European aviation giant Airbus (EADSY, Financial) forecasts India will need 1,750 new passenger and cargo planes in the next two decades in order to meet the rapid growth seen in passenger and freight traffic. The plane maker said that of this total demand growth in the emerging nation, 1,320 would be new single aisle aircraft and 430 wide-body jets with total estimated book value of nearly $255 billion.
At the recently held Wings 2018 aviation event, Airbus Commercial Aircraft India president Srinivasan Dwarakanath said that the company expects to deliver an average of one plane a week to Indian carriers in the next 10 years. He also said that the demand for wide-body planes would be healthy. In fact, the company is seeing market grow for its jumbo jet, the A380. The company is quite upbeat about its prospects in India considering the growth number it offers.
Presently, Airbus has unfulfilled orders of more than 530 aircrafts to be delivered in India, and over 300 planes in flight. The company is a market leader with 70% share.
Market forecast
Airbus said that the majority of the traffic growth in India is to come from the fast-growing economy, increasing wealth and rising urbanization. In addition, the aviation market is being backed by governmental initiatives promoting regional connectivity through air travel.
The company projects that over the next 20 years air travel will increase four times in India from the current level. It expects annual passenger traffic to grow 8.1% during this time, which is nearly twice as much as the world average of 4.4%.
Though Airbus is a market leader, it believes that this is only the beginning, and the country offers great upside potential. India is currently a nascent market offering rapid growth prospects in aviation. One of the key reasons is that India has a low base per capita income which provides huge potential for growth.
Dwarakanath said:
“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.”
He further expects to see significant growth across various aviation support segments including sourcing, training, partners, servicing and in-job creation.
Tapping the nascent market
Domestic travel is predicted to see exponential growth over the next 20 years in India. Traffic is expected to multiply more than five times during the said period and grow to a level as the U.S. is today. India is one of the fastest growing aviation markets and according to Dwarakanath, the country is on its way to becoming the world's third largest aviation market in the next two years. Airbus is well-positioned to benefit from the same.
The company is formulating its strategy in line with the “Make in India” movement launched by the Indian government. Airbus’ sourcing volume has gone up 16 times in the past decade and currently stands at more than $550 million per annum.
Despite the growth prospects, some key challenges such as infrastructure, traffic control, number of airports, required number of skilled pilots and maintenance engineers could act as hindrances. However, company president and managing director, Airbus India, Pierre de Bausset is confident that the regulators would facilitate the industry requirement since there’s growing demand in this sector. If the aviation industry is adequately funded, the industry will grow and expand significantly.
Disclosure: I do not hold any position in the stock mentioned in this article.
