Aviation Industry & Its Salient Feature

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Budget 2012

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Aviation industry and its salient

feature & growth

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AVIATION SECTOR


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Transportation

Aviation

Roads

Ports

Railways


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Large Increased in infrastructure investments required to sustain growth


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AVITION SECTOR IN INDIA

Sector structure/Market size

The Indian aviation industry is one of the fastest growing aviationindustries in the world. The government's open sky policy has led tomany overseas players entering the market and the industry hasbeen growing both in terms of players and number of aircrafts.

Today, private airlines account for around 75 per cent share of thedomestic aviation market.

India is the 9th largest aviation market in the world. According tothe Ministry of Civil Aviation, around 29.8 million passengerstraveled to/from India during 2008, an increase of 30 per cent onprevious year. It is predicted that international passengers will grow

upto 50 million by 2015. Further, due to enhanced opportunitiesand international connectivity, 69 foreign airlines from 49 countriesare flying into India.


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Growth Rate

24% annual growth


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Growth

Domestic airlines flew 3.67 millionpassengers in August 2009an increase of 25

per cent. The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic willincrease by 25 per cent to 30 per cent till 2010 and international traffic growth by15 per cent, taking the total market to more than 100 million passengers by 2010.

The government plans to invest US$ 9 billion to modernise existing airports by2010. The government is also planning to develop around 300 unused airstrips.

India ranks fourth after US, China and Japan in terms of domestic passengersvolume. The number of domestic flights grew by 69 per cent from 2005 to 2008.The domestic aviation sector is expected to grow at a rate of 9-10 per cent to reacha level of 150-180 million passengers by 2020.

The industry witnessed an annual growth of 12.8 per cent during the last 5 years inthe international cargo handled at all Indian airports. The airports handled a total of1020.9 thousand metric tones of international cargo in 2006-07.

Further, there has been an increase in tourist charter flights to India in 2008 witharound 686 flights bringing 150,000 tourists. Also, there has been an increase innon-scheduled operator permits99 in 2008 as against 66 in 2007.


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Low cost services

Major full-service carriers have converted around half their capacity intolow-cost services, which has resulted in bringing down the average fares ofairlines as a whole by about 30 per cent and thereby increasing demandfrom the domestic passenger market.

Kingfisher Airlines and Jet Airways have converted around half theircapacity into low-cost services. While, government carrier Air India plans

to launch a low-cost model in the domestic skies. It already has a low-costairline called Air India Express which operates on international routes.

Jet Airways has also increased the number of low-cost seats in the systemby around 50 per cent.

Low cost carriers (LCCs) such as Indigo and SpiceJet have increased thetotal number of seats by 40 per cent and 53 per cent, respectively, in the

past year. SpiceJet is also working on a plan to start international operations nextyear, making it the third private Indian carrier after Jet Airways andKingfisher to fly overseas.


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Some Facts

In the present scenario around 12 domesticairlines and above 60 international airlines areoperating in India

The growth of airlines traffic in Aviation Industryin India is almost four times above internationalaverage

Aviation Industry in India have placed the biggestorder for aircrafts globally

Aviation Industry in India holds around 69% ofthe total share of the airlines traffic in the regionof South Asia


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Domestic Airlines

Air India GoAir Airlines

IndiGo Airlines

Jagson Airline

Jet Airways

Jet Airways Konnect

Kingfisher Airline

Paramount Airways

SpiceJet Airlines

JetLite (Air Sahara)

Kingfisher Red (Air Deccan)

MDLR Airlines


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PlayersTaking Indians To Places

Began on 3 Dec 1993with twoBoeing 737-200 aircrafts as Sahara

Airlines Initially services concentrated in

northern India

Rebranded as Air Sahara on 2October 2000.

Regular airline offering normaleconomy and business class seats.

300 flights, 43 Indian destinations

Does not own its brand. Brand

owned by Jetair Enterprises Ltd. aseparate company substantiallyowned by Naresh Goyal

State owned domestic airlines ((earlier TataAirline) )

Formerly known as Indian Airlines

GoIs plan to merge Air India and Indian into onegiant airline consisting of 130-140 aircraft

Its hub is Chennai InternationalAirport.

