Praful Patel: Overseeing change in India

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Indian civil aviation minister Praful Patel has spent the last few years driving change in India's airline sector and achieving what most people thought was impossible

Aviation personalities come almost exclusively from airlines in most markets. Virgin's Sir Richard Branson, Southwest's Herb Kelleher and AirAsia's Tony Fernandes are obvious examples. In India, however, a government official is held in the same regard.

While India has its airline celebrities, like Kingfisher's Vijay Mallya and Naresh Goyal of Jet Airways, the country's civil aviation minister is in the same league in terms of recognition. Ask who the agriculture minister is and the average person may not know the name. But ask the same of the civil aviation minister and more often than not Praful Patel will be said without hesitation.

As minister since May 2004 following a change in government, Patel has accomplished what almost nobody thought possible. A first-time government minister, he has overseen massive expansion by pushing through liberalisation measures that allowed many new airlines to be established and more foreign carriers to serve India. He privatised the two main gateway airports and got approval for upgrades of many others. He finalised long-delayed fleet modernisations at Air India and Indian Airlines. And if that were not enough, he pushed through a merger of the two state-owned carriers in the face of intense scepticism and opposition from labour unions and rival politicians.

Patel has his critics, which is natural for a political figure, but it is in fact tough to find anyone in India's aviation sector with a bad word to say about him. Instead, he is held in high regard for having the guts to take on the established order and push through long-overdue change. Whereas his predecessors failed to take difficult decisions for fear of political repercussions, leaving the industry stifled for years, Patel has taken on controversial tasks without apparent fear. Many believe this is due in part to the fact that he has a business background, which enabled him to quickly grasp what was needed in terms of change and help him find innovative ways to cut through red tape.

"You have to" take on challenges, the energetic 50-year-old said in an interview in his New Delhi office. "If you are scared there are enough people to scare you all the time. You have got to call their bluff." And calling the bluff of those opposed to change is what Patel has consistently done over the past three and a half years. It has also been a case of being in the right place at the right time, and it helps that he has the prime minister's support for civil aviation development. Patel says he has been able to push through change in part because air transport in India, where there is a rapidly growing middle class and there has been strong economic growth for several years, was finally ready to get off the ground in a big way, having been stifled previously by restrictive policies and old-fashioned attitudes towards flying.

The statistics tell it all. In the financial year to March, India's airlines carried 35 million domestic passengers, representing year-on-year growth of 39.5%. That came after 28% growth the previous fiscal year and 20% the year before that. In short, domestic air traffic has more than doubled since Patel took charge. There has also been huge growth in international traffic, as the minister personally took an interest in opening up bilaterals. Between summer 2003 and summer 2006 there was a 123% increase in total seat entitlements in India's air services agreements.

"One has been able to explain and convey the message that this is a very vital sector which is good for the growth of the economy and tourism. We have been able to convince people that this is one sector where growth means it is a win-win situation," he says. "Of course there are traditional mindsets and there are various shades of opinion because this sector was highly regulated in the past and it was purely driven by government. So we set out by first changing the mindset and I think largely one has been able to convey that it is a win-win situation."

He adds: "Over the next 10 years, aviation is going to be like the sunrise sector of India. It is going to create huge jobs, a lot of investment. I would rate the investment in aviation close to $120 billion in the next 10 years. I would also say that it will create at least three million jobs. So it is going to be a great value-add to the economy. Whatever we have done is irreversible and it is here to stay, and we can only better it now henceforth. Certainly a lot of movement has taken place in this sector, but it is just the tip of the iceberg."

The biggest feather in Patel's cap is the merger of state-owned Air India and Indian Airlines, legal formalities for which were completed in August. As he says with a somewhat cocky chuckle, "nobody believed it would happen". But he considered it a necessity for the airlines' survival in the face of growing competition from privately-owned Indian carriers and foreign carriers.

There is still plenty of work to do before the real benefits can be realised, however. The actual integration of operations will take around two years and the enlarged carrier will operate under the Air India name. It now has a combined fleet of more than 110 aircraft, comparable to some of its larger counterparts in other Asian markets, and is working to transform itself into a true "network carrier". Air India primarily operates international services while Indian operates domestic and short-haul international flights. Their respective low-cost carriers, international operator Air India Express and domestic player Alliance Air, are also merging as Air India Express.

"It is the beginning. The first issue was to get through the entire maze of the process itself which is quite complicated. We also had to factor in that all the employees must feel they are part of the process. There were minor irritants but largely we have been able to carry everybody along and explain to them that this is the only option," says Patel.

"We feel that by 2008 the real synergies of the merger will actually start being visible. The IT platform has to be integrated. And of course it takes a little while to rejig the fleet and the operation patterns. But I think that by 2008 we will see good synergies of the merger, and when it will be a comprehensive network things will actually start showing results."

One benefit is that the enlarged carrier will be well placed to join a multilateral alliance and Patel reveals that Air India expects formal confirmation before the end of this year that its bid to join Star has been accepted.

A further fleet expansion plan is also now being assembled. Patel says the carrier's board is likely to clear purchase proposals soon after which formal government approval can be sought. Air India and Indian were already in the process of adding 111 new aircraft from previous orders, which Patel personally drove forward after more than a decade of airline and government indecision.

"We now feel that [a new order is needed] because of post-merger and because of the fact that most of the older aircraft need to be retired from the fleet. We are going to go the Lufthansa or Singapore Airlines way to have a young fleet primarily, so we want to retire the older fleet and we are looking at anything from 50 to 100 aircraft," says Patel. "Our track record in the past has been good. In the case of Air India when we bought 68 aeroplanes [from Boeing] the whole process was finished within eight months, and the Indian Airlines deal with Airbus [for 43 A320-family aircraft] was delayed earlier but once we took charge we cleared that too. So we feel that it is possible to finish this entire process by the middle of next year with a firm order."

