Pacts with two Singapore-based companies
One venture to provide world class ground handling services in major Indian airports The second will provide state of the art maintenance, repair and overhaul (MRO) engineering services
NEW DELHI: The formal signing of the Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore by the Prime Ministers of the two countries on Wednesday has paved the way to ink two separate joint venture agreements between Indian Airlines and Singapore Airport Terminal Services (SATS) and Singapore Airlines Engineering Company (SIAEC).
The joint venture will provide world class ground handling services in major Indian airports and the second between IA and SIAEC will provide state of the art maintenance, repair and overhaul (MRO) engineering services in 10 major airports in India. Indian Airlines will hold a majority stake of 51 per cent in both the joint ventures.
The Central Vigilance Commission (CVC) and the Solicitor General have given green signal to Indian Airlines to proceed with its proposed JV with SATS for setting up ground handling services in nine select airports in India - Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Thiruvananthapuram, Bangalore, Goa and Kozhikode. As for the MRO, they will be set up in these nine centres besides Kochi.
The Minister of State for Civil Aviation Praful Patel is keen that the two JVs start functioning as soon as possible. It was at the instance of the Ministry that IA sought the advice of CVC and Solicitor General if it could go ahead with its choice of partner - SATS - for setting up the ground handling facility in the nine airports. It is just a matter of time before a formal decision is taken by IA board to get the IA-SATS joint venture off the ground. As for the MRO, the pre-launch discussions as well as work have been completed and this JV may also take-off shortly.
After opening international routes to private Indian carriers and opening the floodgates for new private carriers such as Kingfisher, Spice Jet and Go Airways, Mr. Patel is keen to bring world class engineering and ground handling facilities in India to service the rapidly rising passengers and growing aircraft fleet of Indian carriers. He said the government was planning to hive off ground handling and engineering wings of the two state-run carriers into joint ventures with foreign firms including airlines. Incidentally, Indian Airlines signed MoUs with SATS and SIAEC in October 2003 just when a joint study group was also set up by India and Singapore for preparing the roadmap for CECA. According to official sources, Indian Airlines may be able to effect cost saving of nearly US $ 220 millions over a 10 year period once the ground handling business gets going.
The importance of the ground handling venture can be gauged from the fact that at the time of signing the MoU, Indian airlines operated 50,000 flights a year and another 10,000 flights were operated annually through the 10 airports. The proposed JV will offer services to all other airlines and thus be a separate business unit and in the process transform the existing IA into a virtual airline and increase its fortunes.
SATS already has joint venture and strategic alliances in over 14 international airports in the Asia Pacific region. As for IA, it would require Rs 180 crores to change its 20-year-old ground handling equipment. It will also require new process to effectively function should it desire to come up to the levels of world class airports in terms of providing efficient and seamless ground handling facilities to passengers and airlines. The annual saving for IA through such outsourcing has been estimated at Rs 67 crores. The IA-SIAEC MRO joint venture has the potential to turn India into a maintenance hub to service airlines across Asia as it is cheaper to carry out maintenance in India.
Besides, the geographical positioning of India also will help in attracting potential customers who are within five to six hours flying time from India. Conservative estimates show that IA will be able to earn US $ 50 millions through its MRO venture.
This is now expected to rise sharply considering the grand plans for aircraft acquisition announced by not only state owned airlines but also private carriers. As of now there are 186 aircraft (leased and owned) of which IA accounts for 55, Air India 45, Jet Airways 42, Air Deccan 19, Air Sahara 20, Kingfisher two and Spice Jet three. By 2008-2009, the fleet strength of these airlines is expected to rise to nearly 300 aircraft. The IA- SIAEC MRO joint venture is targeting to provide A, B, C and D checks to both Airbus and Boeing aircraft. Kingfisher has already entrusted its ground handling job to IA at an annual cost of Rs. 120 crores.
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