India’s aviation competitiveness

India’s airline sector is in a mess. No one is benefiting—the carriers, the consumers, the airport operator—all suffer. Yet India’s intrinsics favour a robust aviation sector.

We have the passengers. Despite an economic slump, we have a burgeoning middle class yearning to fly. In the West, Indian passengers account for more than one-third of the Gulf carriers—Emirates, Etihad, Qatar and Gulf. And it’s not just the Indian labourers who are flying from India to the Gulf, more than 50% of the passengers are transit travellers going to Africa, Europe, or North and South America. In the East, Singapore Airlines and Cathay Pacific serve the same purpose. Gulf carriers as well as East Asian carriers are targeting Indian passengers to ensure growth; for Indian passengers, the best way to get to Australia or Africa is not an Indian carrier. With Jet Airways suspension of flights to South Africa, it’s not even an option for an Indian to fly an Indian flag carrier to either destination.

We are buying aircraft. Despite not flying to major destinations, Indian airlines are a big market for Airbus and Boeing. Airbus just released a report saying that over the next 15 years, Indian carriers will need to add substantially more aircraft to their fleet than they currently do. This means a lot of well-paying jobs will be created to manufacture these aircraft. For the US and the consortium of Airbus countries, these jobs are worth fighting for. Countless stories, true or not, are told of how Europeans have traded policy favours for Airbus orders. Less told is the story of Japan and how it ensured that Japanese manufacturers got a piece of the Boeing manufacturing pie. When the Boeing 787 was launched, Japanese airlines ran full-page advertisements across the world touting its launch. Why? Because Japan’s vaunted ministry of economy, trade and industry, Meti, has run a programme for the last three decades to increase the value-added component of the parts that Japanese manufacturers supply for building these planes. The share of Japanese manufacturers has risen from 15% in Boeing 767 to 35% in Boeing 787. Meti touts that Japanese manufacturers took control of the main wing for the first time in Boeing 787. What has helped Japan is that the Japanese airliners purchase these Boeing aircraft. It’s not that Airbus isn’t in Japan, but it’s made barely a headwind. Meti ensures Japanese airliners buy Boeing and Japanese manufacturers build them.

Now, in India, we have nothing much to show when it comes to an aviation policy. It’s not true that India doesn’t spend money on the aviation sector, it does. Air India has been a bottomless pit for taxpayer money. The only good news is that India has produced at least two world-class airlines, IndiGo and Jet Airways. But what ails the Indian aviation sector isn’t coalition politics, but questionable competence.

First, it’s not FDI in aviation that will transform the industry. Our two most successful airlines do not need FDI. It’s not lack of capital that is hurting the airlines. Profit-generating airlines are able to raise capital in India and so were loss-making airlines until recently. Foreign airlines also do not bring in skills or capabilities that our own airlines do not have. FDI in aviation is a red herring.

Second, it’s not coalition politics that hampers aviation policy. Formulating a proper policy is unlikely to affect coalition politics.

What it does take, different government departments working together to formulate an aviation policy for the next two decades. Not much.

One coherent policy that will fit all our airlines can be formulated. All it requires is to ask them what they need and help them achieve that. That will mean opening international routes faster for our airlines that are successful. It would mean making Delhi or Mumbai a hub for the East and the West traffic. China wants to trade with Africa, great. Let India, not the Middle East, be the hub connecting them. We would further put our collective national weight behind Airbus or Boeing and ensure that they source 35% of the parts/components that go into manufacturing the next A380 or B787 from India.

A second policy would let the Middle Eastern countries create aviation hubs, but it would extract value from them. So for access to Indian passengers, Middle Eastern governments would throw their offset business to India. Middle Eastern carriers are dead without Indian passengers. They have little ability to build an aviation manufacturing hub. It’s a win-win for India and the Middle Eastern countries.

Nothing is preventing this government from developing a coherent aviation policy except its own lack of competence. Not the European financial crisis, not coalition politics, not the opposition, nothing at all. Those thinking that a crisis will spur the architects of the 1991 reforms to action are missing the point.

Prashant Agrawal, a principal at a management consultancy, writes on public policy issues in India and internationally. Comments are welcome at summaryjudgement@livemint.com

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