An initial public offering is also planned for the second half of the fiscal year ending March 2009. Around 10-15% of the carrier will probably be sold publicly and around 5% more set aside for employees.

"We had planned it last year for both Air India and Indian Airlines separately but then we took a decision for the merger, and also there was the fact that we felt that valuations were not the best on an independent, stand-alone basis," says Patel. "We felt that post-merger we would probably get a higher valuation and there would be much more confidence about the product and the company. We will do it sometime towards the later part of the next fiscal year."

Things remain far from perfect in the rapidly changing Indian market, however, and Patel acknowledges that there is still plenty of work to carry out. Delays due to bottlenecks in the air traffic control system are rampant and travel growth is being slowed due to the lack of airspace capacity. In addition, most airlines are losing money, personnel shortages are an issue, and service levels remain generally poor at airports, making air travel an often unpleasant experience.

The biggest challenge is to improve the country's famously inadequate airport ­infrastructure. The industry could in fact be growing faster if infrastructure were better, as despite the enormous growth of the past few years the number of air trips per capita still remains tiny in India. The good thing, however, is that the government recognises what needs to be fixed.

"Our key focus area is infrastructure, infrastructure, infrastructure, both on the ground and in the air," says Patel. And while it may not be visible to the average traveller yet, much has been happening behind the scenes on the infrastructure front. This should start becoming more apparent to passengers over the next two years.

At Bangalore and Hyderabad, all-new airports are being built by the private sector that are due to open early in 2008. Delhi and Mumbai airports are now being run by private companies and expansion works are taking place. A second airport is meanwhile set to be built in Mumbai and there is talk of a second airport being built not far from the capital Delhi. Billions of dollars are also being spent on upgrades of many more airports in other parts of the country.

"If you look at it in one year's hindsight, you will see that much more of our infrastructure has been done because we have actually been working against pressure. All the pressure is building up," says Patel. "India had 125 aircraft three and a half years ago for all commercial civilian traffic and we have now [more than 300] planes. We achieved 40% domestic growth last year and if you average it out in a 10-year timeframe it is going to be a good 25% annual compounded growth. As infrastructure improves to handle higher traffic we will see this number being achieved very easily."

Another challenge is to finally push through a long-delayed new civil aviation policy to create more legal certainty over the sector and give investors more confidence in it. But Patel brushes this aside as not being much of an issue, saying that many of the initiatives to be included in it have already been put into effect.

"The policy is broadly in place already," he says, noting that a new regulatory authority for airports is being established, new ground-handling and airport ownership policies have been approved, the Directorate General of Civil Aviation has been working closely with European and US authorities to ensure regulations keep up with growth levels, and more foreign investment is allowed in the sector.

Still to be finalised is a long-awaited new policy on privately-owned carriers operating international services. Existing rules state that private carriers can only fly abroad after five years of continuous operations and if they have at least 20 aircraft, which means that ­currently only Jet Airways and its JetLite subsidiary, formerly Air Sahara, are eligible.

But so many new carriers have launched since 2003 and some - such as Kingfisher in particular which launched in May 2005 - have been lobbying hard for the restrictions to be eased. This is likely very soon, as Patel is in favour of it. The government was initially looking at easing the five-year rule to three years but Patel says this is no longer likely.

"What we are proposing now is we are not talking about years as an arbitrary thing, we are talking about the size of an airline - maybe 30 aircraft or 40 aircraft, it all depends on whatever we finally take a call on. Both Air India and Jet Airways, which are the two primary carriers which go international, combined between them they do not carry more than 30% of all inbound and outbound traffic," he says. "At least 50% of all traffic in and out of India should be carried by Indian carriers. This is the case with most countries, that their home-grown carriers do at least 50% if not more. So we want Indian carriers to have an opportunity to grow, to scale up, and be able to participate in this great growth which is taking place from India."

Patel says he enjoys aviation, and he had followed the sector closely for many years before becoming minister. He has no direct working background in aviation but his successes have created a legacy for himself that will far outlast his tenure as minister. For the many positive reforms carried out under his watch, he was recently awarded the prestigious "Business Reformer of the Year" prize by one of India's most respected financial newspapers.

So where does he go from here, with elections expected in the not-too-distant future? "We are in a democracy so I can't plan my own future," says Patel in one of the rare occasions in which he sounds more like a politician than a businessman. "But certainly I would like to be in areas where I can meaningfully contribute and bring about significant change. We have got to drive change - it doesn't happen just sitting and resting on your laurels. You have to actually get in the ring and lead the way."

Like father like son
Praful Patel has been India's civil aviation minister since May 2004 following a change in government.

Born in February 1957 in what was then known as Calcutta, now Kolkata, he graduated with a commerce degree from the University of Bombay before joining the family business, which today has interests in tobacco, pharmaceuticals, finance and real estate, edible oils and packaging. To this day he still has a hand in running the business, known as the Ceejay Group, in addition to being a member of parliament and civil aviation minister.

Patel became a member of parliament in 1991 at the age of 34 after being elected to the Lok Sabha, the lower house. He was re-elected two times consecutively thereafter and over the years sat on parliamentary civil aviation committees, which gave him an understanding of the sector.

In 2000 he was elected to the Rajya Sabha, the upper house of parliament.

His father was also a senior politician, in the state of Maharashtra, and he had well-established philanthropic interests that the family carried on with after his death.