.48 69.48 66.53 5.04
Source: Airports Authority of India, Exim Bank Research

The freight traffic at both domestic and international airports registered CAGR of 5.98 percent and 4.48 percent, respectively between 2015-16 and 2019-20. The total freight traffic stood at 33.24 lakh tonnes in 2019-20 as compared to 27.05 lakh tonnes in 2015-16, registering an overall CAGRof 5.28 percent in freight traffic during this period.

Domestic Traffic (Freight Movements) at Airports in India

(In lakh tonnes)

Airports 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY16-20)
International Airports 2.8 3.04 3.38 3.36 3.38 4.82
JV International Airports 6.87 7.27 7.71 9.04 8.68 6.02
Custom Airports 0.5 0.58 0.68 0.79 0.85 14.19
Domestic Airports 0.29 0.33 0.35 0.4 0.28 -0.87
State Govt./ Pvt. Airports 0 0.01 0.01 0.01 0 0.00
Total 10.47 11.23 12.13 13.6 13.21 5.98
Source: Airports Authority of India, Exim Bank Research

International Traffic (Freight Movements) at Airports in India

(In lakh tonnes)

Airports 2015-16 2016-17 2017-18 2018-19 2019-20 % CAGR
(FY16-20)
International Airports 3.65 4.12 4.79 4.85 4.49 5.31
JV International Airports 12.93 14.43 16.65 17.13 15.5 4.64
Custom Airports 0 0 0 0.02 0.03 0.00
Domestic Airports 0 0 0 0 0 0.00
State Govt./Pvt. Airports 0 0 0 0 0 0.00
Total 16.58 18.55 21.44 22 20.03 4.84
Source: Airports Authority of India, Exim Bank Research

FDI

FDI of 100 percent is allowed for greenfield and brownfield airports under automatic route. FDI of upto 100 percent is permitted in non-scheduled air transport services, helicopter services, seaplanes, maintenance and repair organizations; flying training institutes; and technical training institutes under the automatic route.

FDI of upto 100 percent in allowed in air transport service (scheduled and regional air transport service), but subject to government approval beyond 49 percent. Investments of upto 100 percent is allowed from foreign airlines in India’s aviation sector but FDI over 49 percent requires government approval.

FDI of upto 100 percent is also permitted in ground handling services subject to sectoral regulations and security clearance under the automatic route.

FDI in air transport including air freight stood at US $2.75 billion during April 2000 - March 2020, accounting for 0.59 percent of the total FDI inflows in the country during this period.

Outlook

The Government of India’s,‘National Air Cargo Policy Outline 2019’ envisages making Indian air cargo and logistics the most efficient, seamless and cost and time effective globally by the end of the next decade. The investments in Indian airports are likely to show significant increase in the coming fiscal, as a result of privatization of non- metro projects as well as brownfield investments in Delhi, Bengaluru, Hyderabad and Chennai airports. Apart from Delhi and Mumbai airports, Bengaluru, Hyderabad, Kochi and Kannur are also being operated under the public private partnership (PPP) model. Major upcoming greenfield airports such as Navi Mumbai, Mopa (Goa), Bhogapuram (Andhra Pradesh), Dholera (Gujarat), among others, are also being planned under the PPP route. The sector is expected to witness investments worth US$25 billion by 2027.

Airlines is the amongst the worst affected sectors of the Indian economy during the COVID-19 pandemic. According to CRISIL research, airline revenues in FY22 are unlikely to even reach 2017 level, placing the industry back by 3-4 years. Estimates by Crisil Research further indicate robust growth in both domestic and international passenger traffic in case the Covid-19 situation is brought under control by the end of 2020-21. Domestic and international freight traffic, on the other hand, is expected to grow at a slower pace than passenger traffic. The domestic passenger traffic is expected to register growth of 95-100 percent and the freight traffic is expected to grow at around 50-55 percent. International passenger and freight traffic on the other hand is expected to growth at a pace of around 27-28 percent and 40-45 percent, respectively.

The outlook for the industry is neutral in the medium term.


 

SELECT GOVERNMENT INCENTIVES

Select Government Incentives

  • The Government of India has launched NABH - Nirman Scheme, aimed at increasing the capacity of Indian airports. The initiative will help Indian airports to achieve capacity of a billion trips per year, for which, India requires an investment of more than US $62 million.
  • In November 2018, the Government of India approved a proposal to manage six AAI airports under public private partnership (PPP). These airports are situated in Ahmedabad, Jaipur, Lucknow, Guwahati, Thiruvananthapuram and Mangalore. Private sector participation will likely increase investment opportunities in the airport sector.
  • The Navi Mumbai airport is being developed under a PPP model by GVK Group subsidiary Mumbai International Airport (MIAL) and City and Industrial Development Corporation of Maharashtra Ltd (CIDCO) with an investment of US $2.22 billion.
  • The Ministry of Civil Aviation has approved 78 new routes under the fourth round of Regional Connectivity Scheme (RCS)- Ude Desh Ka Aam Nagrik (UDAN) to further enhance the connectivity to remote and regional areas of the country, especially the North East Region, hilly states and islands.
  • The restrictions on Indian air space utilization, which currently stands at 60 percent, has been removed. The changes in airspace management is expected to reduce the fuel use, save time and lead to a positive impact on the environment.
  • The GST rate on Maintenance, Repair and Overhauling (MRO) activities has been reduced to 5 percent and the government plans to merge the MRO of both defence and civil aviation, fostering economies of scale by reducing the maintenance costs of airlines. Foreign engine manufacturers popular are expected to set up engine repair facilities in India within a year, as the cost of repairs will rise by 1.5 times in the next three years.