BOOST TO REGIONAL CONNECTIVITY

BY SANJAY BHATNAGAR

THE GOVERNMENT’S PUSH TO expand regional air connectivity seems to be bringing in encouraging results. Domestic air travel data indicates that on March 1, 2023 a total of 4,32,453 passengers travelled over 3,033 domestic flights, this is 8.5 per cent higher than the pre-Covid average of daily 3,98,579 passengers. Similar trend has been evident for the past four months. Indian aviation sector is at a cusp of unprecedented growth. This can also be gauged by the fact that during the month of January 2023, all Indian operational airports (taken together) handled 2,25,520 aircraft movements, carried 30.52 million passengers and 237.76 thousand tonnes of freight, all this is more than 40 per cent higher than same period last year.

Presenting the Union budget for 2023-24, Union Finance Minister said that fifty additional airports, heliports, water aerodromes and advance landing grounds will be revived for improving regional air connectivity

The Regional Connectivity Scheme (RCS) UDAN (Ude Desh ka Aam Nagrik) was launched on October 21, 2016 by the Ministry of Civil Aviation (MoCA). In this regard continuous efforts of the Government have paid rich dividends. Media reports indicates that by February 2, 2023, more than 1,13,00,000 passengers have availed of this scheme over 2,16,000 UDAN flights.

RCS UDAN aims to enhance regional air connectivity from unserved and underserved airports in the country to make air travel affordable to the masses, essentially focusing on connectivity between the Tier-2 and Tier-3 cities of the country. Participating airlines based on their assessment of demand on particular routes, submit their bids under RCS UDAN. It is a market driven scheme, where bidding rounds are conducted from time to time for covering more destinations and routes. The scheme has a validity of ten years by then the Government plans to operationalise 1,000 UDAN routes and prior to that it plans to develop 100 airports by 2024. By first week of February 2023, a total of seven bidding rounds have taken place and 467 UDAN routes covering 73 airports have been operationalised across the country. These also include nine heliports and two water aerodromes.

Considering the performance of Indian Civil Aviation sector since 2014, despite the setback during the COVID-19 pandemic, the government has continued to repose faith in the potential of RCS UDAN scheme. This is very much evident from continued budgetary support by the government over the past few years.

For FY 2023-24, the MoCA has been allocated a total of ` 3,113.36 crore including ` 3,026.70 crore for revenue and ` 86.66 crore for capital expenditure. Of this, ` 1,244.07 crore has been earmarked for the RCS UDAN for revival of 25 airports, operationalisation of 100 RCS routes and VGF for north east connectivity.

The government’s plan caters for Viability Gap Funding (VGF) requirements of the scheme through a levy on certain domestic flights. The airlines are being provided VGF under the scheme to keep the fares affordable and accessible for the common people. This way, funds generated from the sector themselves stimulate the growth and finance development of the sector. Continued VGF support is demonstration of the government’s commitment to PM’s vision of ‘Ude Desh ka Aam Nagrik’. In last two year itself (FY 2021 and 2022), the government has reimbursed `104.19 crore to the Airport Authority of India (AAI) under the VGF.

The focus of the Government on airport infrastructure development is worth appreciating. The Government has realised the importance of developing various domestic airports to new standards from operational viewpoint as well as to meet the aspirations of travelers. Improvement in airport infrastructure has the potential to bring in major transformation in Indian civil aviation sector. It is also likely to boost tourism and other related industries. International Civil Aviation Organization (ICAO) study shows that the air connectivity would have economic multipliers of 3.1 and employment multiplier of 6.1 times.

With an aim to upgrade infrastructure at airports to enhance their capacity to accept more traffic efficiently, the AAI has so far leased eight airports, viz Delhi, Mumbai, Ahmedabad, Guwahati, Jaipur, Lucknow, Mangalore and Thiruvananthapuram through Public Private Partnership (PPP) for operation, management and development on long term lease basis.

