2. Market opportunity framework
Government regulations
Drivers
• Increase in domestic and international
passenger traffic, in medical tourism
and emergence of low-cost airlines • 100% FDI is permissible for existing
• Modernization and setting up new airports
airports across the country • 100% FDI under the automatic route
• Encouraging private investments in is permissible for Greenfield airports
airlines and airport infrastructure
• Policy reforms to encourage private
player participation
• Air traffic passenger growth Opportunities
• Growth potential exists in Tier-II and
Tier-III markets
• AAI* is upgrading and modernizing 35
non-metro airports
• Building infrastructure to support 280
million passengers by the end of year
2020
• Total cargo traffic projected to touch
5.9 million tonnes (MT) by 2020
Private operators Challenges
• There is a greater role for private • Funding issue as aviation industry relies
players on bank assistance and there is zero
• Private investors are allowed to set up bond market
general airports and captive airstrips • High risk in developing and managing
while maintaining a distance of 150 greenfield airports
km from the existing ones. • Apprehension towards the uncertainty
• Complete tax exemption granted for with regards to aviation regulation
10 years • Land scarcity
*AAI: Airport authority of India
2
3. Rising passenger traffic, changed mindset, positive
government policies fuelled the industry growth
Current state of aviation industry
• The Civil Aviation Sector in India has undergone a huge transformation over the last few years and is on the verge of
taking another quantum leap in the years to come.
• Airport Sector has witnessed a growth of 35% on an average per year for the last six years compared to the global
growth of about 9% per annum. The growth is fuelled by the robust economy and infrastructure development which
lead to economic growth. It is estimated that : Had the infrastructural gap not been there, India's GDP would have
been 2% higher per annum – and would have been at about par with the phenomenal growth China has achieved.
• The Indian Airports are not prepared to handle the huge increase in the number of passengers and hence up-
gradation of the airports and construction of new airports are the only alternatives left with the regulatory
authorities in India.
Current state of Airports in India Indian Airports Passenger Traffic: 2005-06 to 2011-12
• At present, India has 136 airports, of which 128 are
Passenger Traffic in Million Passenger Traffic Growth Y-o-Y in %
owned by the AAI.
Year International Domestic Total International Domestic Total
• The Government of India has recognized the need
2005-06 22.37 50.98 73.35 15.15 27.94 23.75
to involve private players in developing world-class
2006-07 25.87 70.62 96.49 15.66 38.52 31.55
airport infrastructure
2007-08 29.81 87.06 116.87 15.23 23.28 21.12
• Until recently, the AAI was the only major player
2008-09 31.58 77.30 108.88 5.90 -11.22 -6.85
involved in developing and upgrading airports in the
2009-10 34.37 89.39 123.76 8.96 15.54 13.63
country. However, private sector players are now
2010-11 37.91 105.52 143.43 10.17 18.14 15.90
becoming increasingly involved after sniffing the
2011-12 40.80 121.51 162.30 7.63 15.18 13.18
lucrative opportunity in this sector.
• Some major private sector players include GMR Source: APAO India
Infrastructure Ltd, GVK Power and Infrastructure
Ltd, Siemens, Larsen & Toubro (L&T), Unique Zurich
and Maytas Infrastructure Limited, etc Indian airports passenger growth increased at an average rate of 16% since
• Airports which are operated through PPP* model in 2005-06. Except year 2008-09, when the global economy was facing
India are Delhi, Mumbai, Bangalore, Hyderabad and recession, Indian passenger traffic recoded a negative growth (in-line with
Cochin the market trends)
*PPP: Public private partnership
3 Source: AERO, APAO India
4. Government reforms on aviation industry seems
positive and encourages private investment
Government Stance towards aviation Industry – FDI
• 100% FDI: Under the civil aviation sector’s investment policy, 100% FDI is permissible for existing airports, with FIPB*
approval required for FDI beyond 74%.
• Automatic route: 100% FDI under the automatic route is permissible for Greenfield airports. 49% FDI is permissible in
domestic airlines under the automatic route, but not by foreign airline companies. 100% equity ownership by non-
resident Indians (NRIs) is permitted. There is also a provision of 100% tax exemption for airport projects for a period of
10 years.
Government/Regulatory body initiatives to propel
growth in aviation
• Buoyed by the success of implementation of public-private partnership (PPP) model in airport development, the
Government of India plans to invest more on expansion of existing airports, by means of modernization. The
Government has planned to invest US$ 30 billion in next 10 years
• The Government is also taking various steps towards structural policy reforms and have come out with new policies
which are liberal and will encourage public-private partnerships (PPP)
• Airport Authority of India (AAI) has announced that it will seek the government's clearance for its proposal to issue
USD 1.04 billion worth of infrastructure bonds to further develop 15 airports in the country. According to estimates of
the Ministry of Civil Aviation, the total investment required in the aviation sector is about USD 13.54 billion.
*FIPB – Foreign Investment
4 Source: IBEF, Invest India Promotion Board
5. The Indian aviation industry driven by government economic
policies, shifting demographic trends and growth of low cost
airlines
Growth drivers
• Changed travel mindset of the people.
