Can India Become the Next Aviation Hub of the World?

India, with its burgeoning aviation sector and strategic geographical location, is poised to become a global aviation hub. With Air India leading the charge and government support bolstering infrastructure development, the dream of multiple international hubs within the country seems within reach.

India's Aviation Potential & Strategic Locations

Campbell Wilson, the CEO of Air India, believes that India's aviation growth and geographical advantage can support multiple hubs. He points out the significant gap between India's wide-body aircraft fleet and other global aviation hubs, indicating an underserved market ripe for expansion.

Wilson highlights the potential for hubs in Delhi, Mumbai, and potentially Bengaluru, citing their geographical advantages for connecting flights between Asia, Europe, Africa, and Australia. These airports could serve as crucial stopovers for long-haul flights, attracting passengers from around the world.

Emulating Successful Models & Air India's Role

Major hub airports in the Middle East and Southeast Asia, such as Dubai, Singapore, and Kuala Lumpur, have set the precedent for successful hub-and-spoke models. These hubs attract global traffic and have robust infrastructure and airline networks to support their operations.

Air India's recent aircraft orders, particularly for wide-body planes, signal its commitment to expanding its global network. As the flagship carrier, Air India is essential in driving India's aviation growth and establishing it as a prominent player in the international market.

Government Support, Challenges and Opportunities

India's aviation minister, Jyotiraditya Scindia, echoes the sentiment of development, emphasizing the need for airlines and airports to meet global standards. Government initiatives aim to smoothen operational challenges and create an environment conducive to international hub development.

While the vision of multiple hub airports in India is promising, challenges such as infrastructure development, operational efficiency, and competition remain. However, with concerted efforts from both the government and industry stakeholders, these challenges can be overcome, unlocking vast opportunities for India's aviation sector.

Conclusion

India's ambition to become a global aviation hub is not unfounded. With strategic planning, investment in infrastructure, and collaboration between stakeholders, India has the potential to rival established hubs around the world. The journey towards this goal may be challenging, but the destination promises boundless opportunities for India's aviation industry and economy as a whole.

IndiGo's stock prices surged 9% in a week, largely after an analyst meeting the airline held on March 22nd.

The stock was trading at a record high of Rs 3523 on Wednesday.

Brokerages such as UBS Securities, Kotak Institutional Equities and Motilal Oswal Financial Services upgraded their views on the airline stock seeing a strong growth potential ahead and expect it to soar with targets from Rs 3,500 to Rs 4,300.
 

UBS raised the 12-month target price to Rs 4,000 per share from Rs 3,900 earlier.
 

“Despite factoring in higher crude prices and pilot salaries, our estimates are flat to higher, driven by better Available Seat Kilometres (ASK) growth and yields. Also, we continue to see upside risks to our yields in the near term and capacity/ demand growth and profitability over the medium term," UBS noted.

“ASK growth of low double-digit in FY25 with near-term YoY yield growth is positive in our view and should result in strong near-term earnings. Also, AOG number should remain stable at the current level (we were expecting more aircraft to be grounded soon), provides much better visibility/ stability to capacity/ earnings," it added.
 

Kotak also highlighted the shift in IndiGo's focus on connectivity to have a larger share of international journeys and investing in systems and operations.
 

"The near-term outlook is comforting on both ASK growth and pricing, reflective of IndiGo’s planning and strength of the underlying demand," the brokerage said in a note.
 

IndiGo reported Rs 20062 crore in sales for the quarter ended 31-Dec, up 29.41% from the previous quarter's Rs 15502 crore and 30% from the year-ago quarter's Rs 15410 crore. Its net profit for the latest quarter stood at Rs 2998 crore, up 110% from the same quarter a year ago. Promoters held 37.92% stake in the company as of 31-Dec, while FII and MF ownership in the firm stood at 18.7% and 12.3%, respectively.

Air India has added three more planes in recent days including two wide-body planes.

Its third brand-new wide-body Airbus A350 aircraft VT-JRE landed in India the week before last and is being inducted, according to airline sources.

It is also inducting the seventh of its 14 leased A320 aircraft (VT RTS) and has installed a full economy configuration of 180 seats on this white tail.

Besides the 11th and final leased Boeing 777 aircraft has also arrived with upgraded interiors.

Last year, Air India placed orders for 470 planes with Airbus and Boeing and now operates 135 aircraft. The Air India group, which includes Air India Express, plans to induct one aircraft every six days on average throughout 2024, including five more Airbus A350 wide-body aircraft, 46 Boeing 737 and 17 Airbus A320 narrow-body planes as also four leased Boeing 777 wide-body planes.

Air India has also signed a long-term agreement with Unilode Aviation Solutions for the management and handling of unit load devices (ULD) for its fleet. Unilode will provide digitalised containers and pallets for its passenger and cargo flights, and give access to a global pooling system to ensure it has containers wherever and whenever needed.

The airline’s leadership also came together this week in Gurugram to review financial performance of the airline and set new stiffer targets for itself for the fiscal ahead.

Air India also continues to digitize. It has launched an internal Air India Policy Assistant, a tool that uses generative AI to answer questions on HR policies in a matter of seconds, making it faster and easier to get the information employees need.

It has also launched, Maharaja, an AI-based virtual agent to help customers with routine inquiries. Maharaja is able to respond to over 6,000 customer queries in four languages each day, including Hindi, English, German, and French. The agent has been able to answer over 80% of questions in seconds. Maharaja is powered by Microsoft's Azure OpenAI service.

Aviation regulator Directorate General of Civil Aviation (DGCA) has put on hold new pilot duty norms for pilots that were set to be applicable from 1st June, indefinitely.

