Thursday, January 25, 2007

Business jets in India: dispelling the myths

Plane truths
When the cynical gun-runner Nicholas Cage wanted to impress Bridget Moynahan in Lord of War, he got a private jet to fly her out of a remote resort. That essentially is what a private aircraft enables you to do — go anywhere, anytime you want to. The flexibility is also the reason that the aircraft is popular with companies around the world.
Internationally, biz jet sales are soaring. After decades of slow growth, this year has seen several Indian businesses going for the top of the line aircraft like Bombardier’s Global XRS and other large business jets.
Unlike the commercial aircraft market, which is split between just two players, the business jet market has a lot more competition. The biggest players in this market are Bombardier, Cessna, Gulfstream and Raytheon. Other players with a significant presence are France-based Dassault with its Falcon aircraft and regional jet manufacturer Embraer.
In India, corporate jets were earlier used by large business houses like the Tatas, Birlas and Reliance, who operated the aircraft and helicopters largely to ferry the brass to the remote sites where the factories were located. The primary change now is that small- and medium-sized companies are joining the club, there is also a bias towards larger, faster jets with intercontinental range. The change is partly a result of strong financial results and partly a requirement made necessary by growth — financial as well as geographical, say industry sources.
Some companies that earlier chartered planes from others have now gradually decided it makes sense to acquire their own planes. New bizjet owners include the likes of GMR Group, Punj Lloyd, Hindustan Construction and Jaiprakash Associates.
“The efficient use of business jets depends a lot on the extent of utilisation of the planes,” says PK Ratta, vice-president Raymond Aviation. The Singhania group company has been in the business of chartering aircraft for the past decade and has a fleet of three helicopters and two business jets, an HS-125 and the latest — a Challenger CL 604.
The aircraft are used by the company’s top management as well as chartered out. The Challenger, for example, is being hired for Rs 3.15 lakh per hour. Aircraft operations have a high fixed cost in the form of salaries, insurance and regular maintenance costs, says Mr Ratta. Bizjet owners often pay the same salaries to pilots and engineers as the large airlines.
The cost to company for an experienced pilot is now about Rs 50 lakh per annum, and the commanders are difficult to find even at these salaries, say company sources. The other major business group chartering planes are the Tatas, which have two Falcon 2000s available for chartered flights.
A look at the itineries of the CEOs using business jets shows a huge flexibility that a personal plane can give the top management.
Citing an example of the flexibility, Gautam Singhania of the Raymond group says, his company has joint ventures in several parts of the world and connections offered by commercial airlines are often not convenient. He can, for example, fly directly from smaller cities in India to any place in Europe, saving a day by not having to transit through Mumbai or Delhi. Much of the flying in the high-end aircraft is on international routes.
At the very top end, some corporates like Kingfisher and Reliance are going in for large business aircraft, that are actually commercial planes configured for business use. The two aircraft available in this segment, both with a sticker price of about $50m (Rs 240 cr), are the Boeing Business Jet and the Airbus Corporate Jet.
Four of these were sold in India in the past one year. Kingfisher Airlines and RIL have ordered the ACJs and the government of India has taken delivery of two BBJs to be used by the Prime Minister and top guns in the defence ministry. The lavishly configured planes can fly anywhere in the world with one stop, have the latest electronic gizmos for constant communication with the ground, and are a class apart from conventional business jets. Both Boeing and Airbus say they hope to find more customers for these in India.
Indian software majors, though, seem to be a class apart — almost absent from this market despite their obvious wealth. Given their spread across the world and within India, it is only a matter of time before they also get into the market, say industry sources. State governments are also buyers — they usually go for smaller turboprops which can land at small airstrips or helicopters, to be able to access remote locations.
Corporate aircraft are still not a subject most companies are comfortable talking about or even showing on their balance sheets. A bizjet is still perceived in most quarters to be a frivolous acquisition, rather than a timesaving device for the modern day CEO.
Several companies are working around the issue, through the sale and lease back route. Many of the large jets being bought by Indian corporate chiefs have been sold to international banks and then leased back from them. The asset is thus not on the balance sheet of the company and only the lease rental is accounted for. Aircraft makers hope the attitutude will change as India Inc gets more comfortable with bizjets.

1 comment:

yummuynews said...

Nice blog keep the good work. Do you have pictures of Schumacher's private jet? I would like to see this one