India aeronautic market

The aeronautic market in India finds itself today in the first place worldwide in terms of growth (+8.4% in 2016). It is also one of the markets that offers the most opportunities (In 2015, Indians count 0.1 trips/year compared to 1.8/year for Americans). This market was born in 1940 with the creation of the private aerospace company HAL (Hindustan Aeronautics Limited). The company will be bought two years later by the Indian government for strategic reasons. Indeed, when we talk about aerospace, the civilian and defence industries are linked. This market subsequently developed strongly thanks to the cooperation of numerous foreign partners, including France.

Today, the aging of the civilian and military fleet in India opens up great opportunities for international players. Indeed, the compensation policy aimed at developing the local industry, which is lagging behind, offers major opportunities in terms of partnership and technology transfer. Moreover, with the introduction of large public markets more open to public and foreign investments, India possesses one of the most promising aerospace markets in the world across its four segments, namely: civil, military, freight, and MRO.

The civil aerospace market

The domestic market for Indian commercial aviation is particularly buoyant at the moment. It recorded growth of 23.8% in 2016 and is expected to double in the next 5 years. In 2016, passenger traffic stood at 224 million (+15.5% Vs 2015) for a market valuation of more than $16 billion. French companies in the civil aerospace sector are very present in India. Indeed, Airbus and ATR are two essential players in medium- and long-haul aircraft. Indian companies Indigo and GoAir recently placed respective orders with Airbus for 250 and 72 aircraft in 2015 and 2016. The A320 is the favored aircraft due to its size and optimization of operating costs. These orders offer a promising future for Airbus. Indigo in particular, with almost 40% of the domestic market, offers good prospects. The two new Indian private airlines, Vistara and AirAsia India, have made the same choice and are looking to increase their Airbus fleets to access the international market.

To understand the Indian civil aerospace market, it is necessary to have some figures in mind:

• India was the 9th largest civil aerospace market globally in 2016

• India has 464 airports, including 125 airports owned by AAI (Airport Authority of India), of which 20 are international

• Indian civil aviation had approximately 500 aircraft in circulation in 2016

• 6 major airlines with market share: Indigo (38.6%), Jet Airways (16%), Air India (15.3%), Spicejet (12.8%), Go Air (8.3%), and Jetlite (3%)

• Airbus enjoys a 60% market share, with over 240 aircraft currently in service

  Opportunities:

• India has set itself the main objective of being the 3rd largest civil aerospace market globally by 2020

• Air traffic will then be 450 million passengers (+201% Vs 2016)

• India will need 1200 aircraft for civil transport in 2020 (+240% Vs 2016)

• Objective of 500 airports

The military aerospace market

The Indian military aerospace market represents a major opportunity for French defense industry players, given the decline in domestic orders and the increase in program costs. The Indian ecosystem consists of state aerospace companies (HAL, NAL, DRDO, and Bharat Electronics), Indian private companies (Mahindra, Tata, and Aequs), as well as all international OEMs and Tier 1 suppliers. The country is a historical customer of French defense industries and with the order of 36 Rafales, the Indian state continues its strategic partnership with France. French companies have formed numerous partnerships with public groups such as Hindustan Aeronautics Limited (HAL, €2.2 billion in turnover) but also with private actors. Indeed, Dassault Aviation and Reliance have decided to partner in the field of combat aviation; Thales and Bharat Electronics Ltd have a joint venture in the field of radars; Safran and HAL have a joint venture in the field of MRO of aircraft engines, and MBDA and Larsen & Toubro have just announced a joint venture in the field of missiles. These Franco-Indian industrial alliances will contribute to strengthening the sustainability of French industrial presence in India in the decades to come.

