Budget 2012-13

Aviation industry and its salient feature & growth

AVIATION SECTOR

Aviation

Roads

Transportation

Railways

Ports

Large Increased in infrastructure investments required to sustain growth

AVITION SECTOR IN INDIA

Sector structure/Market size The Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has led to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. Today, private airlines account for around 75 per cent share of the domestic aviation market. India is the 9th largest aviation market in the world. According to the Ministry of Civil Aviation, around 29.8 million passengers traveled to/from India during 2008, an increase of 30 per cent on previous year. It is predicted that international passengers will grow upto 50 million by 2015. Further, due to enhanced opportunities and international connectivity, 69 foreign airlines from 49 countries are flying into India.

Growth Rate

24% annual growth

Growth
Domestic airlines flew 3.67 million passengers in August 2009an increase of 25 per cent. The Centre for Asia Pacific Aviation (CAPA) forecasted that domestic traffic will increase by 25 per cent to 30 per cent till 2010 and international traffic growth by 15 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 by 2010. The government is also planning to develop around 300 unused airstrips. India ranks fourth after US, China and Japan in terms of domestic passengers volume. 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 reach a level of 150-180 million passengers by 2020. The industry witnessed an annual growth of 12.8 per cent during the last 5 years in the international cargo handled at all Indian airports. The airports handled a total of 1020.9 thousand metric tones of international cargo in 2006-07. Further, there has been an increase in tourist charter flights to India in 2008 with around 686 flights bringing 150,000 tourists. Also, there has been an increase in non-scheduled operator permits 99 in 2008 as against 66 in 2007.

Low cost services

Major full-service carriers have converted around half their capacity into low-cost services, which has resulted in bringing down the average fares of airlines as a whole by about 30 per cent and thereby increasing demand from the domestic passenger market. Kingfisher Airlines and Jet Airways have converted around half their capacity 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-cost airline called Air India Express which operates on international routes. Jet Airways has also increased the number of low-cost seats in the system by around 50 per cent. Low cost carriers (LCCs) such as Indigo and SpiceJet have increased the total 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 next year, making it the third private Indian carrier after Jet Airways and Kingfisher to fly overseas.

Some Facts
In the present scenario around 12 domestic airlines and above 60 international airlines are operating in India The growth of airlines traffic in Aviation Industry in India is almost four times above international average Aviation Industry in India have placed the biggest order for aircrafts globally Aviation Industry in India holds around 69% of the total share of the airlines traffic in the region of South Asia

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

Players
Taking Indians To Places

State owned domestic airlines ((earlier Tata Airline) ) Formerly known as Indian Airlines GoIs plan to merge Air India and Indian into one giant airline consisting of 130-140 aircraft

Regular airline offering normal economy and business class seats. 300 flights, 43 Indian destinations Does not own its brand. Brand owned by Jetair Enterprises Ltd. a separate company substantially owned by Naresh Goyal

Its hub is Chennai International Airport. Mainly targeting business travellers The airline started operations in October 2005

Began on 3 Dec 1993with two Boeing 737-200 aircrafts as Sahara Airlines Initially services concentrated in northern India Rebranded as Air Sahara on 2 October 2000.

Players
Taking 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 AC sgment fleet of 6 Boeing 737-800 with 189 seats. GoAir The Peoples Airline established in June 2004 LCC promoted by The Wadia Group GoAir FreeFares Relatively small player as compared to other LCCs Initial flights in southern & western India with the first nine A320s

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 common man's airline Connects 55 cities within India

Services started in May 05 Initially operates only on domestic routes but now in overseas also. Owned by United Beverages Group under the leadership of Vijay Mallya

Market Share
Jet Airways and Jet Lite (previously 27.7% Air Sahara) Kingfisher Airlines and Kingfisher Red (previously Air Deccan) Air India (previously Indian Airlines) 20.7% 18.6%

IndiGo
SpiceJet GoAir Paramount Airways

13.6%
12.4% 5.4% 1.5%

Jet Airways IndiGo Paramount Airways

Kingfisher Airlines SpiceJet

Air India GoAir

How aviation industry is effecting india's economy?

