Interview with John Moore

Biz@India

January 2016

New Opportunities in Indian Skies

John Moore,Head of Global Sales, ATR, France

ATR, the world’s largest regional jet manufacturer, has enjoyed a dominant position in Indian and global markets in this segment for long. In conversation with BIZ@INDIA, John Moore, Head of global sales at ATR, asserts that the domination is set to continue for a long time.
 
How has ATR evolved in the Indian aviation industry?
 
The Indian market has been a good market for ATR over the years. This market is well-suited and adapted for our products. We started developing the market around 20 years ago, with deliveries to Jet Airways and then to Air India. In the mid-2000s, we had a strong growth of the fleet with Air Deccan, Kingfisher and Jet Airways taking more aircrafts.
 
Today, the fleet in India is around 25 to 30 aircrafts. But we see a strong potential for growth. The Indian aviation market has its ups and downs and it’s been difficult for many of the airlines to remain profitable. Many of the airlines are competing on main trunk routes head to head and fighting over low yields and market share. The ATR is filling up quite a different niche of the market.

The ATR is an aircraft that is well-suited for the smaller markets. Like the regional markets with distances up to 300-350 nautical miles or 700- 800 km. It works quite well because it has low operating costs, so, low cost per seat. It can also operate in airfields and runways with limited infrastructure and even short airfields. So the aircraft is quite good in terms of being able to increase regional connectivity between places that are under-served by air transport. In particular, it allows an airline to operate with very low costs as the aircraft itself does not cost a lot and has low operating and maintenance costs as well, allowing the passengers to benefit from low costs of travel. We have seen a strong development of this kind of market around the world. In fact, ATR has a large backlog in Asia- Pacific countries like Indonesia, Malaysia, and countries with new growth in passengers.

The death of Kingfisher, a large customer, struck a blow to ATR’s plans in India

The dynamic is strong in India, where the GDP is increasing and so is the purchasing power. Now more people can think to afford air travel. It can be a good economic engine. For business, you can make a day trip to do business in a neighboring trip to do business in a neighboring town. It also makes travel easy for families and friends. There is much untapped potential and we see good growth opportunities in Indian regional markets. Government’s plan to increase the regional connectivity can fuel part of this. And part of it would be driven by airlines that could find business opportunities in these markets.

How has the disappearance of Kingfisher affected you?

When Kingfisher and Air Deccan merged, the fleet was around 25 to 30 aircrafts. Also, we had aircrafts on order too. It’s sad for us to see such a large operator with a lot of growth and potential unable to continue business. In fact, what we understood is that the ATR part of their operation was profitable. The other activities pulled down the company. However, it occurred when we had a strong demand for our aircraft. So, we were able to replace and resell all the aircrafts on order, so it didn’t hurt us too much. Also, the second-hand market for ATR has remained vibrant. So most of the Kingfisher aircrafts have been replaced by other airlines and leasing companies. It did not disrupt the market too much. But it did set us back in the growth of the Indian market. We probably lost a few years of progress, but it is now coming back.

Most recent development has been with Alliance Air which has put out a request for proposal (RFP). Initially, they ordered five aircrafts from the leasing companies directly. We have sold many aircrafts to leasing companies over the last couple of years. The leasing companies now have the aircrafts, which they could propose to the airline. In the case of Air India, they were looking to lease rather than purchase the aircraft.

How big is the Jet Airways fleet? Are there orders from them for more ATRs?

They have 18 aircrafts, 3 of which are 600s which they took recently and remaining ones are 500s. But at this time, there are no further orders from Jet Airways.

Embraer got a nice deal recently. Mitsubishi is now entering the game. Do you see the competition in India increasing?

Yes. For many years, our main competitor has been Bombardier with Dash 8- 400. ATR has had 80 per cent market share compared to Bombardier. They do have one customer in India with Spicejet. We don’t compete much directly in the jet category. The economics of a jet are completely different. The aircraft flies faster, burns more fuel and is more expensive to operate. On the short segments, there are hardly any benefits from that extra speed. It makes sense for longer distances. With the new generation jets like Mitsubishi and the E2, there may be some overlap. Still, the turboprop market is a distinct market, and many markets in India are more of turboprop markets than jet markets.

