Suspension of belief

INDIAN MARKET LIBERALISATION GROUND HANDLING INTERNATIONAL  

OCTOBER 2011

Neelam Mathews reports from New Delhi, where India’s ground handling policy (literally) hangs in the air.

Facing a long, drawn-out opposition from airlines, India’s ground handling policy, announced back in 2007, has yet to get airborne. And it will not be able to do so in a hurry, since a hearing by the highest court in the country, the Supreme Court, scheduled to take place on July 25 this year, has been put off for a further 12 months. Private domestic airlines appealed to the Supreme Court after losing their case in the High Court on the dispute over ground handling logistics at six of India’s metropolitan airports.

US$500m industry

For a business estimated to be worth around US$500m per year, and growing, it is not surprising that everyone wants a slice of the pie. A contentious policy bars private carriers from self-handling, which includes cargo scanning, baggage handling, taxi-ing, refuelling and cleaning of the aircraft at six metropolitan airports; at the same, it permits entry to national carrier Air India’s subsidiaries, airport operators and service providers selected through competitive bidding at the airports of Mumbai, Delhi,

Chennai, Bangalore, Hyderabad and Kolkata.

The policy states that three agencies will be permitted at one metropolitan airport: government-owned Air India, airport operators (the Airports Authority of India, GMR and GVK), and a private firm selected through competitive bidding to provide ground handling services at the six metropolitan airports. Domestic airlines will, however, be allowed to continue selfhandling at 35 non-metropolitan airports.

Air India operates its operations throughout India through its subsidiary, Air Transport Services. Its 50:50 joint venture company formed last year is named Air India SATS Airport Services (AISATS), which presently serves only Hyderabad, Bangalore and New Delhi.

Airlines are opposing the government policy that restricts them in the use of approved ground handlers only. Domestic carriers that have in the past carried out their own ground handling say that the cost to outsource is high and staff (up to 3,000) will have to be laid off, since the policy mandates instead of outsourcing manpower, they will need to hire the services of security-cleared, ground handling agencies.

“This move is also expected to result in enhanced safety for passengers and prevent pilferage of baggage and cargo,” says a spokesman at the Airports Authority of India. A Ministry of Civil Aviation offi cial adds that it wants professional handlers, citing security aspects as its main concern.

Incidentally, it was on the issue of security that the Delhi High Court dismissed arguments against the policy in a judgement pronounced on March 4, which resulted in airlines moving to the Supreme Court of India. Analysts had said the plea was likely to be rejected.

However, the situation is now that most stake-holders are unwilling to comment offi cially, since India’s bold announcements to build and modernise its airport infrastructure hang in balance.

Suspended animation?

“As regards (the) ground handling issue, there is nothing much anyone can do at this stage, as the matter is sub judice and pending before the Supreme Court. So until the matter gets fi nally disposed of, the present status quo will continue.” These are comments of Satyan Nayar, Secretary General of the Association of Private Airport Operators (APAO).

Formed two years ago, APAO represents the interests of member airport operators with the objective of promoting the growth and development of the privatised major airports to truly world class standards: that, at least, is in its mandate. Presently, its five private member airports (Mumbai, Delhi, Bangalore, Hyderabad and Kochi) hold a 60% share of Indian air traffic.

But it has been a drawn-out confl ict and the struggle is tiring prospective aspirants. “We are not for, nor against the policy, but just need to know whatever the rules are, put them in place. We just want implementation.” So says Jungbir Singh, Managing Director Celebi-NAS Airport Services India. The company has cause to worry; having signed a concession agreement for ten years, it will have lost three years by July 2012. Signifi cantly, Celebi has planned an investment of US$100m by 2015 in

ground handling and equipment at Delhi and Mumbai airports.

Turkey’s Celebi Holdings is one of the earlier, serious players to have entered the market, and which has made massive investments in standardised equipment at New Delhi and Mumbai airports, mandated  by the policy that was to have been implemented. At the moment, little business is coming in for Celebi from domestic carriers, barring Kingfisher Airlines in Mumbai.

Domestic business comprises around 40% of the ground handling business at the metropolitan airports, with 60% going to international carriers. The idea of making large investments was to ensure maximum leverage could be derived from a crossutilisation of equipment. This is due to the fact that India’s international traffic moves at night (because of curfew hours in the west) and domestic airlines operate during the day, says a financial consultant.

“We are not getting full returns on the investment we planned,” admits Radha Bhatia, Chairman of the Bird Group, whose subsidiary, Bird Worldwide Flight Services, is among the ground handlers at Delhi and Mumbai airports.