Air travel has become more affordable to the masses aided by the growth of middle class with disposable income
• Liberalization and economic reforms undertaken by the government. Fast expansion of industries as a consequence of
economic reforms and high GDP growth in India.
• Increase in passenger traffic, in medical tourism and emergence of low-cost airlines.
• The organized retail boom that would require timely delivery of goods, thus contributing to the growth of the air cargo
segment.
• Companies started using private jets and air charter services.
• Modernization and setting up new airports across the country. City-side development of non-metro airports.
• Providing international airport status to major Tier-I and Tier-II cities.
• Open sky policy and permission to private operators to operate on international sectors.
• Encouraging private investments in airlines and airport infrastructure.
Facilitative foreign direct investment norms.
Liberal bilateral service agreements and emphasis on development through public-private partnership (PPP) mode,
etc.
5 Source: Invest India
6. There is a huge opportunity for private players as government
plans airport up-gradation across India and growing passenger
traffic
Opportunities
• Immense growth potential exists in Tier-II and Tier-III markets with airlines on an expansion spree in these markets. The
AAI is upgrading and modernizing 35 non-metro airports in the country at an estimated cost of around USD 1 billion, as
well as modernizing the Chennai and Kolkata airports
• The Indian commercial aerospace market is estimated to absorb about 1,100 commercial jets worth USD 130 billion over
the next 20 years, making it one of the most lucrative markets for global aviation majors
• India will be the fourth biggest market in terms of value for all new aircraft deliveries during the next 20 years
Air Traffic
• According to the CAPA India 2011-12 aviation industry outlook, by the end of this decade, in 2020, air traffic in India is
projected to grow 3.5 times from today's level, making it the third-largest market in the world, behind the US and China
Passenger Growth
• The Vision 2020 announced by the Ministry of Civil Aviation conceives of building infrastructure to support 280 million
customers by the end of year 2020
Airport Cargo
• The 12th Five Year Plan (2012-17) estimates the domestic and international cargo to grow at the rate of 12% and 10%,
respectively, with the total traffic projected to touch 5.9 million tonnes (MT) by 2020. Thus, a significant potential lies for
the Indian airports to become tran-shipment hubs.
• Foreign airlines carry 82% of India’s air cargo traffic, which is projected to grow at 10-12% rate over the next five years
6 Source: Invest India
7. Foreign airport players can play a bigger role as there is a
huge capital expenditure gap and government encourages
private participation
Foreign airport operators in India
• Germany’s Fraport AG. owns 10% in Delhi International Airport Ltd and is currently in negotiations with its promoter GMR
Group to sell its stake.
• Flughafen Zurich AG holds 5% in Bangalore International Airport Ltd, now controlled by GVK group. Earlier, Zurich Airport
sold a 12% stake in Bangalore International Airport to GVK Group
However it would be looking at the proposed airport projects in Navi Mumbai and Goa if the prjoject seem to be
lucrative
• The US-based airport operator ADC and HAS Airports Worldwide are also interested in Navi Mumbai and Goa airport
projects
Role of Private Players
• Over the last few years, the government has been proactive in building and modernizing Indian airports under the PPP mode
to encourage the private sector’s participation. Prominent projects undertaken for airports under the PPP mode are at
Hyderabad, Delhi, Bangalore, Cochin, Kannur and Mumbai. These projects have been undertaken through the PPP mode with
a total investment of INR 20,041 crore.
• Private investors are allowed to set up general airports and captive airstrips while maintaining a distance of 150 kms from the
existing ones. Complete tax exemption is also granted for 10 years
7 Source: Live Mint, Invest India
8. Although there is a growth potential, but the industry is
plagued by issues such as high risk, land scarcity among
others
Challenges
• The Indian aviation market relies a lot on banks’ assistance and has zero bond market available for developing
infrastructure. Besides, the risk in developing and managing greenfield airports is really high
• There is an apprehension towards the uncertainty with regards to aviation regulation. Foreign operators are expecting
master plan for airports with lot more stability and better framework. They need a clear picture about the policy and clear
government support
The apprehension has cropped in after the government decided to abolished the Airport Development Fee (ADF) with
effect from January 01, 2013 for Mumbai and Delhi airports.
• Industry experts believe that foreign airport operators would stay out of India because of the lack of stability in the Indian
regulatory framework. There are several country-specific issues where foreign investors were not treated well.
• Land scarcity will be the major challenge for airport development in India in the coming years. India is already facing a
shortage of land, particularly in the larger towns and cities, and this issue will only intensify with the increase in
urbanization. McKinsey estimates that India’s urban population will grow from 20% of the total in 1991 to 37% by 2025. By
2030 India is expected to have 55 cities with a population of more than 1 million.
8 Source: Travel Biz Monitor, Live Mint
9. The private operators are recommended to plunge in but
need to be cautious
Recommendations
• Indian aviation industry is offering a huge growth opportunities for foreign airport operators.
• Government regulatory framework is positive with its investment policies.
• There is a huge requirement for airport development across India even in tier 1 and tier 2 cities with plans to develop
airports in 35 cities
• Although the Indian government has positive policies towards role of private players in airport development , there could be
a future uncertainly with regards to regulatory framework as in the case of abolition of Airport Development Fees which had
no provision initially
9