Hyderabad: Have you ever heard airplane forecasts for India being revised downwards?

Even during the worst times when passenger numbers slipped into negative territory, overseas plane makers were upbeat about India.

India will need to add more than 1,610 planes worth $224 billion over the next 20 years as demand grows, Airbus SAS estimated on Thursday.

Rival plane maker Boeing Co. of the US said airlines in India will need 1,740 new airplanes valued at $240 billion over the next 20 years.

Joost Van der Heijden, vice-president (marketing-Asia) and customer affairs, at Airbus SAS, cannot recollect the last time an aircraft maker revised an airplane forecast for India downwards.

Justin Dubon, corporate communications executive at Airbus, too, said there wasn’t any downward revision of airplane forecast for India, the fastest growing aviation market in the world.

So why are forecasts always revised upwards, despite the country going through several ups and downs?

“There are at least 150 different factors and hundreds of parameters we follow before we finalize a forecast for any country. This includes economic growth, expansion in trade, rise in population and middle classes and passenger traffic growth," Heijden said, while admitting that India and the world had gone through several dips in terms of passenger traffic.

But airplane makers take a conservative approach in estimating plane demand after evaluating various parameters.

“Forecasts have tended to underestimate the Indian market, which has shown faster growth in reality. Even through economic dips, passenger traffic growth in the long term always shows an upward trend, doubling every 15 years," Heijden said.

Various reports of lobby group International Air Transport Association (Iata) show that India is the fastest growing aviation market in the world.

The world has gone through several downs, including SARS, economic slowdown and 9/11, but the growth has re-emerged more strongly, Heijden added. India, too, saw negative growth during 2008.

Srinivasan Dwarakanath, president of Airbus division in India, said the forecast is not an easy exercise as it requires several permutations and combinations to arrive at a credible figure. It takes into account possible potential growth and possible degrowth, too, he added.

“But the basic calculations show that if in 20 years time there are 600 million Indian middle classes and each one takes one trip a year, then the potential for growth is enormous," said Dwarakanath.

Sure, India remains the least penetrated market, with 0.4 trips per capita per annum, compared with two in the US.

India has a strong 300 million middle-income group with disposable income to travel at least once a year by air.

To add, the available airport terminal capacity as on date is 250 million, of which capacity utilized is only 190 million.

A report by consulting firm KPMG released on Thursday confirms that Indian air carriers are posting modest profits due to the prevailing low prices of crude oil.

High fuel taxes, rupee devaluation, high interest rates and competitive fares are some of the headwinds the industry has to contend with, KPMG says.

Though world-class airports have been developed by the Airports Authority of India (AAI) and the private sector, there are significant challenges related to capacity expansion of airports, fixation of airport tariffs, land acquisition and various government approvals, KPMG notes.

Growth of other key areas such as air cargo, maintenance, repair and overhaul, general aviation and human resource development have been constrained due to infrastructural limitations and lack of supportive policies, it adds.

True, India is yet to have a full-fledged national civil aviation policy.

An airline executive, requesting anonymity, said airplane manufacturers have a business case to paint a rosy picture, but infrastructure is not catching up to the forecasts.

Ameya Joshi, an independent analyst, said that airplane manufacturers tend to consider a mix of long-term growth as well as replacement without considering the infrastructure available.

So, will forecasts influence airlines in India in placing orders with plane makers?

“Yes. This will work as a benchmark for airlines to take decisions. The forecast will be one among various tools before placing orders," Heijden of Airbus said.

But airlines beg to differ.

Another airline executive, who requested anonymity, said forecasts by airplane makers are just an indication of the market.

But no airline will place an order based on that or no one will start an airline based on these forecasts, he added.

“I don’t think airlines rely on these numbers but they rely on more realistic needs in the local market, along with the kind of deal they would get," Joshi said.

While list prices are declared by aircraft manufacturers, airlines take decisions on multiple parameters such as total cost of operations over a period of time, potential for sale and lease-back, engine and maintenance contracts and pre-delivery payment deals, Joshi added.

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