by Ashwin Jadhav
|The aircraft acquisition process for airlines in India|
The Indian government has scrapped its aircraft acquisition committee (AAC), meaning domestic airlines will find it easier to import aircraft. After allowing 49% FDI (foreign direct investment) by foreign airlines, in the Indian airline sector, the government last week moved a step closer to liberalizing the civil aviation space by abolishing the AAC, a nodal agency which until now cleared requests by airlines and private individuals seeking to import aircraft.
The AAC individually scrutinized each request to import an aircraft into the country, often delaying the process. Axing the scheme, which was only introduced a year ago, will help to “liberalize the market,” India’s Civil Aviation Minister, Ajit Singh has said.
Domestic airlines will still have to report to the Directorate general of Civil Aviation (DGCA) to register an aircraft before it enters the country, however, the softened rules should support the country’s ambition to grow its air travel industry.
Streamlining the process
For most airlines, the aircraft acquisition process begins with an initial valuation agreement with the manufacturer. Following this process, the airline conducts a need assessment, cost analysis and market research aligned with their short-term and long-term strategies.
These processes can be completed in any order, depending on constraints, and are finalized by identification of the candidate aircraft. Usually 2-5 aircraft are short-listed and further narrowed down based on factors like purchase price and aircraft performance (fuel consumption, range, payload, ceiling, weight/balance, capacity, etc.).
Once the aircraft to be purchased is confirmed, a proposal has to be submitted to the aircraft acquisition committee (AAC). The committee was formed in October 2012 “to consider, examine and make recommendations on all proposals for permitting import or acquisition of aircraft for various purposes”, but had increasingly become more involved in commercial and operational decisions.
An objection or delay in the AAC verdict meant that the entire process had to be initiated from inception. This would include rewording agreements, reassessing the market performance and reconsidering the number of aircraft to be purchased. In the recent past, airlines had started objecting to the delays in the meetings of AAC to clear their aircraft orders, saying this adversely affected their commercial decisions to acquire and fly new planes and, hence, profitability.
Approval by the committee would originate negotiations with the manufacturer, which would subsequently be followed by a purchase agreement, legal verification and final delivery of the aircraft. As airlines in India do not purchase their aircraft directly, a leasing agency would be involved, taking over the contract at this stage. The airline would sign a dry or wet leaseback agreement with the leasing company. Once the sale was final, the aircraft would become operational into the airline fleet.
A step forward
The abolishing of the ACC will result in streamlining of the entire aircraft acquisition process in India, a step that could potentially improve the financial health of airlines in India. After Thursday’s move, airlines will only need the initial no-objection certificate from DGCA and an in-principle approval to import planes. “The in-principle nod is needed for meeting RBI norms that mandate some sort of government clearance before allowing a commercial entity to make payments to a foreign company,” Ajit Singh added.
The impending Jet-Etihad deal and the soon-to-be-launched Air Asia India will now see more planes coming to Indian skies without any trouble from the ministry. Between December 2011 and March 2013, nine airlines that operate in India sought permission to import 97 planes and all were granted permission.
At present India has only one commercial aircraft for every 3.2 million population, compared with Philippines that has one for 9 lakh people, China for every 1.14 million and Brazil, one for every 6 lakh citizens.
Ashwin Jadhav is an aerospace engineer by profession and works in the Flight Operations and Air Traffic Management domain.
Editor’s note: As usual comments are welcome. I am sure Ashwin will welcome your feedback.