© IL&FS Ltd.1

AEROSAPCE INFRASTRUCTURE

-An Opportunity Mapping

Infrastructure Financial Services Limited Milind Patel- Executive

DirectorIL&FS Financial Services Limited

FICCI- INDO US SUMMIT

30 Nov 2006

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Project DevelopmentProject SponsorshipProject ManagementStakeholder Value

Management

Investment BankingStructured/Asset FinanceCorporate Advisory/M&A

Project Finance

Private EquityVenture Funds

Infrastructure Funds

DistributionBroking

Project SyndicationMerchant Banking

Successful Delivery of An Infrastructure Mandate on a PPP basis

Engineering &Project Management

Legal & ContractualDocumentation

Environmental &

Social Management

Project Design &

Sector Specialization

Management &Technical Skills

FinancialEngineering Skills

IL&FS-an introduction

• Incorporated in 1987 with mandates to commercialise infrastructure and develop financial services business

• Over the years has developed both lines of business and each business is developed as separate profit centres

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INDIAN ECONOMY- The Takeoff Stage

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Overview

• Indian economy – The 4th largest & 2nd fastest growing economy in the world

• India GDP for FY 2006 was appx USD 570 bn at constant prices

• 4th largest economy in the world in terms of purchasing power parity

• A middle class customer base of over 300 million people

• More than 7% GDP growth for four consecutive years

• Infrastructure a key bottleneck

Indian Economy –A Snapshot

10 year GDP growth CAGR %

8.6

6.2

5.0 5.0 4.8 4.64.2

3.5 3.1 2.8

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•-10.0

•-7.5

•-5.0

•-2.5

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•7.5

•10.0

•12.5

•15.0

•17.5

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2, FY

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Industry •Services Agriculture

Trends in GDP

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…INITIATIVES IN THE RIGHT DIRECTION

• Strong political will and Improved policy environment: Electricity Act, Draft Maritime

Policy, Draft Civil Aviation policy, etc

• Ring fencing of funds earmarked for infrastructure

• Nomination of implementation authorities

• Urgency to bring about commercial viability is apparent

• Momentum of private participation picking up, with innovative financing concepts like

‘Public Private Partnerships’ and ‘Viability Gap Funding’

Infrastructure Challenge

INFRASTRUCTURE CAN BE A GROWTH CONSTRAINT

• India Economic Growth triggered by economic reforms in 1991which led to a huge

growth in services, manufacturing and global trade

• The infrastructure development has not kept pace with the growth in manufacturing

and services sector leading to a bottleneck

• Huge Investment Requirement for physical infrastructure for power, roads, ports,

airports and railways

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INDIAN AVIATION –Witnessing High Growth

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Indian Aviation Industry- Liberalisation

1953: Nationalization of Aircraft Industry

Consequently, assets of 9 existing companies transferred to two entities in the aviation sector controlled by the Government in

a) Indian Airlines, primarily serving domestic sectors

b) Air India, primarily serving the international sectors

Implication

•Aviation became a preferred mode of transport for elite class

•Restricted Growth of Aviation Industry

•High Cost structure

•Underdevelopment of infrastructure

1986: Private Sector Players permitted as Air

taxi operators

Players including Jet, Air Sahara, NEPC,

East West, Modiluft,etc started service

1994: Private Carriers permitted to operate

scheduled services

Six operators granted license however

only Jet and Air Sahara able to service

2003: Entry of low cost carriers

Air Deccan, Spice Jet, Go Air, Indigo

Implication

• Aviation has become affordable with check fares and discount schemes

• Various Operators with different business model

• Huge growth foreseen in the Aviation Industry

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Industry Characteristics

HUGE POTENTIAL

• Under penetrated Market

- Total Passenger Traffic only 50 mn as on 31st Dec 2005 amounting to only 0.05 trips per annum as compared to

developed Nations like United States have 2.02 trips per annum

- High Level of potential demand with growth in Indian economy

•Untapped Air Cargo Market

- Air Cargo has not yet been fully taped in the Indian markets and is expected that in the coming years

large no of players would have dedicated fleets

• What this means…

- Build up of capacity by existing players and entry of new players

CONSTRAINTS

•Infrastructure Constraints

-Shortage of airport facilities, parking bays,air traffic control facilities and takeoff and landing slots

- Continued growth might be hampered

•Relatively Limited Reach

-Only 454 airports with less than 100 airports having more than one daily service

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YEARNo.in million % Growth

No.in million % Growth

No.in million % Growth

2003-04 17 12 32 11 49 122004-05 19 17 40 24 59 222005-06 23 18 51 28 74 24

International Domestic Total

High Growth in Passenger and Air Cargo Traffic

Source: Ministry of Civil Aviation

Passenger Traffic Trends

Air Cargo Trends

YEAR

Qty ( Thous tonnes) % Growth

Qty ( Thous tonnes) % Growth

Qty ( Thous tonnes) % Growth

2003-04 693 7 375 13 1069 92004-05 824 19 457 22 1280 202005-06 903 10 479 5 1382 8