Delhi and Mumbai were leased on Revenue Share Model basis, wherein the private player operate, manage and develop the air- ports for a period of 30 years, further extendable by another 30 years. So far, AAI has received annual fees of more than `30,000 crore as revenue share from the private partners of these two airports.

The other six airports have been leased on Per Passenger Fee (PPF) basis for a period of 50 years. So far, AAI has received more than `710 crore as PPF.

The latest Budget 2023 provides further impetus to modernisation of airports. MoCA has identified another 25 airports for development by private players. This time based on the suggestion of the National Monetisation Plan (NMP) under the Gati Shakti Scheme, the MoCA plans to club bidding of smaller airports with each of the bigger airports and leasing them out as a package. For example, the Varanasi Airport could be clubbed with Kushinagar Airport, similarly, other such combinations are being worked out. The clubbing methodology is expected to attract more private players for the bidding process and also ensure commensurate development of non-profitable airports along with the profitable airports and the bidding will be based on earlier PPF model.

RCS UDAN is a flagship scheme of MoCA. Since its launch, it has significantly increased the regional air connectivity in the country. The scheme has benefitted a diverse set of stakeholders. Passengers have got the benefits of air connectivity and unserved regions have received the direct and indirect benefits of air connectivity for their economic development. At this juncture it is felt that despite various initiatives and concessions being offered by the government, the scheme is yet to realise its full potential. Though 467 routes have been cleared, their utilisation is not really efficient and some may be operating limited number of daily/weekly flights.

There is no doubt that new growth areas in aviation will come from regional spaces and ensuring lastmile connectivity is a key focal area. In this regard the role of state Governments can play a vital role in catalysing the regional air connectivity. The routes are being rationalised and opened based on a joint requirement project being worked out with respective state governments. The success of business model of RCS UDAN depends largely on traffic demand generated by economic activities in the area around as well as tourism opportunities. Its success is largely hinged on cooperation among various stakeholders including MoCA, AAI, state governments, local bodies and airline operators. For example last mile link road connectivity to the airport terminals or civil enclaves once provided by State Governments would substantially enhance the regional connectivity.

The Government is sanguine of the fact that RCS UDAN scheme can stimulate growth of regional air connectivity leading to enhanced rate of economic progress in various regions of the country. Success of RCS UDAN is crucial for India’s economic growth, especially when it is aspiring to achieve $5 trillion GDP in near term. Ideas are as good as its implementation. It is a market driven scheme, tourism industry offers phenomenal opportunities for more employment and faster economic growth. Hence it is incumbent upon the Government to make the routes far more lucrative and sustainable in the long run for the airline operators. There is a need to closely coordinate between MoCA and Ministry of Tourism and Culture. In matters of tourist destinations and cultural or religious sites, the State Governments are one of the most vital stake holders, they need to be closely involved.

The RCS UDAN scheme has great potential that needs to be smartly harnessed. In this regard it is important at this juncture to carefully assess the progress of the scheme and undertake a calibrated fine tuning, if required. SP

In an extensive interview with Jayant Baranwal, Editor-in-Chief, SP’s AirBuz, Arjan Meijer, President & CEO of Embraer Commercial Aviation talks about how Embraer has created a niche for itself as an aircraft manufacturer and its plans for the future

Jayant Baranwal (Baranwal): Can you take us through the journey of Embraer Commercial since its inception and its evolution?

Arjan Meijer (Meijer): Embraer is the market leader in commercial jets up to 150 seats, and it is also a significant player in Executive Aviation, Defence & Security, and Agricultural Aviation. Founded in 1969, Embraer’s first aircraft was the Bandeirante, a turboprop plane designed for both civilian and military purposes, with the capacity to transport between 15 and 21 passengers. From the APAC perspective, the first Bandeirante, and by extension Embraer’s first aircraft in the region arrived in 1978 and was operated by an Australian airline.

Looking from a commercial aviation perspective, following the Bandeirante, the ERJ family of jets entered into service in 1997 and was crucial in developing regional connectivity especially in North America and other parts of the world, including Europe and South America.