Mainly targeting business

travellers

The airline started operations in

October 2005
http://en.wikipedia.org/wiki/Image:AirSaharaLogo.gifhttp://en.wikipedia.org/wiki/Image:JetAirwaysLogo.gifhttp://en.wikipedia.org/wiki/Image:AirSaharaLogo.gifhttp://en.wikipedia.org/wiki/Image:Air_india_logo.gif


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PlayersTaking Indians Across India

Low-cost airline (LCC)

Began in May 2005

Entered with Rs. 99 fares for first 99 days

Offering low everyday spicy fares

Aim: Compete with Indian Railways ACsgment

fleet of 6 Boeing 737-800 with 189 seats.

India's first low-cost carrier

It was started by Captain G. R. Gopinath

Started air operations in 2003

It was known popularly as the commonman's airline

Connects 55 cities within India

GoAirThe Peoples Airline

established in June 2004

LCC promoted by The Wadia Group

GoAir FreeFares

Relatively small player as compared toother LCCs

Initial flights in southern & western Indiawith the first nine A320s

Services started in May 05

Initially operates only on domestic routesbut now in overseas also.

Owned by United Beverages Group underthe leadership of Vijay Mallya
http://en.wikipedia.org/wiki/Image:SpicejetLogo.gifhttp://en.wikipedia.org/wiki/Image:AirDeccanLogo.gifhttp://en.wikipedia.org/wiki/Image:Goair.gifhttp://en.wikipedia.org/wiki/Image:KingfisherAirlinesLogo.gif


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Market Share

Jet Airways and Jet Lite (previously

Air Sahara)27.7%

Kingfisher Airlines and Kingfisher

Red (previously Air Deccan)20.7%

Air India (previously Indian

Airlines) 18.6%

IndiGo 13.6%

SpiceJet 12.4%

GoAir 5.4%

Paramount Airways 1.5%

Jet Airways Kingfisher Airlines Air IndiaIndiGo SpiceJet GoAir

Paramount Airways


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How aviation industry is effecting

india's economy?

10 years back there werejust 2 airlines. Both state owned .In the last 10years the economy has opened up. India hasexperienced growth rate of 8% per year.

The main factors which effect the Indian Economy are:-

1. Increased no. of domestic airlines2. Low cost airlines

3. India's improving economy

the other factors are:-

1. Increased in no. of business travellers to differentcountries

2.Incresed no. of incoming tourist and business enterprises


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Known Factors Influencing

Growth Rate

Increased Inward and outward tourism

Increased competition has driven down prices

and margins

Additional purchasing power due to rapidly rising

real incomes amongst the middle class

Increased business trade due to the rapidly

growing economy and free trade agreementswith neighbouring countries

Favourable Government policies and tax reforms


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Global v/s

Indian Scenario At the macro-economic level Asia Pacific growth is

impressive. India and China are growing between 8

and 10% each year.

International passenger traffic grew 7.6% where as Asian airlines wereslowerat 6.3%

Asian freight traffic grew by 4.2% in comparison to global growth of 3.2%

Globally airlines lost US$6 billion in 2005 and in Asia it is a mixed picture.Some carriers are among the most profitable. Others however arestruggling but still the best performance in the world

India has moved from 2 state-run airlines to a vibrant industry with more

than 10 players. Indian carriers stole the show in Paris with US$12 billionof orders

Huge potential still to be tapped in Indian markets. Only 40 million people

travel by air4% of the population


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Challenges

Initializing privatization in the airport activities

Modernization of the airlines fleet to handle the

pressure of competition in the aviation industry

Rapid expansion plans for the major airports for

the increased flow of air traffic

Development for the growing Regional Airports

Waving of Tax Exemption on leasing fromgovernment

Costs pressures (ATF Prices & Staff Cost)


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Upgrading Airport Infrastructure

By 2020, Indian airports are estimated to

handle:

100 million passengers

Including 60 million domestic passengers

Cargo in the range of 3.4 million tonnes per

annum


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FDI PolicyThe Reserve Bank of India (RBI) announced that foreign institutional investorsmight have shareholdings more than the limited 49% in the domestic sector.

Airports

Foreign equity up to 100% is allowed by the means of automatic approvalspertaining to establishment of Greenfield airports

Foreign equity up to 74% is allowed by the means of automatic approvalspertaining to the existing airports

Foreign equity up to 100% is allowed by the means of special permission fromForeign Investment Promotion Board, Ministry of Finance, pertaining to theexisting airports

100 per cent tax exemption for airport projects for a period of 10 years.

Air Transport Services

Up to 49% of foreign equity is allowed by the means of automatic approvalspertaining to the domestic air transport services

Up to 100% of NRI investment is allowed by the means of automatic approvalspertaining to the domestic air transport services

74 per cent FDI is permissible in cargo and non-scheduled airlines.


