With a growth rate of 18 per cent per annum, the Indian aviation industry is one of the fastest growing aviation industries in the world. The government's open sky policy has lead to many overseas players entering the market and the industry has been growing both in terms of players and number of aircrafts. With the liberalisation of the Indian aviation sector, the aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full-service airlines and low-cost carriers. Private airlines account for around 75 per cent share of the domestic aviation market.

Indian carriers currently have a fleet size of 310 aircrafts, but have 480 aircrafts on order, scheduled for delivery by 2012. Earlier, air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. Furthermore, the price of aviation turbine fuel (ATF) crashed drastically in December 2008, hitting US$ 0.665- US$ 0.789, which is its lowest level since the last four to five years. With this move, airlines are likely to prune their airfares considerably. Jet Airways, the country's largest private carrier, has slashed domestic fares by 40 per cent and national carrier Air India has announced that it will cut basic fares anywhere between 45 per cent and 60 per cent in February 2009 following a drop in ATF prices.

India has jumped to 9th position in world's aviation market from 12th in 2006. The scheduled domestic air services are now available from 82 airports as against 75 in 2006. Further, Kapil Kaul, CEO India & Middle East, Centre for Asia Pacific Aviation, has said, "India's civil aviation passenger growth, at 20 per cent, is among the highest in the world. The sector is slated to cruise far ahead of other Asian giants like China or even strong economies like France and Australia. The number of passengers who will be airborne by 2020 is a whopping 400 million."

Potential for Growth

According to recent estimates by The International Air Transport Association (IATA), India is likely to be a significant player in the global civil aviation business, which was estimated at US$ 5.6 billion in 2008. The Indian Civil Aviation market grew at a compound annual growth rate (CAGR) of 18 per cent, and was worth US$ 5.6 billion in 2008. The government is planning to upgrade 45 big and small airports across India. For greenfield airports, foreign equity up to 100 per cent is allowed through automatic approvals. For upgrading present airports, foreign equity up to 74 per cent is allowed through automatic approvals and 100 per cent through special permission (from FIPB).

The Centre for Asia Pacific Aviation (CAPA) has forecast 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. India's civil aviation passenger growth, presently at 20 per cent, is one of the highest in the world, and is expected to surpass countries like China, France and Australia. By 2020, 400 million Indian passengers are likely to be airborne. By 2020, Indian airports are expected to handle more than 100 million passengers including 60 million domestic passengers and around 3.4 million tonnes of cargo per annum.

Domestic air traffic is likely to more than double and touch 86.1 million passengers by 2010, up from 32.2 million passengers in 2007, states the market research firm PhoCus. Moreover, significant measures to propel growth in the civil aviation sector are on the anvil. 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, and subsequently, Boeing and Airbus, along with Embraer (Brazil), Bombardier (Canada), Sukhoi (Russia), ATR (France) and BAE System (UK) are now looking at foraying into the Indian jet market.

Airport Infrastructure

• Of the 454 airports and airstrips in India, 16 are designated international airports. Currently 97 airports are owned and operated by the Airports Authority of India (AAI). India's Civil Aviation Ministry aims at 500 operational airports in the next 12 years, as per a report by Centre for Asia Pacific Aviation (CAPA). The government aims to attract private investment in aviation infrastructure.
• A projected investment of US$ 8.5 billion has been planned during the 11th plan for the development of Indian airports.
• Mumbai and Delhi airports have already been privatised and are being upgraded at an estimated investment of US$ 4 billion over 2006-16.
• A greenfield airport is already operational at Bangalore and the one at Hyderabad will be operational soon. These are built by private consortia at a total investment of over US$ 800 million.
• A second greenfield airport being planned at Navi Mumbai is going to be developed using public-private partnership (PPP) mode at an estimated cost of US$ 2.5 billion.
• 35 other city airports are proposed to be upgraded. The city side development will be undertaken through PPP mode where an investment of US$ 357 million is being considered over the next three years.
• Over the next five years, AAI has planned a massive investment of US$ 3.07 billion - 43 per cent of which will be for the three metro airports in Kolkata, Chennai and Trivandrum, and the rest will go into upgrading other non-metro airports and modernising the existing aeronautical facilities.

The demand for corporate jets in India has gone up considerably in the past few years and is likely to grow two-fold by the end of 2011. To further fuel the rapidly growing private jet industry, the government has plans of developing over 300 redundant airstrips in the country. The work will be carried out in a phased manner subsequent to the expansion and development of 35 non-metro airports by 2010. The government plans to focus on airstrips near major cities in order to relieve major airports of their burgeoning traffic. Additionally, the government is also considering a new policy to permit private airstrips in the country. The Indian civil aviation minister, Praful Patel has said that India will require around 300 to 400 private jets in the next three to five years. The demand for private jets can even see a growth rate of about 50 per cent on a year-to-year basis.