International Domestic Total

2010 (Projection): 105-115 million (69 mn domestic & 40 mn international)

2010 (Projection): 3,360 thousand tonnes

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Huge Growth- Huge Plans

Fleet Acquisition

• New Fleet Orders -More than 500

• Fund Requirement- USD 50-55 bn approx

Order Book – New Players

Indigo 100

Air India 68

Air Deccan 60

Kingfisher 50

Indian Airlines 43

Jet airways 40

Go Air 36

Spice Jet 20

Expected to grow to 125 from 7 by 2025

Competitive Pressure

Full

Serv

ice

Price

Low cost Carriers

changing the

game

Indig

o

COMPETITIVE LANDSCAPE

Capacity Expansion and New Players

Air Cargo Market

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AIRPORT INFRASTRCUTURE-Huge Opportunity

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Ministry of Civil Aviation

Responsible for the formulation of policy, development and regulation of Civil Aviation. Its functions also extend to overseeing airport facilities, air traffic services and carriage of passengers and goods by air

Airport Infrastructure- Regulatory Authorities

Other Attached/Autonomous Organisations:

Directorate General of Civil Aviation : Promote safe and efficient Air Transportation

(DGCA) through regulation and proactive

safety oversight system

Bureau of Civil Aviation Security : Regulatory authority for civil aviation security

in (BCAS) India

Airport Authority of India (AAI) : Accelerate the integrated development,

expansion and modernization of the

operational, terminal and cargo facilities at the

airports

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India Airport Infrastructure – Huge Growth Potential

AAI manages 127 airports which

includes:

• 13 International airports (excluding Delhi

& Mumbai and including 3 civil enclaves)

• 7 Custom airports

• 28 Civil Enclaves

• 80 Domestic airports

• 2 Joint Venture Airports (Delhi & Mumbai)

AAI manages Civil Airports

There are 454 airports / airstrips in the Country.

This includes Operational, Non Operational,

Abandoned and Disused Airports

• Majority of Civil Airports managed by Airports

Authority of India

• AAI responsible for airport infrastructure

development

Current Status

The increased passenger and cargo traffic

has

posed new challenges in the area of

providing

adequate infrastructure at airports

Imperatives

• Expansion of capacity at existing

airports

• Up gradation / modernization of Metro

and Non-metro airports

• Development of new Greenfield Airports

• Induction of modern technology for

efficient handling of Aircraft, Passenger

and Cargo at airports

• Up gradation of CNS/ATM facilities

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STEPS HAVE BEEN TAKEN TO DEVELOP AIRPORT INFRASTRCTURE

• Private investment encouraged –both in Airlines as well as Airports• Airport Infrastructure Policy,1997 permits private equity participation for development of

airports to bridge resource gap and to bring efficiency• Foreign Direct Investment has been allowed upto 100% in airports, beyond 74% requiring

Government approval• Foreign equity upto 40% and NRI/OCB investment upto100% is permissible in the domestic

air transport services with prior GOI approval• Domestic Carriers permitted to operate international flights• Open Sky policy for cargo flights• Attractive fiscal incentives/concessions, moderate tax rates & Tax holidays• Public-Private Partnership encouraged• Liberal Equipment Import regime• Comprehensive Civil Aviation Policy to be finalized very shortly

• Airport Privatization

-Delhi GMR-Fraport consortium

-Mumbai GVK- South African Airports

Recent Regulatory Initiatives

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9,302 Market Opportunity by 2010

698 Other than above airportsModernization/ Improvement

1,628 35 selected airportsUpgradation

2,326 Bangalore, Hyderabad, Pakyong,-Sikkim, Cheithu-Nagaland, Itanagar, Goa, Pune, Nagpur (Hub),NaviMumbai, Halwara-Punjab

Green Field Airports

1,163 Chennai & Kolkatta

3,488 Delhi & Mumbai Restructuring/ Modernization

Cost ( USD Mn)AirportParticulars

9,302 Market Opportunity by 2010

698 Other than above airportsModernization/ Improvement

1,628 35 selected airportsUpgradation

2,326 Bangalore, Hyderabad, Pakyong,-Sikkim, Cheithu-Nagaland, Itanagar, Goa, Pune, Nagpur (Hub),NaviMumbai, Halwara-Punjab

Green Field Airports

1,163 Chennai & Kolkatta

3,488 Delhi & Mumbai Restructuring/ Modernization

Cost ( USD Mn)AirportParticulars

AAI- Plans for Airport Infrastructure

Airport Authority –Expenditure Plans

Source: Ministry of Civil Aviation

IMPACT

• Opens a huge market for companies operating in Aerospace and Allied Industries

• Opportunity big for sophisticated and high end technology products like communication and security equipments