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Foreign companies can explore various

modes of entry into the Indian market


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Background

Indian airports were managed by Civil Aviation

Department, Government of India, till the creation of

International Airports Authority of India (IAAI) in 1972

and National Airports Authority (NAA) in 1986.

In 1995 Airports Authority of India (AAI) was

established by merging both IAAI and NAA by an Act

of Parliament The Airports Authority of India Act in1994 for better and efficient management of all

airports in India by a single Authority.

PPP IN AIRPORT INFRASTRUCTURE


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At Present -

AAI manages 128 airports which includes:

- 15 International airports

- 8 Custom airports

- 25 Civil Enclaves

- 80 Domestic airports


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Need for Private Participation in Airport InfrastructureTo bridge the resource gap for achieving the

following objectives -

To build world-class airports with modern technology andefficient management practices.

To make the airport user friendly and achieve higher level

of customer satisfaction.

To lay special emphasis on the development ofinfrastructure for remote and inaccessible areas.

To provide airport capacity ahead of demand.

To encourage greater efficiency in Airport Operations.

PPP IN INDIAN AIRPORTS


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Airport Development Process has taken off in the country -

The process of development of airports throughPPP in the country began with CIAL.

Two new Green field airports were thereafterapproved for Bangalore and Hyderabad.

On 3rd May 2006 the Airports At Mumbai andDelhi were handed over to Joint VentureCompanies.

Of 35 non metro airports being taken up formodernization PPP has been approved for thecity side development of 10 airports.

Proposals for a number of green field airports

have been received from various State Govts.


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First Indian Airport in Private Sector

First Indian Airport in Private Sector is under

construction at Cochin. It is being constructed

by the company named Cochin International

Airport Ltd.

Proposed Private owned airports:Gwalior (M.P.)

Durgapur (W.B.)

Jhajjar (Haryana)


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Major Airports


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Problem & Solution

Increased traffic and cargo growth has led to congestion/

saturation at different airports in India , e.g. Mumbai, Delhi,Bangalore, Hyderabad, Kolkata, Chennai etc.

Hence, country requires New Airports

Expansion of capacity at existing airports Induction of Technology for efficient handling of Passenger and

cargo.

Better Management Practices

For all this additional funds to the tune of Rs. 40,000 crores +Rs. 454 crores for airports in North East are required (detailsshown in next slide).

The annual requirement of funds in the future is expected to be muchmore than the AAI can generate.


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Greenfield airports

Hyderabad Airport

Bangalore Airport


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Greenfield airport at Devanahalli is on a Build Own Operate and Transfer(BOOT) basis for 30 years at a revised cost of Rs. 1930 crores (earlier Rs. 1280crores).

Equity: Karnataka State Industrial Investment Development Corporation(KSIIDC) 26% and Siemens Germany, Unique Zurich Switzerland and - L&TIndia Limited 74%.

Equity Rs. 315 crores , State SupportRs. 350 crores, Debt Rs.1265 crores

Greenfield airport - Bangalore - AOD April 2008


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Concessions extended by the Govt. of Karnataka to BIAL

Rs. 350 crs. Interest free support repayable after 10 years in 20 half yearly

installments

Land lease AgreementLease of land of 4000 acres at concessional rent

of Rs. 1 till commencement of operations. Thereafter @3% p.a. for a

period of 6 years and 6% p.a. subsequently with an annual increase of 3%.

Property Tax exempted for a period of 5 years. Stamp Duty payable on land lease exempted.

Local Fee payable to Bangalore Int. Airport Planning Authority (BIAPA)

as betterment fee exempted.

Entry Tax for goods for construction purposes exempted

Infrastructure like water, power etc. to be provided at site.

The commercial flights from the existing Bangalore airport will close.

Greenfield Airport - Hyderabad AOD Aug 2008


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Greenfield airport at Shamshabad near Hyderabad is being implemented on

a Build Own Operate and Transfer (BOOT) basis with Public-Private

Participation.

Govt. of Andhra Pradesh and AAI together hold 26% equity and the

strategic joint venture partners, GMR Infrastructure Ltd. with Malaysian

Airport Holding Berhard (MAHB), hold the balance 74%. AAIs investment in

the equity is capped at Rs.50 crores.

Estimated cost of the Project is Rs.1761 cores .

Greenfield Airport - HyderabadAOD Aug. 2008

Rs. 315 crs. Interest free loan refundable in 5 equal installmentscommencing from 16th year.