Aviation Policy

Many policies supporting the infrastructure are now in place.

• For greenfield airports, foreign direct investment (FDI) up to 100 per cent is permitted through automatic approvals.
• For existing airports, FDI up to 74 per cent is permitted through automatic approvals and up to 100 per cent through special permission (from FIPB).
• Private developers are allowed to set up captive airstrips and general airports 150 km away from an existing airport.
• 100 per cent tax exemption for airport projects for a period of 10 years.
• 49 per cent FDI is permissible in domestic airlines under the automatic route, but not by foreign airline companies. 100 per cent equity ownership by Non-Resident Indians (NRIs) is permitted.
• 74 per cent FDI is permissible in cargo and non-scheduled airlines.
• The Indian government plans to set up an Airport Economic Regulatory Authority to provide a level playing field to all players.

Aviation Sector Outlook

As per the Investment Commission of India, the aviation sector is likely to boom further in the coming years, attracting huge investment.

• 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 like 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.
• Air cargo traffic will grow at over 11.4 per cent p.a. over the next 5 years to exceed 2.8 million tonnes by 2010.
  Foreign air cargo players are betting big on India and many are planning to add capacity. As part of its expansion, Emirates is increasing its flights to New Delhi, Mumbai, Bangalore, Hyderabad, Chennai and Kochi over a period of time.
• Eurocopter, a division of EADS, world leader in aerospace defence and related services, is keen to enter the emergency medical services (EMS) business in India and the company is in talks with leading hospital majors like the Manipal group and the Apollo group. The company has 480 helicopters operating in India in both the civil and military sectors and the company also hopes to increase its business through heli-tourism.
• India has signed a new air service pact with the United Arab Emirates (UAE) for the revision of the air services agreement between the two countries.

Major Investments

The Indian civil aviation market holds great promise for potential investors. Over the past year, various companies have shown an interest in the Indian aviation industry.

• MTAR Technologies Private Limited will be investing around US$ 20. 78 million in the aerospace and precision- engineering focussed SEZ at Adibhatla in Rangareddy district.
• Aviall Inc, a wholly owned Boeing subsidiary, plans to open a business office in India later in the year. One of the largest providers of new aviation parts and related aftermarket services in the aerospace industry, Aviall's India operations will be headquartered at the Noida Special Economic Zone in Uttar Pradesh.
• US-based business jet maker Hawker Beechcraft Corporation (HBC) has opened its first authorised service centre in Delhi in partnership with Interglobe General Aviation, the promoter group of IndiGo, with a total investment of US$ 8 million. Two more centres - one in Mumbai and another in southern India- are likely to come up by 2009. Hawker Beechcraft has the maximum number of business jets flying in India.
• Richard Branson, who controls UK carrier Virgin Atlantic Airways Ltd, has sought permission to start a domestic airline in India.
• ETA Star, one of Dubai's household names, will invest over US$ 1 billion to cash in on booming sectors such as ports and aviation.
• The US pioneer in fractional aircraft ownership, NetJets is planning to expand in India after foraying into the Middle East market and establishing itself in Europe with 140 aircrafts.
• GMR Infrastructure is looking to tap the growing corporate jet market in India, which is expected to rise from the existing 150-190 to over 500 in the next four years with investment plans to the tune of US$ 151 million.
  Major private equity firm, TPG Capital, figures among the potential investors lining up to invest over US$ 400 million for a substantial stake in Vijay Mallya-led Kingfisher Airlines, according to multiple sources. Kingfisher, with over 28 per cent share of the domestic aviation market, with a fleet of 86 Airbus and ATR aircraft, is into the 40th month of operations and started flying international, with the maiden Bangalore-London flight on September 5, 2008.
• Jet Airways (India), the country's largest private airline, is looking for an international funds partner to dilute 10 per cent equity. The company first entered India in 1993 and is now also operating in overseas destinations.
  

The Indian aviation sector is likely to see clear skies ahead in the years to come. Giovanni Bisignani, Director General and CEO of the International Air Transport Association (IATA), has called on India to give direction to the efforts in shaping future aviation policies, including environment and commercial freedoms. "In a few years, Asia Pacific will be the largest single aviation market. India is a key driver of that growth. India's enormous size makes it an important market." With a growth rate of 18 per cent per annum, the industry will see rapid expansion in terms of players as well as the number of aircrafts. The strength of the Indian fleet is projected to be 500-550 by 2010.

• Cargo transportation is likely to touch 3.4 million tonnes in 2010.
• 480 aircrafts will be delivered by 2012.
• The number of passengers to touch 400 million by 2020.
• The government plans to invest US$ 9 billion by 2010 to develop airports.