To understand the Indian military aerospace market, it is necessary to know that:

• 60% of the needs of the Indian Air Force (IAF) are imported (complex parts)

• Indian military aviation manufacturers are wholly owned by the government, which allocated them a budget of $8.6 billion in 2016

• Dassault Aviation has provided 5 successive generations of combat aircraft to the Indian armed forces

• Thales is an absolutely essential supplier of electronics and embedded avionics on most Indian aircraft but also of radars

• Safran powers 70% of Indian military helicopters

• Airbus is a historical supplier of light helicopters in India, and MBDA has equipped several generations of Indian combat aircraft

  Opportunities:

• The government plans to invest $20 billion to make India a military MRO hub by 2022
• Objective of 75 military air bases by 2025 (+25% Vs 2016) and by 2030, the IAF will receive all its current orders, i.e., 840 aircraft
• Offset Policy: 50% of the contract in fiat currency or 50% of the production must be carried out locally, in India (Technology transfer and low-cost production).

The MRO market in India

The MRO (Maintenance, Repair and Overhaul) market is the most promising segment, with a growth rate of 10% per year over the last 4 years. For Airbus, for example, the Indian fleet of aircraft, and in particular the 240 currently in service, require a network of services. Bangalore has become Airbus's engineering center in India, providing services not only for Airbus but for the entire Indian and international aerospace industry. The MRO market remains largely undeveloped, and maintenance represents a significant cost for private airlines that are obliged to carry out maintenance of their aircraft abroad (currently in Singapore, Dubai, Thailand, Europe). The only integrated company at this level, Air India has its own repair and maintenance facilities. Jet Airways is also developing a maintenance center (MGAE, JV between Malaysian Aerospace Engineering and GMR) in Hyderabad. At this stage, only a few independent Indian private companies are listed in this sector: Max Aerospace & Aviation Ltd (Mumbai), Air Works (Hosur and Mumbai), Horizon Aircraft Maintenance, SR Technics, Indamer (Mumbai).

To understand the MRO market in India, it is necessary to know that:

• Needs are at the level of the 4 types of MRO: structure, engine, components, and line maintenance

• In 2015, the MRO market was valued at $900 million

• Currently, 90% of airlines carry out their maintenance abroad

  Opportunities:

• The MRO market remains largely undeveloped

• By 2030, India is expected to have more than 2000 aircraft for civil aviation, resulting in an MRO market valued at $5.2 billion
• The need for airline personnel is expected to reach 150,000 by 2020 (+141% Vs 2011)

The air freight market in India

In 2016, domestic freight accounted for 1,045.92 million tons (+6.08% Vs 2015), and international freight amounted to 1,658.35 million tons (7.55% Vs 2015). Air freight amounted to only 243,860 tons transported in May 2016 compared to 227,190 tons the previous year. Air freight transport to the domestic market only represents 90,910 tons. The absence of multimodal infrastructures (connection with other modes of transport) is a handicap. Internationally, traffic is concentrated at two entry airports: Mumbai and Delhi. Chennai, Bangalore, and Calcutta are also experiencing steady development.

• International freight accounts for 61% of freight in India
• There is a strong correlation between the country's economy and freight: 30% of goods traded by India are transported by air.
  
  Opportunities:
• By 2023, freight is expected to account for 4.14 billion tons traded (+53% Vs 2016)
• By 2032, freight should reach 11.4 billion tons traded (+321% Vs 2016).

Government support for aerospace

The Indian government has set itself the objective of increasing aircraft and passenger traffic, stimulating the construction of new airports, and ultimately making India an MRO hub:

• UDAN (April 2017): Create 128 routes connecting 70 airports by offering 50% of seats at a fixed price: 2500 INR per hour, or approximately 33 EUR.
• Abolition of the "5-20 rule": Local airlines can now offer international flights if they dedicate a minimum of 20 aircraft, or if 20% of their fleet is dedicated to the domestic market.
• Creation of Industrial Corridors: Delhi - Mumbai Industrial Corridor (DMIC) aims to create sustainable smart cities
• Establishment of Special Economic Zones (SEZs): Free zones operating as economic and fiscal enclaves (+500 in total throughout India)
• Strengthening training programs: 2.5 million Indians graduate each year, including 150,000 engineers 
  
  Opportunities:
• 100% Foreign Direct Investment (FDI) allowed in Brownfield (updating existing infrastructure) or Greenfield (new construction) projects.
• 100% FDI allowed in non-scheduled air services (charter flights)
• Increase from 24% to 49% FDI for regular air transport (100% possible with government approval)
   
  

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