India's airline revival may stall

MUMBAI // India's aviation industry is bouncing back with a sharp rebound in air traffic, but industry experts worry new rules proposed by the government will slow the revival.

India's aviation regulator has drafted regulations to enhance aviation safety by placing new limits on pilots' flying hours to avoid fatigue.

The recommendations include reducing the number of landings for pilots flying at night from three to two and more rest for pilots flying on international routes. It also makes it mandatory for airlines to maintain electronic rosters detailing the duty hours of pilots. Critics fear the rules will lead to a severe shortage of pilots.

The new rules, to be implemented from June, come after an Air India plane crashed in Mangalore last May, killing 158 people. The new aircraft, operated by experienced pilots, overshot the runway, plunged down an embankment and burst into flames.

Investigations revealed the crash was a result of pilot error caused by exhaustion. One of the pilots was heard snoring on the recovered cockpit voice recorder.

The Directorate General of Civil Aviation, the regulatory agency, is also investigating a scandal that exposed seven pilots with commercial airlines had fake flying licences, obtained allegedly after bribing government officials. The affair led to questions being raised about safety in Indian skies.

"Safety continues to be a prime concern as India's aviation sector grows," says Harsh Vardhan, the chairman of Starair Consulting, an aviation consultancy firm based in New Delhi. "It cannot be ignored at any cost."

But safety issues aside, airlines complain the new guidelines could lead to a huge shortfall of pilots in a rapidly expanding industry already facing a manpower shortage.

The Centre for Asia Pacific Aviation, an independent aviation research group in New Delhi, estimates airlines will need to hire about 20 per cent more pilots to maintain the same level of operations if the rules are implemented.

After a brief lull since the start of the economic crisis, India's aviation industry is back in expansion mode.

Soaring economic growth and rising incomes are encouraging more people to choose air over train travel. Last year India's airlines carried 52 million passengers on domestic routes, more than 20 per cent up on 2009.

Domestic passenger numbers are expected to rise to 180 million by 2020. Airbus estimates that with the current growth in passenger numbers, India would need 1,032 new aircraft by 2028.

Carriers aggressively cut capacity during the downturn, but are now gradually adding new flights.

IndiGo, India's largest budget airline, set a new aviation record in January after it ordered 180 aircraft from Airbus to be delivered between 2016 and 2025. The deal is worth US$15.6 billion (Dh57.29bn), said the airline, which is targeting India's burgeoning middle class.

SpiceJet, another low-cost carrier, has ordered 30 Boeing aircraft, which are expected to be delivered by 2014.

Currently 4,000 aircraft are operated in India by 300 pilots. This year, more than dozen new aircraft will be added to the growing fleet, but there are not enough trained pilots to man them, airlines say.

The issue reflects a major problem facing many other high-growth global sectors of the economy - a shortage of skilled workers.

"It's a common story: human resources is conveniently forgotten in India's growth equation," says Kapil Kaul, an executive with Asia Pacific Aviation. "Getting the right people, building a quality workforce, is a growing strategic problem among Indian businesses."

Mr Kaul estimates at the current rate of expansion, India's aviation sector will have a shortfall of 500,000 skilled workers - including pilots, engineers, air traffic controllers and ground handlers - over the next decade.

To offset this shortage, Asia Pacific Aviation has invested $125 million to develop an aero training facility in Bangalore. Expected to be ready next year, it will include flight simulators, a flying school and engineering workshops.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”