The first generation E-Jets programme was launched in 1999 and amplified our global operator footprint. Leveraging on the experience of the first-generation E-Jets through its 20 million hours of service accrued by 2013, Embraer launched the next generation E-Jet E2 family. The first E2 family member, the E190-E2, entered into revenue service in 2018. The E2 family is the quietest and most fuel-efficient single aisle aircraft. [I elaborate further on our global footprint in next question.]

Baranwal: How do you perceive the expansion and evolution of Embraer Commercial?

Meijer: In the last two decades, Embraer has designed, manufactured, certified, and entered into service, 21 different aircraft platforms – a track record of innovation that is unmatched and testament to Embraer’s engineering excellence and commitment to developing aircraft that deliver best-in-class reliability, performance and operating costs. We work hand in hand with our customer support team to provide our customers the very best service and support.

Both the first generation E-Jets and the next generation E2 families have collectively enjoyed global success in the fleets of 150 airlines and leasing companies across more than 50 countries since the first aircraft entered revenue service in 2004. The 1,700th production aircraft was delivered at the end of September 2022.

As of the third quarter of 2022, the total number of E-Jet orders was in excess of 1,900 from more than 100 customers. The E-Jets’ enduring versatility is validated by the 80 airlines currently operating the type, including low-cost, regional, and mainline carriers, and its presence on every continent. Operators include all the main airlines in the United States, KLM, Lufthansa, Air France, British Airways, Japan Airlines and many more; additionally, the type commands an 80 per cent share of the US regional market with over 600 E-Jets in service.

Focusing on India, Star Air, an all-Embraer jet operator, offers daily flights to multiple destinations across the country, most of which are part of the UDAN scheme. The airline currently operates a fleet of five ERJ145s and has recently committed to take two Embraer E175s to add greater flexibility and efficiency to their network.

With a flying time of up to six hours, the E-Jets E2 family of aircraft is designed for domestic and regional operations and is ideally suited to open and develop new routes. The E2’s combination of optimised capacity and low seat and trip costs makes it a compelling platform to connect metro to non-metro and non-metro to non-metro cities in India, which will be the primary drivers of growth over the coming years.

Baranwal: Which markets, in which regions, have been the most instrumental and have been contributing most towards the Business objectives of Embraer Commercial?

Meijer: The E-Jets have played an important role in growing regional connectivity especially in the United States and Europe. That said, the E-Jets family has a global footprint that spans all regions in the world. We see Asia Pacific as a key market and, of the forecasted requirement for 10,950 aircraft in the sub-150 seat segment over the next 20 years, close to 26 per cent of the global demand will come from this region.

Our recent activities this past month across Asia Pacific reflects the importance we place on the region. The E195-E2 painted in the eye-catching TechLion livery was in China, Japan, Vietnam and India as part of a series of demonstrations to both current airline customers as well as prospects. The E195-E2 was also on display at Wings India in 2020 and 2022.

Additionally, the E190-E2 was granted its type certification by the Civil Aviation Administration of China. This is great news for Embraer and our prospective customers in China and it paves the way for significant E190-E2 business opportunities there.

Baranwal: What do you think are the key pillars in the growth of Embraer Commercial?

Meijer: The key relevance of our aircraft, especially the E-Jets family, are their ability to build operational flexibility, match capacity with demand, add frequencies, and enhance connectivity, all the while delivering best in class fuel efficiency resulting in the lowest emissions and operating costs. These attributes specifically benefit those airlines and countries seeking sustainable air connectivity growth and commensurate economic contribution. This is even more important in a post-pandemic world.

Baranwal: We would like to know the key features of your Regional Jets’ family in terms of: a. Their costs’ advantage to the airline/operators; b. Their comfort experience for the passengers; c. Their operation costs versus the competitions; d. Their advantages versus the larger airliners; e. Their role towards the sustainable future.

Meijer: The E-Jets are essential in enabling airlines to quickly adapt their networks to shifting market demand and to launch new destinations without the pressure of filling a 180-seater aircraft.