In anticipation of the new policy that was to provide a surge of business, the Bird Group launched the expensive Segway Personal Transporter (PT) in India, through a nationwide distribution partnership with Segway, a global leader in self-balancing personal transportation vehicles. Segway  PT operates on lithium-ion batteries, is ecofriendly and has zero-emissions and energy efficient qualities, all of which is outlined in the new policy.

“This is sending a very clear message to foreign companies in a mood to invest in India: ensure that the policy is defined and there are no court cases on,” comments an operator.

Traditional measures prevailing

Presently, barring the budget carrier IndiGo, most airlines continue to use fuel-inefficient agricultural farm tractors to load baggage. Celebi said earlier this year that it had introduced electric baggage tractors costing US$60,000 that conform to strict Indian laws that require environmentally-friendly equipment. Moreover, the company is the only ground handler in Delhi that can handle the Airbus A380, for which it has imported equipment worth about US$2m for baggage, cargo and pushback operations, confirms Can Celebioglu, Chairman of Celebi Holdings.

Increasing traffic, though, has its own set of concerns. Delhi International, for instance, is one of the two busiest airports in India, with about 23m passengers and 220,000 flights a year. Passenger traffic is expected to go up to 37m passengers a year by 2012, and 66m a year by 2021.

While infrastructural constraints remain as traffic increases, an airport official says that the ramp is getting crowded, and security is becoming a concern. However, for an efficient airline, like budget carrier IndiGo that has all its systems in place and a near-perfect, on-time performance, having a ground handler is seen as a spanner in the works.

“We will find it difficult to carry out a turnaround of an aircraft in 25 minutes with a ground handler. Besides, our business model is based on low operating costs. Our staff is taught to multi-skill. Our calculations show it costs us two to three times more to give our business to ground handlers,” affirms an IndiGo official.

(An important trend that ground handlers ought to be aware of is the rapid growth of the low cost airline model. Today over 65% of seats sold in India fall under the budget banner).

There is also an increasing share of capacity on shorthaul international routes.As their negotiation position strengthens,not only will low cost airlines seek very competitive bids from their suppliers,

but they will increasingly start to demand changes in the way that ground handling functions are conducted, in order to improve and simplify processes, and reduce turnaround times. “This is a very important shift in the airline business model that ground handlers need to incorporate into their planning and capital expenditure processes,” stresses Center for Asia Pacific Aviation’s Head of India and Middle East, Kapil Kaul.

Frustration abounds

Ground handlers have, however, expressed some frustration over the very high revenue share agreements that have been signed with airport operators which prevent them from setting rates at the level they would ideally like. It is believed that discussions are ongoing between the Ministry of Civil Aviation and airports in this regard. In terms of international handling, the official ceiling rates at Delhi and Mumbai for a Boeing 747 are less than what several airlines pay today. Handling rates vary enormously: CAPA says that a Code B domestic carrier may pay under US$200 (a figure that rises to around US$1,800 for a Code F domestic carrier) whilst at the other end of the scale, a Code F international airline can expect to pay around US$4,400.

“Costs will come down only when there are volumes… though hi-tech equipment comes at a cost,” notes an analyst. “Besides, there is duplication of equipment that causes congestion… causing accidents sometimes as a result,” he adds.

Beyond the metropolitans

There is increasing confusion over the decision of AAI to allot concessions to ground handlers for airports in the east, west, south and north of India. These do not come under the purview of the ground handling policy.

Recently, NAS Port was given a licence for ground handling at Ahmedabad, Goa and Pune. Within five months, two airports were arbitrarily withdrawn. Having taken up the contract because of charter flights to Goa which were taken away NAS Port, too, withdrew. A similar situation is now occurring

with IndoThai which, having won the bid for the northern airports, is now fighting a case because the lucrative airports of Amritsar and Srinagar were taken away on the grounds of security concerns.

Thus there are ground handling issues to be worked out beyond the Tier 2 cities. “Under this policy, who will take a remote airport, with just three flights a day? Where is the financial logic in this?” queries one operator. Another official suggests that these should come under “special services” and be the responsibility of the national carrier.

As we went to press, the AAI had not come up with any more bids for ground handling. The bid for Kolkata airport is awaited as there needs to be at least three ground handlers at metropolitan airports and Kolkata in east India has only two (Air India and Bhadra), thereby creating a duopoly. Given the abortive past efforts of nondomestic handlers trying to gain market share within the Indian continent and the current state of limbo in terms of liberalisation, it would seem likely that the stage is set for

further acts. Whether an audience will be present to view remains to be seen.