Land LeaseApprox 5490 acres of land co-terminus with StateSupport Agreement.

State Grant Rs. 107 crores.

Stamp Duty / Registration Fee waived off on transfer of land as wellas all project agreements.

Sales Tax waived off on all construction material.

Concessions extended by the Govt. of Andhra Pradesh to HIAL

The commercial flights from the existing Hyderabad airport will close.


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Goa

GangtokSikkim

Navi Mumbai, Maharashtra

Chakan, Pune, Maharashtra

Kannur, Kerala

KohimaNagaland

Hassan & GulbargaKarnataka

HalwaraPunjab

Itanagar- Arunachal Pradesh

Development of Greenfield Airports

Proposals received from state govts.

SL NAME OF THE STATES WHICH AREA OF LAND PURPOSE


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SL.NO.

NAME OF THEAIRPORT / STATEWHERE DEMANDHAS BEEN MADE

STATES WHICHHAVEPROVIDEDLAND

AREA OF LAND PURPOSE

1 Raipur / Chhatisgarh Chhatisgarh 300 Acres Land free of cost for extension of RunwayLand yet to be handed over by State Govt.

2. Bhopal/M.P. Madhya Pradesh 366 Acres Land for extension of Runway. Land yet to be handed

over by State Govt.

3. Ahmedabad/Gujarat Gujarat 67.89 Acres Development of Airport. Land yet to be handed over byState Govt.

4 Aurangabad/Maharashtra

Maharashtra 13.9 Acres Installation of CAT I approach light. Land yet to behanded over by State Govt.

6. Bhavnagar / Gujarat Gujarat 29 Acres Extension of Runway. Land yet to be handed over byState Govt.

7. Rajkot/Gujarat Negotiation withWestern Railway

14.7 Hectares For extension of runway. Development of Airport.Western Railway yet to hand over land to AAI.

8. Surat/Gujarat Gujarat 36 Hectares (85 acres) Development of Airport. Land yet to be handed over byState Govt.

9 Udaipur/Rajasthan Rajasthan 42.53 Acres * Landadmeasuring approx.

2 acres is yet to behanded over by State

Govt.

For extension of runway, widening of runway strip andconstruction of isolation bay.

10. Trivandrum / Kerala - do - 2.5 Acres For Runway End Safety Area, land yet to be handed over

11. - do - - do - 120 Acres To be given free of cost by State Govt. for developmentpurposes. 27.57 Acres handed over.

12. Chennai / Tamil Nadu Tamil Nadu 1440 Acres To be given free of cost by State Govt. for developmentpurposes (for construction of parallel runway).

13. Indore / madhya

Pradesh

Madhya Pradesh 150 Acres To be given free of cost by State Govt. for development

purposes. ( extension of runway)


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SL.

NO.

NAME OF THE

AIRPORT / STATEWHERE DEMAND

HAS BEEN MADE

STATES

WHICHHAVE

PROVIDED

LAND

AREA OF LAND PURPOSE

14. Bhunter / H.P. Himachal

Pradesh

5.91 Acres

60 Acres

For construction of new terminal building

etc. Land will be acquired for extension of

runway after diversion of river Beas.

15. Hubli / Karnataka Karnataka 390 Acres To be given free of cost by State Govt. for

development purposes.

16. Belgaum/Karnataka Karnataka 370 Acres To be given free of cost by State Govt. for

development purposes.

17. Tirupati /Andhra

Pradesh

Andhra

Pradesh

405 Acres To be given free of cost by State Govt. for

development purposes. Request is being

placed.

18. Jammu/ Jammu &

Kashmir

J&K


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Objectives World Class Development and Expansion

World Class Airport Management

Salient Features of JVCs

Equity participation

Delhi 74 % Pvt. Consortium (GMR Group, Fraport AG, MAPL, IDF)

26 % AAIMumbai 74% Pvt. Consortium ( GVK, ACSA,BSD)

26% AAI

Initial Capital

Mumbai Rs. 200 crores Delhi Rs. 200 crores.

Estimated Capital Investment for first 7 years

Delhi Rs. 3286 crs. (Funded as equity Rs. 551 crs, internal accrualRs. 70 crs. Debt Rs. 2665 crs.)

Mumbai Rs.5676 crs. (Funded as equity Rs. 626 crs. Internal

accural Rs. 804 crs. Debt Rs. 4246 crs.)

