It is an research report of recently introduced FDI increment in Aviation Sector.

1. Will FDI Take-off in Aviation?
Dinodia Capital Advisors
September 2012

2. Executive Summary
While the present situation of the Indian Aviation Industry is already in blues, the
Government has allowed 49% Foreign Direct Investment (FDI) to fund the dwindling
aviation industry. The hopes are high, the industry, market and lobbies at the
international level have given thumbs up and cheers. But for the past few years, the
industry is loosing its sheen, with last financial year showing a loss of Rs.12,000
crores across the industry. Let us unveil the true opportunity that exists and analyze
the challenges one has to face in entering the Indian Aviation Industry.
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3. Where are we today?
 In the past two decades, the Indian Aviation
Industry has seen several ups and downs, but has
recently started seeing some private players do
well
 Most Airlines are still struggling due to heavy
statutory requirements, huge airport tariffs, binding
approval requirements & ever rising fuel prices.
 Along with other reforms that the Government Of
India recently announced, 49% FDI in the aviation
sector (Scheduled & Non-Scheduled Airlines) has
also been permitted
 The industry currently has a cash crunch, low credibility / ratings and most players already
have an overleveraged balance sheet, which discourages banks from giving any further
funding to the private carriers
 Air India and Indian Airlines – the 2 state owned carriers have been able to sustain
themselves only due into generous bail-out packages offered by the Government at
regular levels
 The newly implemented policies however have opened the doors for the much needed
equity infusions / relaxation of norms
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4. Where are we today?
Continued…
 The Aviation industry is one of the major
economic drivers for prosperity, development and
employment in a country. It handles ~2.5bn
passengers across the world in a year and
moves 45mm tones (MT) of cargo through 920
airlines, using 4,200 airports and deploying
27,000 aircraft
 India is the 9th largest civil aviation market in the
world. Today, 87 foreign airlines fly to and from
India and 5 Indian carriers fly to and from 40
countries
 “India is an exciting market for us. We expect India’s contribution to our global (cargo)
revenues to increase from 3.5% to 5% this fiscal and 10% in the next three to four years,”
as per Nick Rhodes, Director Cargo of Cathay Pacific
 India will be the 4th biggest market in terms of value for all new aircraft deliveries during the
next 20 years, according to aircraft maker Airbus
“The fleet of the Indian Commercial Airlines is expected to touch ~
1,000 aircrafts by 2020” - Mr. Ajit Singh, Union Minister for Civil
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Aviation, Government of India

5. Evolution of the Industry…….
Government allows direct ATF
imports, FDI proposal for allowing
foreign carriers to pick up to 49% stake
2012
under consideration
4 out of 6 operators 2007
shut down; Jet & Industry consolidates;
Sahara continue Jet acquired Sahara;
Jet, Sahara, Modiluft, Kingfisher acquired Air
1997 2005 Deccan
Damania, East West
granted scheduled
carrier status Kingfisher, Spice Jet,
1995
Indigo,
Go Air, Paramount start
operations
1953
Nationalization of all private airlines
through Air Corporations Act
>1953
Nine Airlines existed including 5
Indian Airlines & Air India

6. What’s new to it???
Government Policies
Earlier Now
 No Foreign Airlines were allowed to invest The following have been revised now :
in the equity of an aviation company in Permission to invest (by FII & FDI together)
India 49% in equity of:
 They were only allowed to invest in the - Scheduled and
equity of Cargo airlines, helicopter and - Non-scheduled air transport services
seaplane services  Will have to comply with relevant
 The following was allowed: - SEBI* regulations,
- 46% FDI (100% for NRIs) in - FIPB**
Scheduled Air Transport Services - and other regulatory clearances
through the automatic route  A scheduled operator’s permit can be
- 74% FDI (100% for NRIs) in Non- granted only to a company with:
Scheduled Air Transport Services - The chairman and at least two-third
through the automatic route (up to of its directors have to be Indian
49%) and government route citizens
(beyond 49% and up to 74%) - Substantial ownership and effective
- 100% in Helicopter Services control is vested with Indian nationals
requiring DGCA approval through - Registration and principle place of
automatic route business is in India
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*SEBI – Securities & Exchange Board of India
**FIPB – Foreign Investment Promotion Board

7. Who dominates the skies today?
($ in Billion)
S No. Name of the Airlines Market Enterprise Turnover Net
Capitalization Value Profit
1 Air China Ltd. $12.2 $23.6 $6.7 $1.10
2 Singapore Airlines 10.2 7.1 2.8 0.10
3 Ryan Air 8.1 8.8 1.1 0.00
4 Delta Airlines 7.9 18.0 8.4 0.40
5 China Southern Airlines 7.0 14.7 6.3 0.60
6 China Eastern Airlines 6.3 15.2 6.1 0.50
7 Korean Airlines 3.6 14.6 10.7 (0.3)
8 Jet Airways 0.6 3.1 3.2 (0.0)
9 Kingfisher Airlines 0.2 1.7 1.4 (0.2)
10 Spice Jet 0.2 0.2 0.6 0.00
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* Bloomberg and DCA Research