10 years back there were just 2 airlines. Both state owned . In the last 10years the economy has opened up. India has experienced growth rate of 8% per year. The main factors which effect the Indian Economy are:1. Increased no. of domestic airlines 2. Low cost airlines 3. India's improving economy the other factors are:1. Increased in no. of business travellers to different countries 2.Incresed no. of incoming tourist and business enterprises

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 agreements with neighbouring countries Favourable Government policies and tax reforms

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 were slowerat 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 are struggling 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 billion of orders Huge potential still to be tapped in Indian markets. Only 40 million people travel by air4% of the population

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 from government Costs pressures (ATF Prices & Staff Cost)

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

FDI Policy
The Reserve Bank of India (RBI) announced that foreign institutional investors might have shareholdings more than the limited 49% in the domestic sector. Airports Foreign equity up to 100% is allowed by the means of automatic approvals pertaining to establishment of Greenfield airports Foreign equity up to 74% is allowed by the means of automatic approvals pertaining to the existing airports Foreign equity up to 100% is allowed by the means of special permission from Foreign Investment Promotion Board, Ministry of Finance, pertaining to the existing 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 approvals pertaining to the domestic air transport services Up to 100% of NRI investment is allowed by the means of automatic approvals pertaining to the domestic air transport services 74 per cent FDI is permissible in cargo and non-scheduled airlines.

Foreign companies can explore various modes of entry into the Indian market

PPP IN AIRPORT INFRASTRUCTURE

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 in 1994 for better and efficient management of all airports in India by a single Authority.

At Present AAI manages 128 airports which includes:

- 15 International airports - 8 Custom airports - 25 Civil Enclaves - 80 Domestic airports

PPP IN INDIAN AIRPORTS

Need for Private Participation in Airport Infrastructure

To bridge the resource gap for achieving the following objectives To build world-class airports with modern technology and efficient management practices. To make the airport user friendly and achieve higher level of customer satisfaction. To lay special emphasis on the development of infrastructure for remote and inaccessible areas. To provide airport capacity ahead of demand. To encourage greater efficiency in Airport Operations.

Airport Development Process has taken off in the country -

The process of development of airports through PPP in the country began with CIAL. Two new Green field airports were thereafter approved for Bangalore and Hyderabad. On 3rd May 2006 the Airports At Mumbai and Delhi were handed over to Joint Venture Companies. Of 35 non metro airports being taken up for modernization PPP has been approved for the city side development of 10 airports. Proposals for a number of green field airports have been received from various State Govts.

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)

Major Airports

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 (details shown in next slide).
The annual requirement of funds in the future is expected to be much more than the AAI can generate.

Greenfield airports

Hyderabad Airport

Bangalore Airport

Greenfield airport - Bangalore - AOD April 2008

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. 1280 crores). Equity: Karnataka State Industrial Investment Development Corporation (KSIIDC) 26% and Siemens Germany, Unique Zurich Switzerland and - L&T India Limited 74%.

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

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 Agreement Lease 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

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 .

Concessions extended by the Govt. of Andhra Pradesh to HIAL Rs. 315 crs. Interest free loan refundable in 5 equal installments commencing from 16th year. Land Lease Approx 5490 acres of land co-terminus with State Support Agreement. State Grant Rs. 107 crores. Stamp Duty / Registration Fee waived off on transfer of land as well as all project agreements. Sales Tax waived off on all construction material.
The commercial flights from the existing Hyderabad airport will close.

Development of Greenfield Airports Proposals received from state govts.

Goa Gangtok Sikkim Navi Mumbai, Maharashtra Chakan, Pune, Maharashtra Kannur, Kerala Kohima Nagaland Hassan & Gulbarga Karnataka Halwara Punjab Itanagar- Arunachal Pradesh

SL. NO.