Mumbai and Delhi Airports


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Development of 35 Non-Metro Airports have been taken up in

a phased manner :These airports are

DEVELOPMENT OF NONMETRO AIRPORTS

Ahmedabad, Amritsar, Agatti, Aurangabad, Agartala, Agra,

Baroda, Bhopal, Bhubaneshwar, Chandigarh, Coimbatore,

Dehradun, Dimapur, Guwahati, Jaipur, Jammu, Khajuraho,

Nagpur, Patna, Portblair, Pune, Rajkot, Ranchi,Raipur, Goa,

Imphal, Indore, Lucknow, Madurai, Mangalore, Trichy,

Trivandrum, Udaipur, Visakhapatnam and Varanasi,

Terminal Building and Airside development by AAI.

City side development through PPP or Land Lease and

Revenue Sharing (Airport wise in a single package)

Development Approach for first ten non-metro airports


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Airport Development Fund Requirements

Rs. 40,000 crores

Particulars Airport Indicative

Cost

Rs. In crores

Restructuring/

Modernization for world

class airports

Delh & Mumbai

Chennai & Kolkatta

15,000

5,000

Green Field Airports Bangalore, Hyderabad, Goa, Pune,Navi Mumbai, Nagpur (Hub) and

Greater Noida

10,000

Upgradation 25 selected airports 7,000

Modernization/

Improvement

55 airports 3,000

Total investment by 2010 40,000


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Air Services

India has bilateral AirServices Agreements with 103countries. Recently, new Air Services, Agreements havebeen signed with Mexico and Chile. During the period, 1stJuly, 2007 to 30th June, 2008 bilateral talks were held with21 countries. Additional capacity entitlements and new

points of call were agreed with Uzbekistan, Malaysia,IBSA, Maldives, Hong Kong, Saudi Arabia, Oman,Bangladesh, Pakistan, Ethiopia, China, Thailand, Belgiumand Germany with a view to optimally utilizing our bilateralentitlements. Indian scheduled carriers with at least five

years continuous operations in the domestic sector and fleetsize of 20 aircraft have also been permitted to operate tomany overseas destinations.


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Major Investments

Over the past year, various companies have shown an interest in the Indian aviation industry.

Investment in airport infrastructure was over US$ 5 billion in 2008 and will go up US$ 9 billionby 2013, of which close to US$ 6.8 billion is expected to come through public private

partnerships (PPP) model, according to a study by research firm Frost & Sullivan.

Tata Advanced System Limited (TAS), a unit of the Tata Group, will set up a US$ 113.63 million

helicopter manufacturing unit at the Aerospace Special Economic Zone (SEZ) in Adhibatla

village near the Hyderabad international airport. Further, the company has formed a joint

venture with US-based Sikorsky Aircraft to make aerospace components in India. US aircraft maker, Boeing Co, will deliver 100 planes worth US$ 17 billion over the next four

to five years to India.

Changi Airports International is ready to enter into joint ventures with more Indian

companies in developing airports. The company, which has picked up a 26 per cent stake for

US$ 20 million in Bengal Aerotropolis Pvt Ltd (BAPL) is looking at other opportunities.

State-owned aerospace firm Hindustan Aeronautics Limited (HAL) has signed an agreementwith Boeing to supply flaperons for the Boeing's 777 series commercial jetliners. It is

understood that HAL will supply 600 units of flaperons to Boeing which will be delivered in

phases by 2019.

European passenger plane maker Airbus SAS will move 20 per cent of its engineering and

design activities to low-cost countries, a majority of it to India, by 2012.


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Road Ahead

The Indian aviation sector is likely to see clear skies ahead in the years tocome.

Passenger traffic is projected to grow at a CAGR of over 15 per cent in thenext 5 years.

The Vision 2020 statement announced by the Ministry of Civil Aviation,envisages creating infrastructure to handle 280 million passengers by 2020.

Investment opportunities of US$ 110 billion envisaged up to 2020 withUS$ 80 billion in new aircraft and US$ 30 billion in development of airportinfrastructure.

Associated areas such as maintenance, repair and overhaul (MRO) andtraining offer high investment potential. A report by Ernst & Young says theMRO category in the aviation sector can absorb up to US$ 120 billion

worth of investments by 2020. Aerospace major Boeing forecasts that the Indian market will require 1,000

commercial jets in the next 20 years, which will represent over 3 per centof Boeing Commercial Airplanes forecasted market worldwide. Thismakes India a US$ 100 billion market in 20 years.


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Aviation Industry & Its Salient Feature

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