The surprise move came a day after the regulator gave a point-by-point rebuttal to airlines, who were opposing these new guidelines, on why it will not backtrack on the implementation.

DGCA did not give any explanation now but introduced changes to one of its rules this fortnight which now allows airlines to continue with old guidelines till their new plan is approved. That means indefinitely.

The new rules had provided for enhanced weekly rest for pilots which was to go up from 36 hours to 48 hours and reduced night-time flying that is known to contribute to fatigue and impact alertness levels. Pilots carried out six landings during night-time flying, which was to be reduced to two as also the night-time shift had been extended by an hour to 6 a.m, from the earlier midnight to 5 a.m.

The maximum flight duty period for flights encroaching night-time has also been reduced from 10 hours to eight hours.

Former IndiGo head of operations Shakti Lumba called the move “gutless” in a post on social media.

“DGCA does a 180 on their CAR and reverses their stand thereby giving precedence to operator commercial interest over flight safety and public safety,” he said.

Flight safety professional Amit Singh too called the move a “shame” in a similar social media post.

“At first @MoCA_GoI (aviation ministry) you acknowledge that #fatigue is a threat to safety, then you implement the rules with cosmetic changes. Then finally you succumb to pressure and now willfully remove the so-called safety barriers. This would amount to murder, coz it’s intentional,” he said.

The new rules for a June implementation appeared to have been triggered by at least three such deaths of pilots who were on duty, including the death of IndiGo pilot, Manoj Balasubramani, who fell unconscious at the boarding gate after reporting for duty to operate a flight from Nagpur to Pune last year. 

SpiceJet and Export Development Canada (EDC) have signed a settlement agreement, the terms of which will allow the airline to clear major liabilities, leading to a comprehensive revitalization of its balance sheet, the airline said in a statement.

“This settlement marks the biggest breakthrough in SpiceJet’s financial restructuring efforts to date,” it added.

Under the agreement's terms, SpiceJet will acquire full ownership of 13 EDC-financed Q400 aircraft, bolstering the airline's operational capabilities and fleet management. This pivotal agreement marks a significant milestone in SpiceJet's pursuit of financial stability, demonstrating its commitment to prudent financial management and long-term prosperity.

As part of the settlement, SpiceJet will pay a comprehensive settlement amount to resolve outstanding liabilities amounting to close to $91 million as per SpiceJet books of accounts. This settlement not only alleviates SpiceJet of a substantial financial burden but also lays the groundwork for a fortified balance sheet and substantial savings for the airline.

Ajay Singh, Chairman and Managing Director of SpiceJet, said, "We are pleased to have reached this settlement agreement with EDC and we thank their leadership and management team for their cooperation, understanding and progressive approach through the process. This significant milestone will allow us to strengthen our balance sheet and position the airline for long-term success."

The liabilities stem from a loan acquired by the airline in 2011 for the procurement of 15 aircraft. With twelve of these Q400s currently grounded, their refurbishment and subsequent return to service will enable SpiceJet to promptly launch flights on numerous regional and UDAN routes.

This agreement heralds immense long-term savings for SpiceJet, liberating the airline from the obligation of regular monthly rentals for these aircraft, it added.

SpiceJet recently settled dispute worth Rs 413 crore with aircraft leasing firm Echelon Ireland Madison One and a settlement with aircraft leasing firm Cross Ocean Partners that was worth Rs 93 crore as also it has resolved Rs 250 crore dispute with Celestial Aviation.

In a recent ruling by the 16th Civil Division of the Seoul High Court, the long-standing legal battle between HDC Hyundai Development Company and Asiana Airlines reached its conclusion. The court dismissed HDC's appeal, affirming Asiana's right to retain a significant deposit following the termination of a 2019 acquisition bid. The decision, handed down on March 21, 2024, marks a pivotal moment in the saga that began with a failed buyout attempt and subsequent contractual disputes.

Background: A Failed Acquisition and Legal Disputes

The legal dispute stems from HDC Hyundai Development Company's attempt to acquire Asiana Airlines in 2019. However, unforeseen circumstances, including the onset of the Covid-19 pandemic and Asiana's deteriorating financial condition, prompted HDC and its partner, Mirae Asset Securities, to request a second round of due diligence. Asiana and its key creditors, including the Korea Development Bank and Kumho Industrial, refused the request, leading to the cancellation of the acquisition contract in September 2020.

Legal Standoff and Deposit Retention

Following the cancellation, Asiana retained a KRW200 billion deposit, equivalent to 10% of the proposed acquisition price, citing contractual terms that allowed for such retention in the event of a breach. HDC contested this decision, arguing that their request for renegotiation was justified given the changed circumstances. However, the court ruled that HDC's refusal to perform amounted to a breach of contract, thereby legitimizing Asiana's retention of the deposit as a penalty.

Court's Decision and Implications

Presiding appeal judges Kim In-gyeom, Lee Yang-hee, and Kim Gyu-dong emphasized that HDC's refusal to perform constituted a valid reason for Asiana to cancel the acquisition contract, affirming the legality of Asiana's actions. With this ruling, the legal battle, which has spanned several years, comes to a close. HDC's joint venture partner, Mirae Asset Securities, had previously ended its legal pursuit of Asiana following a court room loss.

Conclusion

The Seoul High Court's decision to uphold Asiana Airlines' retention of the deposit in the HDC Hyundai Development case brings closure to a protracted legal dispute. The ruling reaffirms the importance of contractual obligations and underscores the consequences of failure to perform. As the aviation industry continues to navigate challenges posed by the Covid-19 pandemic and shifting market dynamics, this case serves as a reminder of the legal complexities involved in corporate acquisitions and the significance of contractual terms in safeguarding parties' interests.

With Inputs from ch-aviation