India Has Huge Potential As A Growing Market: Airbus

European aircraft major Airbus has been in the news for the problems its customers, like Indigo, have been facing with the Pratt & Whitney engines on some of their planes. The company is apparently working on ensuring both an immediate solution and also a long-term fix. Pierre de Bausset, president and managing director, Airbus India and Srinivasan Dwarakanath, president, Airbus division in India, who were both in Hyderabad for the Wings 2018 aviation event, spoke to Business Today on this and range of things.

They did not see any signs of tapering demand for bigger planes, like the A380s, and in fact, saw a market that was bound to grow. They also talked about the changing landscape in India. Both were upbeat on India and have some big growth numbers with them that they plan to chase.

Excerpts from the interview:

Have you reached your market potential with Indigo, Vistara, Air India (domestic), Go Air and Air Asia, your five customers in India, since there is no new airline here? Or is there room for more? If so, where do you see new growth coming from?

No. We have only scratched the potential. We have identified the potential as huge. This is a fast growing market. In fact, it is the fastest growing market in the world for the moment. One of the reasons for that is that it is starting from a low base as the GDP per capita is lower. So, there is a potential for much more.

We are in fact, at the golden period of Indian aviation. If you look at the last three years, the passenger growth in India has been more than 20 percent, but in terms of people, we still have about 110 to 120 million passengers compared to huge numbers in terms of train tickets. So, there is a lot of potential in terms of growth. The penetration is also low in India as compared to China.

In terms of propensity to travel, India will become the third largest in the next couple of years.

The numbers that we have are related to demographics much more than to the number of existing airlines. Having said that you do have a number of very good airlines in this country and these people know how to handle the ramp up.

The challenges that Airbus customers like Indigo are facing with the engines seem to be occupying the mind of many people. Where do you see the problem and how long do you think it will take to resolve the issue?

In Indigo, they use Pratt & Whitney engines. Last year, we had a couple of challenges on the Pratt & Whitney engines. They had a fix for that and one of the modifications which they put in had resulted in some challenges this year as well. We work very closely with Pratt & Whitney, the airlines and also with the authorities to look at how best we can satisfy the needs of our customer. Pratt & Whitney has come back and said they have found a fix and there is a press release from them as well and they have presented that to the authorities. Therefore, as and when they supply us with the engines, we will fit them onto the aircraft and supply it to our customers worldwide.

There are two aspects here. One is whatever issues we have today, how do we immediately solve them, what is the permanent fix, and the root cause for it? The immediate solution is there as Pratt & Whitney has said they will deliver the engines soon. But the root cause is something they are working on. At the moment they are analyzing that.

The bigger picture to me (Pierre de Bausset) is very simply this: Pratt & Whitney pushed the envelope technologically with that engine in a remarkable way, and in doing so, they obviously took risks, like we all do in that industry. We look at our history; we look at Boeing’s history. The 787 start was a difficult start. It is a successful product today. The A380 was a very difficult start but it does beautifully for the customers today. If you push the envelope you got to fix things and that is why in our industry we have something called as the ‘launch customers’ – the first customers to take on a new model of something; they usually get a very attractive price for it. But they know that the countervailing risk is that things may go wrong and they will have to cope with these little difficulties. It gets fixed and they are super happy. The performance of the Pratt & Whitney engine is remarkable in terms of what it was supposed to achieve for fuel saving etc. So, in the long term, you are going to see very happy customers.

What is your take on the UDAN scheme of government? At what stage will it start showing in demand for your aeroplanes?

There will be demand for aircraft. How it will show up is, first there will be demand for our sister company, ATR. We own 50 percent of that. This is where it is going to start, as when you start new routes you have got to test them and stimulate them. You put smaller aircraft there, people start flying. See that it works, see that they like the service, and then naturally airlines will put bigger planes over there.

We often hear that the demand for wide-body aircraft is diminishing. What does this mean for your A380s? What do the customers prefer today?

If you look at routes like London, Mumbai, Delhi, these are really A380 routes. If you look at Heathrow airport in London, you have 10 percent of the passengers flying in and out on A380. If we look at Delhi; if we need to achieve that sort of target for Delhi, we need 10 times the A380s flying in to remove the congestion. So there is a lot of potential. Indian carriers carry today only 35 percent of international passengers going out of India.

There will be a market for point to point and there is a significant market for hub and spoke as well. If you look at Middle East carriers, they know how to operate A380. Between Dubai and London, you have four A380s per day. Airports are getting congested and there are only a few ways in which you can overcome that – either build more airports, and that takes time, or have more wide-bodied aircraft flying into these airports which can take more passengers. So, there is definitely a market for A380.

While you are concentrating on A380s, the real question is whether you are going to see a growth in the modules that operate on certain routes, and yes, you are going to see that for sure. Take the example of Jet Airways, which has A330s on international routes. It has put these A330s on domestic routes because they realized that the 737s that they had were not sufficient to handle passenger volume. The bigger-body aeroplanes are not going to be limited to international routes. The only way to get decongestion in Mumbai is to actually make sure on certain trunk routes, like Delhi-Mumbai, you put bigger modules and transport more people in a single flight. It is happening around the world. Many are taking wide-bodies.

If your question is will Indian carriers take A380 when they start looking at more and more international travel then A380 is definitely a viable proposition for them.

What is the key positive about the Indian market that is attracting you and what, in your view, is the biggest challenge in India?

The challenge is infrastructure – from air traffic control, to airport availability, to everything you need. The other challenge would be skills – pilots, maintenance engineers. My (Pierre de Bausset) confidence, however, comes from the fact that, when I was listening yesterday to Secretary, civil aviation, I was quite struck by what he said at the end of the (close door) CEO forum. He said, we are not here as a regulator that will just give authorization and regulate everything; we are here as a facilitator.

I believe it is going to work out, particularly because there is demand. There is demand from the people, from business, and because of that, there is going to be money flowing into the industry. If there is money, it can be funded because there is demand, and if there is an attitude from the government to facilitate rather than make it difficult, then I am very confident this will happen because this is a country where entrepreneurship is fantastic.

What is also exciting about India is there are a lot of first-time flyers coming in. We are at a nascent stage of the industry.

How does your order book look today?

At the Airbus level, we have a backlog of more than 530 aircraft to deliver into the country, and we have more than 300 aircraft already in flight. Our market share is 70 percent (in flight and backlog, compared to competition).

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