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opportunity/travel
Business is in the air
As corporate India lines up to buy aircraft, Rs 1,500 crore every year is in the wings waiting to be made. Are you game to catch this wave?
I
f it was not for a friend who sought his help in buying a personal jet four years ago, Karan Singh would still have been a pilot on commercial aircraft. “He wanted me either do it for him or get it done through someone else. I chose the former,” says Singh, CEO of Kubase Aviation, the company he started four years ago to help his friend buy that plane. Kubase has subsequently diversified into aircraft management and maintenance. And Singh is currently negotiating a JV with a global major. Walk into any airport in the country and the roar of an industry on the upward curve is unmistakable. And if you look carefully, you will see that it is not just the commercial aircraft, an increasing number of private aircraft are also jostling for landing slots and space at every airport.
22 OCTOBER 2007
/Krishna Kumar and Vimarsh Bajpai
DARE/view Segment: Corporate Aviation Size: Rs 1,550 Cr ($30 million) per year What’s in it?: From buying to management and maintenance, there is many an opportunity for entrepreneurs in the country’s sunshine sector Limitations: Stringent regulations, manpower shortage, poor infrastructure
Corporate India has taken to flying in its own aircraft in a big way. Mukesh Ambani and Vijay Mallya own fleets, but the others, including the smaller corporates are in no way behind. Bizjet owners include GMR Group, Punj Lloyd, Hindustan Construction, Venkateshwara Hatcheries, and Jaiprakash Associates. NDTV has helicopters. An increasing number of corporates across the country are queuing up to
buy their own aircraft. A wide variety of aircraft, ranging from helicopters to small and medium range propeller driven craft like the Beachcraft King Air to business jets like the Cessna Citation to full-fledged Boeings are all there in this shopping list. Buying and maintaining an aircraft is no easy task. First of all you need to identify the right type of aircraft that fits your needs and budget. Then you need to find one that is on sale. Unlike with, say cars, aircraft have very high resale value and it is more likely that someone buys a used aircraft rather than a new one. You also need to ensure that the aircraft you are purchasing has a clean record—that it has not been used for drug-running or arms-smuggling. As you can see, buying an aircraft is not only costly but also not easy for the uninitiated.
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opportunity/travel Once a corporate house decides to buy an aircraft for its use, the deal could translate into a number of business opportunities for an entrepreneur to explore. Buying and selling alone could mean big business as an aircraft may cost anywhere between $1 million (over Rs 4 crore) and $70 million (Rs 300 crore). An industry average of 2.5% brokerage means that even one deal per year can be good business. Add to this manpower provisioning, catering, fuelling, maintenance, certification, etc. and you can figure out how big the business can get! Aircraft maintenance again is a very specialised area, requiring very high -level skills, certification and investments. The big daddy in maintenance in the country is Airworks International. Established in 1951 out of Mumbai, the company also operates in Pune, Chennai and Delhi. Operating out of 50,000 square feet of hangar space, Airworks offers both maintenance and modification services besides training in aeronautical engineering. Now capture this. There are 271 corporate aircraft in the country and experts believe the figure would treble in the next five years. According to industry sources, 50 per cent of these are owned by non-scheduled airline operators (charter service providers) and the rest is with corporate houses, govern-
DARE/industry size Current strength (no.) Expected increase in 5 years (times) Number to be purchased Average cost per aircraft (Rs Cr) Total value of purchases (Rs Cr) Brokerage (%) Total value of brokerage (Rs Cr)
271 3 813 20 16,000 2.5 400
Monthly expenses per aricraft (Rs L) Crew
6
Management
4
Maintenance
2
Other Misc.
3
Sum Total
15
Annual/aircraft
180
For 813 aircraft
1,46,340
Annual size (Rs Cr)
1500
DISCLAIMER: This data and analysis are indicative and Cybermedia makes no warranties about its accuracy. You are advised to do your own analysis if you are evaluating a similar venture.
Many of US companies, which are in the business of buying and selling corporate aircraft, are themselves looking for inventory. If these figures are to be believed, the exponential growth of demand for corporate aircraft would lead to a rise in demand for experts who can broker deals and carry out due-diligence. It would also lead to a growth in the requirement for management and maintenance of aircraft besides trained manpower. According to Koshi Vergese of K-Air
alised the opportunity early on. Singh, formerly a commercial pilot on Boeing 727 by his own right, saw that while more and more corporates were queuing up to buy, they lacked the information to choose and also faced problems in management and maintenance. Thus he started off with a business model that aimed at providing end-to-end solutions for corporates buying aircraft. Starting off two-and-a-half years ago, Kubase now owns 10 aircraft which are leased out to corporate houses. Kubase also helps buy, manage and maintain private aircraft. K-Air Charters has also diversified into providing end-to-end solutions. KAir provides two types of solutions. According to Vergese, the first is the total turnkey package (selecting, identifying, purchasing, importing and operation of aircraft) and the other one is just the operation and maintenance or just identifying or purchasing the aircraft.