8. Market Share Analysis of Domestic Players
IndiGo Airlines, the leading low cost airlines operates in all major cities
of India although now at par with peers. It was awarded the “Best
Domestic low Cost Carrier” in the year 2008. The company’s market
share stood at 27.6% in 2012
Jet Airways, the second largest airlines based on its market share
(25.2%), is most likely be the first local carrier to receive foreign
investment after the announcement of the changes in the FDI policy
Spice Jet, India's second-biggest budget airline is the least leveraged
airlines amongst its competitors which may attract the foreign investors
to invest in it. Currently, the airlines holds the market share of 18.5%
Air India, the national carrier of India is slightly below spice jet by
market size (18.2%) and is exempted from Foreign Direct Investment
Go-Air, another profitable airlines which is capable of attracting foreign
players to invest in it has about 7.4% of the market share
Kingfisher Airlines, once a pride & joy of the nation, is the smallest in
terms of market share (3.2%) today. The company is saddled with a high
debt burden of $1.4bn. Its worsening credit status has disabled the
company from securing further funds 8

9. SWOT Analysis
S W
TRENGTHS EAKNESSES
 FDI move will infuse funds in the industry  Excess capacity of carriers as compared
 India has world class airports to demand
 Trend of enhanced quality of in-flight  Negatively impacting current tax regime
service in place
 Indian carriers now also include a range  High fuel costs
of Boeing 747s and Airbus 340s  Profitability issue unaddressed
 High price competition acting as a
downward spiral
O T
HREATS
PPORTUNITIES
 Scope of increasing connectivity  Globally the industry is considered to
 Government is committed to revive the be a laggard and unprofitable
Industry  Current carriers require heavy
 Reforms to relax complicated recapitalization
compliances  New government might not support
current changes in 2014
"How do you become a millionaire?" asked Warren Buffett, who then
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answered his own question: "Make a billion dollars and then buy an airline."

10. Pull of the Future
No. of aircrafts Estimated value
Airline
expected by 2017 (Rs. Crores)
Air India
Go Air
40
22
18,000
8,100
“ India is light
years ahead in
terms of the
market potential
and the potential
Jet Airways 79 32,000
for the company
(Boeing) to come
“
Jet Lite 20 7,600 together as an
enterprise and
Kingfisher 78 29,700 grow
Q R Thomas
Spice Jet 68 26,100 President
Boeing India
Indigo 69 26,100
Total 376 147,600
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Source: Report of Working Group on Civil Aviation for formulation of Twelfth Five Year Plan (2012-17)

11. Will foreign airlines be convinced…..
 The aviation industry all over the world is facing the music
 The ones who are successful are the ones who are state run
 A ‘wait and watch’ policy is being followed, deals are being discussed behind the veils
 Except for Abu-Dhabi based Etihad Airways, many foreign airlines are shying away from
openly announcing anything
 Center for Asia Pacific Aviation (CAPA) has given a mixed review but have called these
policy change to be positive in the long term
 The Aviation Industry’s current problem is
profitability and not investment
 The Government is now committed towards
reviving the sector and reviewing the present
Tax Structure, but will that address the inherent
challenges that the industry faces?
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12. Opportunities !!!
 India is a land of 1.2 billion people, a growing middle class with high disposable income
and a desire to travel the world
 The rail and road connectivity in India is decent, but the condition of the Indian railways
and the safety concerns of the roads provides a huge opportunity for the airlines industry
 Indigo airlines which has the semblance of the very profitable US based Southwest Airlines,
is paving the way for other carriers to learn from the best and implement some of the key
strategies around low pricing, on-time arrival, high quality food which can be bought at
reasonable prices (keeps base fares low), all economy seating, good connectivity /
frequency, quick turn-around time (~20mins) and word-of-mouth advertising
 If we look at the passenger traffic of the country, it has grown at a compounded annual
growth rate (CAGR) of 16% over a period of 10 years
 There is a huge opportunity for foreign carriers to tap into this growing market and bring
their best practices and global expertise in running a successful airline business in India
 Given India’s importance on the business map of the world and its location, it can serve as
a hub for connectivity between the US/Europe and Asian Countries as well
 India is too large a market and too important an economy for the global giants to ignore,
the key question is who will land here first and take advantage of being the first mover 12

13. Dinodia Capital Advisors
Dinodia Capital Advisors
 Corporate Profile
Dinodia Capital Advisors is a Financial Consulting firm
based in New Delhi, India. It assists clients across all
industries grow, both organically and inorganically. The
firm helps clients Raise Capital. Execute Merger &
Acquisition opportunities. Restructure, Transform and
Turnaround businesses. Resolve challenging problems.
Take advantage of financial and strategic opportunities.
Balance investor expectations. DELIVER VALUE
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14. Dinodia Capital Advisors
Service Offerings
Dinodia Capital Advisors Advice Clients on :
Mergers and Acquisition Capital Raising
We help in conducting a robust scan We advice clients on their capital
of the market and selecting the most needs and find them the right
suitable buyer or seller partner who brings more than just
capital
Restructuring India Entry Strategy
We advise on business We help set up and incubate
restructurings to help achieve businesses in India, acting as a
financial, strategic and operational trusted advisors to facilitate the
efficiency India entry strategy
Organizational Turnarounds
Transformation We work closely with companies to
We work with companies to help devise and implement a
put systems, processes and turnaround strategy by plugging the
people in place to help take deficiencies of management,
advantage of both organic and technology, capital or partnerships
inorganic synergies
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15. Dinodia Capital Advisors Private Limited
C-37, Connaught Place , New-Delhi 110001, Website -
www.dinodiacapital.com
Tel No: +91 11 2341 7692, 2341 5272, Fax No: +91 11 4151 3666
Email: dinodiacapital@dinodiacapital.com
“We at Dinodia Capital Advisors believe in building long-term relationships based on trust with our
clients, providing the highest quality and timely advice, creating an environment of teamwork,
developing deep expertise in our areas of operations, hand-holding clients from start to finish and
caring deeply for every match that we make”