Efficiency is key for the E-Jets. Our latest E-Jets E2 family offer 25 per cent lower cost per trip than a large new generation narrow-body while maintaining similar cost per seat which means that airlines may operate with a lower cost base, mitigate economic risks and improve competitiveness. This is a significant advantage in an industry known for its thin margins and volatility.

For passengers, the E-Jets are globally acclaimed for offering segment-leading passenger comfort, made possible by its two-bytwo seating configuration with no middle seat thus ensuring all passengers have access to either the window or the aisle.

On the topic of sustainability, Embraer is committed to developing products, solutions, and technologies to contribute to the aviation industry’s goal of achieving net zero emissions by 2050. Embraer aims to be carbon neutral by 2040 and achieve carbon neutral growth from 2022. It plans to implement 25 per cent sustainable aviation fuel (SAF) use in its operations by 2040 and 100 per cent renewable energy sources by 2030.

Notably, the E-Jets E2 family already contributes to lower levels of carbon emissions when compared to large narrow-bodies and can reduce carbon emissions by up to 50 per cent when compared to prior generation narrow-body types such as the B737-800 or A320ceo. The E195-E2 had its maiden test flight utilising 100 per cent SAF in June, 2022. The aircraft is already certified to use 50 per cent SAF and Embraer is on its way to certify the usage of 100 per cent SAF for commercial flights, which is key part of our strategy to further reduce emissions levels in the following years.

Baranwal: Has COVID-19 played any role in enabling certain lessons and certain betterments in your aircraft?

Meijer: The unpredictability of travel demand during the pandemic has cast a spotlight on the versatility of small narrow-body types such as the E-Jets as these aircraft allowed airlines to maintain, or strategically grow, their networks while keeping a close eye on operating costs and cash flow.

Small narrow-body aircraft provide airlines the flexibility to deploy capacity on strategically important routes where demand is thin. If or when the situation changes, the airline can then further scale up capacity by increasing flight frequency or by switching to a larger aircraft type in its fleet. A multi-fleet strategy, covering a diverse range of seat segments, provides the flexibility to adjust capacity to match fluctuations in market demand.

Even if the reduced demand is temporary and not structural, the airline industry is intrinsically cyclical and its volatility poses a risk; thus, flexibility is key to riding the ups and downs of business cycles.

Even before Covid, our flight data research revealed that 50 per cent of domestic flights in India departed with only 90 to 150 passengers onboard; yet the aircraft most prevalent in India have an average of 180 seats meaning these larger aircraft are routinely operating with many unoccupied seats. This continual imbalance between demand and capacity costs airlines money by eroding yields and, ultimately, profits.

The E195-E2, the largest member of our E2 family with a capacity up to 146 seats, offers a cost per seat that is comparable to the A320 or B737. This unique combination of compelling economics and optimised capacity means the E195-E2 is an ideal and proven aircraft to profitably grow networks.

Currently, we believe there is a market gap where airlines, in order to profitably expand their network, can benefit from optimal capacity coupled with excellent economics and Embraer has the best product to achieve this.

Baranwal: Which one is the largest selling jet out of your complete family of E2s/ERJs? And why?

Meijer: With 817 firm orders and 714 delivered aircraft, the E175 is our best-selling aircraft and amongst the most sold aircraft worldwide. In the United States, the E175 is the market leader in the up to 150-seat jet segment and the aircraft serves a key role in stimulating the regional aviation sector with outstanding economics and per- formance capabilities. The E175 will soon take to the skies in India. Star Air, an all-Embraer jet operator, has recently committed to take two E175s to bring greater flexibility and efficiency to their network. The E-Jets E2 family is a brand new product that entered service in 2018. It is the world’s quietest and most fuel-efficient single aisle aircraft. As of the end of the third quarter of this years, the E2 family has recorded 247 firm orders and 56 deliveries, this despite the challenges brought on by the COVID-19 pandemic. We look forward to more orders in the coming year.

Baranwal: How does Embraer harness the power of innovation?