NAME OF THE AIRPORT / STATE WHERE DEMAND HAS BEEN MADE Raipur / Chhatisgarh Bhopal/M.P. Ahmedabad/Gujarat Aurangabad/ Maharashtra

STATES WHICH HAVE PROVIDED LAND Chhatisgarh Madhya Pradesh Gujarat Maharashtra

AREA OF LAND

PURPOSE

1 2. 3. 4

300 Acres 366 Acres 67.89 Acres 13.9 Acres

Land free of cost for extension of Runway Land yet to be handed over by State Govt. Land for extension of Runway. Land yet to be handed over by State Govt. Development of Airport. Land yet to be handed over by State Govt. Installation of CAT I approach light. Land yet to be handed over by State Govt.

6.
7.

Bhavnagar / Gujarat
Rajkot/Gujarat

Gujarat
Negotiation with Western Railway

29 Acres
14.7 Hectares

Extension of Runway. Land yet to be handed over by State Govt.

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

8. 9

Surat/Gujarat Udaipur/Rajasthan

Gujarat Rajasthan

36 Hectares (85 acres) 42.53 Acres * Land admeasuring approx. 2 acres is yet to be handed over by State Govt. 2.5 Acres 120 Acres 1440 Acres

Development of Airport. Land yet to be handed over by State Govt. For extension of runway, widening of runway strip and construction of isolation bay.

10. 11. 12.

Trivandrum / Kerala - do Chennai / Tamil Nadu

- do - do Tamil Nadu

For Runway End Safety Area, land yet to be handed over To be given free of cost by State Govt. for development purposes. 27.57 Acres handed over. To be given free of cost by State Govt. for development purposes (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)

SL. NO.

NAME OF THE AIRPORT / STATE WHERE DEMAND HAS BEEN MADE

STATES WHICH HAVE 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. To be given free of cost by State Govt. for development purposes. To be given free of cost by State Govt. for development purposes. To be given free of cost by State Govt. for development purposes. Request is being placed.

15.

Hubli / Karnataka

Karnataka

390 Acres

16.

Belgaum/Karnataka

Karnataka

370 Acres

17.

Tirupati /Andhra Pradesh Jammu/ Jammu & Kashmir

Andhra Pradesh J&K

405 Acres

18.

Mumbai and Delhi Airports

Salient Features of JVCs
Objectives
World Class Development and Expansion World Class Airport Management

Equity participation Delhi 74 % Pvt. Consortium (GMR Group, Fraport AG, MAPL, IDF) 26 % AAI Mumbai 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 accrual
Rs. 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.)

DEVELOPMENT OF NON METRO AIRPORTS

Development of 35 Non-Metro Airports have been taken up in a phased manner :
These airports are

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,

Development Approach for first ten non-metro airports

Terminal Building and Airside development by AAI. City side development through PPP or Land Lease and Revenue Sharing (Airport wise in a single package)

Airport Development Fund Requirements Rs. 40,000 crores

Particulars Airport Indicative Cost
Rs. In crores

Restructuring/ Modernization for world class airports Green Field Airports

Delh & Mumbai Chennai & Kolkatta Bangalore, Hyderabad, Goa, Pune, Navi Mumbai, Nagpur (Hub) and Greater Noida

15,000 5,000 10,000

Upgradation Modernization/ Improvement

Total investment by 2010

25 selected airports 55 airports

7,000 3,000
40,000

Air Services
India has bilateral Air Services Agreements with 103 countries. Recently, new Air Services, Agreements have been signed with Mexico and Chile. During the period, 1st July, 2007 to 30th June, 2008 bilateral talks were held with 21 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, Belgium and Germany with a view to optimally utilizing our bilateral entitlements. Indian scheduled carriers with at least five years continuous operations in the domestic sector and fleet size of 20 aircraft have also been permitted to operate to many overseas destinations.

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 billion by 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 agreement with 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.

Road Ahead
The Indian aviation sector is likely to see clear skies ahead in the years to come. Passenger traffic is projected to grow at a CAGR of over 15 per cent in the next 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 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure. Associated areas such as maintenance, repair and overhaul (MRO) and training offer high investment potential. A report by Ernst & Young says the MRO 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 cent of Boeing Commercial Airplanes forecasted market worldwide. This makes India a US$ 100 billion market in 20 years.