While business aviation grows in Asia, infrastructure lags

 - May 17, 2008, 6:03 AM

The prospects for business aviation in Asia are bright indeed, especially in the fast-developing economies of China and India, but huge improvements are needed in the regulatory regimes there, as well as in airport and airways infrastructures, according to regional experts.

“We cover 20 countries, all with different aviation and business regulations and tax codes,” said Chuck Woods, chairman of the Asian Business Aviation Association (AsBAA). “We have 45 corporate members and have been making some progress through our regulatory affairs committee, but major hurdles remain in the fee and tax structures–and some of the lead times are unbelievable.”

In China, the problems are compounded because procedures differ within regions. For example, except in Hong Kong, the FBO concept has yet to take hold. Another example, passengers arriving at the major Chinese airports on private aircraft are sometimes processed through VIP channels, but the landing and handling costs are “outrageous,” according to Chris Buchholz, executive director of Hong Kong-based charter/management operator Metrojet. “Governments outside China must do much more to unlock this market,” he added. In fact, he said he believes the People’s Republic may be breaking some of its commitments to World Trade Organization rules.

Business aviation faces many obstacles entering China’s lower airspace, which the military rigidly controls. For example, it can take as many as seven days for nonscheduled operators to acquire access permits. The authorities also frown upon an operator changing its originally specified destinations–which destroys one key rationale for business aviation: flexibility. The Civil Aviation Authority of China (CAAC) has launched two limited experiments in airspace liberalization, but has not promised widespread change before 2010, according to Buchholz.

There are similar problems in India, according to Karan Singh, president of the Business Aviation Association for India (BAAI). “The infrastructure is woefully inadequate; there’s not a single FBO,” he commented. “There’s limited parking, and the airlines always get priority, especially at Bombay and Delhi. Ground handling is provided by state-owned companies that have been known to charge $1,500 for a bus to transfer passengers from the ramp to the terminal.” As in China, flight clearances in India can take a week, or up to three weeks if operators want to fly into an airport controlled by the military, according to Singh.

However, there are some grounds for optimism in both countries. According to Jason Liao, regional sales director for Hawker Beechcraft, powerful business leaders in China who now are buying their own aircraft “are our best advocates for change.”
In India, “things are now moving at a faster pace,” said Capt. S.K. Malik, chief of operations for Span Air, a private air charter company. For instance, in Bombay, the first rooftop helipads have been approved, and a separate channel for business aircraft passengers has been established at the airport, he reported. The government also has launched a tender for handling bizjets at Delhi, he added.

“The mindset is changing now that Indian companies regard business jets as tools, rather than toys,” Singh noted. However, last year’s move by the government to effectively standardize the import tax for general aviation aircraft at 25 percent was “a huge setback,” he said. “We’ve succeeded in scaling it back for commercial operators, but private owners must still pay 25 percent.”

Moreover, import clearance is a tedious process that generally takes as long as three months, Singh said. China also applies a hefty import duty and value-added-tax, which is higher for business aircraft than for airliners.

Despite the obstacles, 150 business aircraft are currently operating in India, an increase of 100 in two years, and the government is processing applications to import another 200. “The market potential is tremendous,” said Singh, who predicts a 50-percent growth over the next three years, specifically with the large business jets such as the Gulfstream G550 and the Global Express.

In China, the market is expected to double over the next three years as personal and corporate wealth increases, according to Buchholz.

As might be expected in such fast-growing economies, serious skills shortages are affecting the development of business aviation in both China and India. The airlines are soaking up all the available manpower, including pilots, engineers and operations staff.

The nearest authorized bizjet maintenance facilities for India are located in Dubai and Singapore. Again, regulations complicate the situation. “It’s difficult for expatriate crews or maintenance providers to gain access,” said Singh. “And there’s also a severe shortage of pilots,” added Buchholz.

One big question for the business aircraft market in Asia is whether it can replicate the U.S. and European models to enable it to meet the soaring demand. In particular, will the fractional concept take off? Some think not.

“It will be difficult to replicate the U.S. model in Asia,” said Woods, who is chief executive officer of Macau-based operator Jet Asia, as well as AsBAA chairman. “A company like NetJets can guarantee availability because it has access to large fleets of aircraft. In this part of the world, there are too few aircraft and they are geographically spread out, which also impacts positioning costs.”

“Guaranteed availability is a challenge in Asia,” agreed Judith Moreton, managing director of Bombardier Skyjet International, which offers fixed pricing on more than 900 business jets, only 25 of which are operating in Asia. So while Skyjet does offer fractional programs, notably via its JetCard concept, “for now, ad-hoc charter is the best option in this region,” Moreton said.

“There are too many clients and too little inventory. Most business jets in the region are not available for charter,” said Leslie Merszei, managing director of Orient Sky, a Bangkok-based broker.

He added that Asian belief systems play a big part in this attitude: owners do not want outsiders bringing “bad luck” to their aircraft when they charter them. Still, his company hopes to be marketing about 12 business jets exclusively by the middle of this year. Another three dozen could be available for charter through other outlets by then, Merszei said.

According to Honeywell Aerospace’s most recent business aviation market forecast, there are now 300 business jets in the region, compared with 1,900 in Europe.