The Indian business jet market in 2011 and 2021

People who are active into the Indian business jet market tend to fall into one of two groups. There are pessimists (who, of course, consider themselves realists) that see a country where infrastructure is inadequate and where things will not get better quickly. The optimists (ditto) see it as country where demand for business travel outstrips supply and the market can only grow quickly.

Both are right.

India is a challenging and frustrating place to own a business jet. Owners face delays when the fly and there are few VIP terminals.

“The infrastructure is horrendous from the airport to the roads that get you there.  There has been no investment in infrastructure,” says one banker.

But the country is so large that flying is often the only option. Commercial flights suffer from exactly the same issues.

“Despite the problems, flying privately is still far more convenient than charter flights,” says Alok Wadhawan, head of Indian asset finance, at Investec in London. “There is strong appetite from high net worth individuals for jets.”

The number of ultra-high net worth Indian is growing fast. In June 2010, Forbes estimated that they were some 69 Indian billionaires in the country, up from 52 billionaires in 2009. India’s two richest men – Mukesh Ambani , chairman of Reliance Industries, and Lakshmi Mittal, of ArcelorMittal the world’s largest steel company – were also ranked the fourth and fifth richest people in the world by Forbes.

JetNet, says that India has the second-largest fleet in Asia, with 143 business aircraft (including turboprops) at the start of 2011. Bombardier estimates that the country will receive 325 new business jets by 2020.

However, many question whether the country is capable of handling so many new business aircraft.

Poor infrastructure, delays, pilot shortages and other problems

Although there are some private airfields, business jet users have to use commercial airports when travelling to major cities like Mumbai, New Delhi or Hyderabad. These airports are struggling to cope with commercial airline flights – which have grown rapidly since the airline market was deregulated in 2006 – and business jets are not a priority.

India went from three airlines – including two state owned carriers – to over 10 domestic airlines and new entrants like Indigo, Kingfisher and SpiceJet have grown so quickly that there are shortages of air traffic controllers, slots, pilots and parking spaces at airports.  Delays of several hours are common at major airports particularly at peak times in the morning and evening.

Hangar8, the UK aircraft manager and charter company, operates two UK registered aircraft that are based in India. A Lineage 1000 is based at Mumbai International Airport with a Cessna Citation XLS at a private airfield inn Luknor, a popular holiday destination.

“Flying in India is actually relatively straightforward,” says Dustin Dryden, CEO of Hangar8. “The airspace is much less restricted that say China and flight planning is easier. The problems come when you need to support the aircraft on the ground.”

Hangar8 says that it takes about 90 minutes from the time when the pilots get to the aircraft to take off when the Lineage 1000 is flying from the UK. In India they allow six hours for the same process.

Donal Boylan, director of consultancy firm Odyssey Aviation which advises business jet owners and private banks, blames the credit crunch. “India realises that’s its infrastructure needs upgrading but for the last few years it has been unable to get project financing. It is not just airports but also roads and power. Hyderabad is a lovely new airport but there is no road to it.”

Airlines are continuing to grow quickly – low-cost carrier Indigo ordered placed the largest commercial aircraft order ever, buying 180 A320s worth $16 billion in January 2011 – and many airlines are worried that the infrastructure will not keep up with their demand.

“Aircraft parking is a huge problem for the development of the sector in India and is providing a brake on large aircraft sales in the country,” says one banker. “Even with the offer of “laying tarmac” being made by owners to airport operators, the airports are seemingly caught in a huge bureaucratic maze, which sees them going round and round in circles, without finding a solution. What are they going to do with the additional 500 commercial aircraft scheduled to arrive into the country over the next five years, let alone the thirst for executive aircraft?”

Strong demand, good legal system

But despite the problems Hanagr8’s Dryden believes there are good opportunities for business jets. “It is a great marketplace. There are lots of people that can afford to fly privately and they also tend to fly in larger numbers favouring larger aircraft. It is without doubt one of the most dynamic markets around today.”

As Hangar8’s aircraft are on the UK register it is unable to offer domestic charter because of cabotage restrictions but he says strong demand in that market as well as on international routes.

Whilst India’s hard infrastructure – its airports, roads and power stations – need investment Indian’s say the country does have very strong soft infrastructure of democracy and laws. Commercial aircraft lessors successfully reposed aircraft from airlines in the last few years, demonstrating that courts will recognise financiers as owners of aircraft, and many bankers take comfort from this.

Local banks are willing to participate in business jet deals – particularly structured transactions. However lenders do need to manage the Reserve Bank of India’s strict External Commercial Borrowings rules which can be restrictive for plain loans.

But whilst banks are keen to lend to Indian owners they prefer aircraft that are on foreign registers. This is less to do with repossession than with residual values.

“If I am buying two similar aircraft where one is N-registered [on the US aircraft register] and one has been on the Indian register I would be offering about 20% less for the Indian aircraft,” says one trader. “The value of the Indian aircraft would definitely be lower.”

However, many owners prefer to use foreign registers as it is hard to find Indian qualified corporate jet pilots.

The other issue that concerned financiers was related to tax. India’s revenue did impound several jets that thought had been imported without paying taxes. It also had issues with permits for non-scheduled operators that many companies used to manage import duty. These issues appear to have been largely resolved and financiers are comfortable with the risk.

When the Indian government reposed jets some thought it would kill demand. The truth is that owners want business jets and will find ways round problems. And that is what will happen over the next 20 years. The business jet market is India will grow – so you are right to optimistic – but -as the pessimists will tell you – it won’t be easy.