• A large pie for foreign players as Indian players not equipped to cater to demand

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Opportunity Universe• Airport Operations

• Cargo Facilities and Warehouses

• Supply of components (to HAL, others)

• Raw material - sheet metal, forgings,

surface engineering

• Aerospace Software - Systems

• MRO facilities & equipment

• Simulation, training & consultancy

• Outsourcing/offshoring design &

development (offsetting)

• Electronics/Avionics

• Support services (sky-chefs)

• Specialized Consulting (Traffic Study,

Business Advisory)

• Navigational aids,

• Instrument landing systems (ILS)

• Communications equipment

• Weather equipment

• Baggage handling and information

systems

• Aerobridges

• Centrifuge,

• Simulators

• Smart Cards systems,

• Baggage Screening systems,

• Multi-zone Door Frame Metal

Detectors

• Airfield lighting systems

• Radar systems,

• Flight information systems

Products

Market Opportunity

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Segment 2,005 Cumulative

till 2010 Cumulative

till 2015 Civil Aerospace Manufacturing 51 564 1,967

Metals 4 45 157 Composites 3 28 98 Systems and Associates 10 110 384 Avionics 9 104 364 Standard Parts 2 23 79 Manufacturing Outsourcing 7 73 256 Others (Consumables/Tooling) 3 28 98

Airport Development and Services 800 6,978 18,069 Commercial MRO 331 2,539 8,739 Optional Aircraft Equipment and Systems 15 123 400 Testing and Certification - 5 12 Consulting 12 98 286 Training 40 446 1,380 Software and Systems 134 1,071 3,123 PLM and Knowledge Engineering 4 29 88 Pilot Supplies and Navigational Aids 4 32 82 Others (Financing, Leasing, Insurance,etc) 360 6,162 18,674

USD Millions

Market Size

Estimated that more than 50% of the above market will be catered by foreign players

Source: UK Trade and

Investment

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Sell existing products and services into growing Indian market directly/indirectly (through OEM’s)

Level 1

Level 2

Level 3

Level 4

Formulate strategic alliances, CRM bases, support bases to sell into Indian market

Use maturing, low cost Indian platform for Sourcing from India to sell into World Market

Setup JV’s in India to take advantage of the edge given to domestic firms, sell into Indian and Global Market

Entry Strategies for Foreign Companies

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Sell into Indian market through distributors

Huge demand for pilots and cabin crew. Set up facility in India

Electronics Components

Airport Services & Development

Maintenance/Repair/Overhaul

Interior Funrshings

Ground Support Equipments

Training and EducationalInstitutions

Be part of several consortiums to develop and manage Indian airports or form partnerships with existing consortiums in India

Establish own MRO facilities or sell to the facilities that are going to be established

Sell Ground Support Equipments by forming partnerships with Indian marketing arms to meet the Indian demand

No professional aircraft finisher in India. Immediate opportunity in India

Product Segments: Possible Strategies

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Summation

• Indian Aviation has seen high growth on account of sustained Indian socio economic growth and

liberalized Government initiatives

• Airport Infrastructure needs to improve significantly to meet the current and future demand of the

Indian Aviation Sector

• Authorities have initiated various steps to implement modernization, reconstruction and

development of airport infrastructure to implement infrastructure development plan

• Provides a huge opportunity for private players operating in Aerospace and allied industries

• Significant opportunity for foreign companies as Indian companies not technologically equipped to

cater to requirements

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38 40 41 42 51.352.3

0

20

40

60

2000 2001 2002 2003 2004 2005

Financial Year

Million

Passen

gers

HUGE POTENTIAL MARKET

Huge potential market

• Discount Fares/Low Cost Carriers fares competitive to premium railway fares

• Ever increasing reach

Indian Railways-Premium

Passengers

Growth Drivers

DEMAND DRIVERS

• GDP Growth has been more than 7% in the last

4 years

• The rising middle class of more than 300 mn is

fuelling the growth

• The Increase in Consumerism and Affordability

of Air travel

• Government Liberal Policy to allow private

carriers and entry of Low Cost Carriers has lead

to a increase in demand in passenger traffic

• Domestic Tourism and International Business

Travel and Tourism has also greatly fuelled the

rise of Indian aviation sector

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• International Air Traffic growing at CAGR @15%

• Growing Indian economy and globalized trade

• Rise in international tourism

International Air Passengers

PA

X(

in M

n)

11.913.2

15

18

0

5

10

15

20

FY02 FY03 FY04 FY05Financial Year

Tourism

• Domestic Tourism growth CAGR @ 15%

• Boost with rising per capita income and increased consumerism

• Foreign Tourist Arrivals growth @ 20% for 2004 and 2005

136 140 160 168190

220 236270

309

370

0

100

200

300

400

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Year

Mn

Passen

gers

Growth Drivers