Are you in talks with any of the new airlines for turboprops?

Two or three airlines that have started recently in India use ATRs. One of them is Air Pegasus, which started with two or three aircrafts. And there is another one called Turbo aviation – Trujet. Costa Air is on the Embraer, but there are one or two more that have also at least advertised that they are planning to take ATRs.

How is ATR suited for defence activities? Can you transform your aircrafts for maritime patrol?

ATR is owned 50 pc by Alenia and 50 per cent by Airbus. The maritime surveillance and patrol aircrafts are finished by Alenia. We deliver them the platform and then they have an MP (Maritime Patrol) version. They do all the modifications and conversions, where they install all the surveillance and radar equipment. They also put a bubble window and a door that can be opened in-flight to launch life rafts for search and rescue. So that’s an Alenia product.

What is the potential of the Indian market for turboprop? What’s the sustainable goal for you in the long term?

It is a good question. Eighty pc is difficult to maintain, even though it’s been that way for several years. Looking at the history between ATR and Bombardier, we have had two-thirds of the market. We have grown much faster in last few years because our presence in the emerging markets has been strong. So in that balanced range, our production will continue to increase to meet the demand. This year we should deliver around 90 aircrafts. Last year we delivered 83. We are looking at around 100 each year. Today we have a backlog of 250 aircrafts that is nearly 3 years of production. We don’t have a specific forecast for the Indian market per se. But if you look at the market size and potential of the fleet, I would say there is room for another 50-100 aircrafts over the next few years, depending on the government policies if they push airlines to grow.

The new government is also putting the focus on manufacturing parts in India, is that something you are looking at?

We could look at it, but it is difficult as ATR is a mature program. We don’t have new sourcing opportunities. So, if we do something, it would be on a minor scale. Our two main suppliers are Alenia and Airbus, which are also our two shareholders. They are responsible for manufacturing; the fuselage is by Alenia and the wing by Airbus. Airbus has a large industrial footprint in India already. So there is probably limited opportunity for us to look for new suppliers from India.

Where are the growth markets for turboprop worldwide?

Recently, our backlog is onehalf in Asia-Pacific region and the other solid market for ATR is Latin America, particularly Brazil. There is a good steady demand in Europe too. Being a mature market, it is not growth but more for replacement and renewal. The Middle East has been a small market for us. Europe, though mature, it has some good renewal opportunities. Then Africa and The Middle East have some potential as well. The two markets where we have historically been inactive are North America and China. We hope to be more active in both of them.

Why have you been unable to make inroads into China?

There are two main reasons. First, the regional market in China is still relatively undeveloped. There are few regional aircraft. The market is still to develop its hub and spoke system with regional aircraft. The other reason is that there is a Chinese manufacturer making turboprops – MA 60 (Xi’an Aircraft). So there are issues like high import duties, which make it expensive for an airline to buy a foreign turboprop. We still hope that there will be opportunities in China.

Each airline would need a finite number and take time to replace their old aircraft. How do you meet this gap?

Two factors drive that. Markets, where ATR is active, have been growing on regional routes. New markets and routes are driving it. ATR is everywhere. We have 190 operators in 90 countries. Being distributed worldwide, there is a large base of opportunities. As long as there is some economic growth, which drives passenger growth, we will keep growing. We are seeing in some markets like India opening up of new regional routes and high economic growth that will keep the order books busy.

In the last few years, the majority of our sales have been for growth. But there is good potential for renewal for older ATRs as well. There is quite an active market for the second-hand aircraft too, for companies that are going into fewer opportunities, where they can’t afford new aircrafts.

Our forecast for next 20 years is around 2500 turboprops. That’s on an average 125 aircrafts per year. There are always ups and downs, but we see a stable demand in future for ATRs.