Buying Like we said before, buying an aircraft is not easy. Singh says “the procedures of buying a plane are cumbersome. It may take anywhere between 2-6 months, presuming that you have ready cash. This is because import procedures are difficult to deal with, and operational requirements are quite stringent.” The process of buying begins with evaluating
big idea/THE NUMBER OF CORPORATE AIRCRAFT IS
LIKELY TO TREBLE IN THE NEXT FIVE YEARS; meaning HUGE DOWNSTREAM OPPORTUNITIES
ment and high net worth individuals (HNIs). According to K-Air Charters, there are 203 corporate aircraft in the country while some others put the figure at 150 aircraft and an equal number of choppers. Now, not only is the demand growing but also, there is a shortfall in the supply of available aircraft. Some believe the demand supply gap is 5:1. The gap, to some extent, is a reflection of the situation in the West.
Charters, “over the last three years, we have seen a sudden spurt in purchase of aircraft, especially by corporates, resulting in our Indian office renewing its focus on the market.” “There is a huge opportunity in the corporate aviation sector but lack of proper infrastructure acts as a deterent,” says L Morris, Operations Manager of Ventours Aviation, based out of Delhi. Karan Singh of Kubase Aviation re-
the mission profile. It involves identifying requirements and budget. Requirements include the comfort level and the size of aircraft depending upon its use. After detailed evaluation, Kubase, for example, shortlists 3 to 5 aircraft that closely meet client requirements. A performance analysis of the shortlisted aircraft is required to help choose between them. A detailed pre-purchase inspection becomes an absolute must. A team OCTOBER 2007 23
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Karan Singh, Kubase Aviation Singh, who holds a Bachelors degree in Aeronautics Engineering from Embry-Riddle Aeronautical University, says that he wanted to fly ever since he was 2 years old. He grew up to become a pilot flying the Boeing 737 NG and accumulating over 5,000 hours of flying experience. Beginning with acquisition consulting, it took Singh “two years before we could get everything in place.” “There was very little customer awareness and government regulations were tight.” “Manpower is another area of concern. You need trained crew and it is difficult to come by,” he says. Like a good entrepreneur, Singh has spotted the business potential here as well. He has tied-up with the Spartan College of Aeronautics and Training to plug the gap. “Lack of sufficient landing strips is a big problem for corporate fliers. In a population of 1.2 billion in our country, you have only 125 operational airports, out of which half are full to capacity. In the US, you have 19,000 airports, out of which 6,000 can handle commercial flights,” he says. To push the case for the industry, Singh recently founded the Business Aviation Association of India.
of technicians is needed to go through all maintenance records for each and every part, check the aircraft history for previous accidents/incidents or any damage. Once you purchase abroad, you have to fly it here. This long haul flight (particularly for smaller aircraft) is the job of specialised pilots.
DARE/players Aerotech Aviation Airworks Air Charter Services ClubOne Air
Operations
Indus Aviation
Once the aircraft has been bought, the big question is its management. This includes the entire gamut of operations of the aircraft right from providing cabin crew to catering and fuelling to landing permissions, local accommodation for crew and the like. There is a huge shortage of pilots and cabin crew and if someone has just one aircraft, then they are better off tying up with a management agency rather than
Interavion
24 OCTOBER 2007
K-Air Charters Kubase Aviation Subha Aviation Tag Aviation a global major in charter solutions, aircraft management, aircraft maintenance and aircraft sale-purchase is said to be planning to enter India.
employing their own crew. Management includes selection and training of aircrew and technical staff, technical maintenance, operational procedures involving flight safety, rules and regulations, certification and licensing and financial aspects.
Maintenance Aircraft maintenance is specialised business and involves technical expertise. This too is a great business opportunity. According to industry sources, there are only three major (but not major as per international standards) private maintenance agencies in India. So there is a long queue of aircraft awaiting inspections/overhauls. Aircraft undergo two types of maintenance— scheduled and unscheduled; light and heavy. Scheduled maintenance has to
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Chuck Mulle, President, Business Aircraft Leasing/“We have worked with about 7 large Indian clients and have placed 4 corporate jets and 3 helicopters in India over the past 12 months” be done on a regular basis to keep the aircraft in good condition. Unscheduled maintenance is exactly what the name implies and could be caused by something like a burst tyre. For most heavy maintenance, the current option is to fly the craft abroad. So, that’s yet another opportunity.
DARE/other opportunities Private airstrips Catering Insurance Aerosports Logistics management
Fractional ownership Fractional ownership offers individuals and companies the benefits of a privately owned jet or helicopter at a fraction of the cost. As the name implies, the parties do not own a full aircraft, but pool in to share one. Let’s say someone buys 1/4th share of an aircraft. The cost of acquiring that share of the aircraft would gener-
ally be 1/4th of the cost of the entire aircraft, including the induction costs. Depending on the percentage of their share, they would be entitled to a certain number of hours of flying each year. They would own financial and
legal interests in the aircraft to the extent of their share. The aircraft would be managed and maintained by a third party. Club One Air, which claims to be Asia’s first fractional ownership firm, operates in this segment. dare
How else to make money
Lufthansa Ambient Media 2007
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26 OCTOBER 2007