Meijer: Embraer as a whole, across all our business units, works in innovation on three fronts: incremental, which seeks the evolution of already consolidated technologies; adjacent, bringing innovation and advancements to existing products; and transformational, creating technologies and markets non-existent as yet, with a potential for exponential growth.

The company believes that innovation is essential to both the competitiveness and the future growth of the business. As a reflection of our commitment to innovation, Embraer created a Board of Directors, reporting daily to the Chief Executive Officer, dedicated solely to the subject, which encompasses all of the company’s operations and products. To organise and prioritise its innovation efforts, Embraer created “Innovation Verticals”, priority subjects for technology, research, and development. These Verticals integrate and accelerate value generation in the business units, subsidiary companies, and EmbraerX.

Baranwal: Would you like to share some details of your upcoming Turboprops? How different will they be versus the Turboprops you also used to offer to global aviation market early-years?

Meijer: The turboprop market has seen no real progress in al- most 25 years. Our market studies and discussions with airlines shows strong demand exists globally for an advanced, next generation, turboprop aircraft. We believe that a turboprop, with low emissions and a vastly improved passenger experience, offers an attractive business case. We continue to assess this opportunity; however, the technology has to be right, and the decision to launch the project will be dependent upon achieving the levels of performance and efficiency improvements that our customers demand.

Baranwal: Can you please elaborate “Profit Hunter” for us? Where does this terminology come from and how would you justify? We are also little keen to know the stories behind your innovative paintings – whether of a tiger or of an eagle or of a shark. Will appreciate some details on this front.

Meijer: The E-Jets E2 family is dubbed the “Profit Hunter” because of its high performance and low fuel burn. By delivering the lowest operating costs, it unlocks the highest profit potential for airlines, all the while offering more cabin comfort to passengers and unmatched environmental credentials – such as having the lowest certified noise levels of any single-aisle jet, full stop. Our demonstrator aircraft have been painted in a variety of eye-catching apex predator liveries which embody the profithunting characteristics of the aircraft. Our “TechLion” E195-E2 was recently on a demonstration tour across select countries in the Asia Pacific region, and this same aircraft was displayed at both the 2022 and 2020 editions of Wings India.

Baranwal: Please do share some details of your efforts towards electric aviation.

Meijer: In November 2021, we announced the Energia family of concept aircraft to help the industry achieve its goal of netzero carbon emissions by 2050. In December last year we provided an update on this programme - the company has focused its development on two 19-30 seater designs for hybrid electric and hydrogen electric propulsion. Guided by the company’s 50 year technical expertise, external inputs from airlines, and joint studies with engine OEMs, these two approaches to net-zero offer a technically realistic and economically feasible pathway to net-zero.

Energia Hybrid (E19-HE and E30-HE) – revealed as a nine seater in 2021. Embraer is exploring a 19 and a 30 seater variant: l parallel hybrid-electric propulsion l up to 90 per cent CO2 emissions reduction when using SAF l 19 and 30 seat variants l rear-mounted engines l technology readiness – early 2030’s

Energia H2 Fuel Cell (E19-H2FC and E30-H2FC) – revealed as a 19 seater in 2021. Embraer is exploring a 30 seater variant: l hydrogen electric propulsion l zero CO2 emissions l 19 and 30 seat variants l rear-mounted electric engines l technology readiness – 2035

While still at the evaluation phase, the architectures and technologies are being assessed for technical and commercial viability. The Energia Advisory Group has also been launched to harness inputs and collaboration from partner airlines.

Meanwhile, Embraer has already made advances in reducing emissions from its aircraft. In June, we demonstrated that the E-Jets E2 family is capable of operating with 100 per cent SAF. Furthermore, in August 2021, Embraer completed the first flight of its Electric Demonstrator, a 100 per cent electric single-engine EMB-203 Ipanema.

A hydrogen fuel cell demonstrator is planned for 2025 and the eVTOL developed by Eve, our urban air mobility spin-off that is now publicly listed on the NYSE, is a fully electric, zero-emissions vertical take-off and landing vehicle which is being developed to enter service by 2026. SP