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December, 2010

The Indian aviation industry has witnessed an impressive growth during the past few years, with major contribution from the civil aviation segment. The market has been strongly supported by the government and the private sector. Availability of skilled manpower along with favourable business environment will position India as one of the most attractive investment destinations in the coming years. It is currently the 9th largest aviation market in the world. On the basis of strong market fundamentals, it is anticipated that the civil aviation market will register more than 16 per cent CAGR during 2010-2013.

Mr Praful Patel, Union Civil Aviation Minister has stated that the airline industry in India has grown by 400 per cent in a short span of about six-and-a-half years. He said in 10 years Indian market will be the third largest aviation market after the US and China

Passengers carried by domestic airlines from January – June 2010 were 46.8 million as against 39.4 million in the corresponding period of year 2009 thereby registering a growth of 18.9 per cent - according to data released by the Directorate General of Civil Aviation (DGCA).

In terms of market share, private carrier Jet Airways was the market leader with 19.2 per cent share, closely followed by Kingfisher Airlines with 19.1 per cent, Indigo with 17.3 per cent, National Aviation Company Limited (NACIL) with 17.1 per cent, Indigo with 16.4 per cent, SpiceJet with 13.3 per cent, JetLite with 7.0 per cent and GoAir with 6.9 per cent during the month of November 2010.

Significantly, Delhi's IGI airport is the busiest airport in the country at present, handling an average of about 843 flights per day. On November 29, 2010, it handled its highest ever traffic with 865 operations.

Some US$ 100 billion in aircraft orders will be up for grabs over the next 20 years. Boeing's current market outlook (2009-2028) predicts that the country will require 1,000 aircraft worth US$ 100 billion over the next two decades, according to Dinesh Keskar, President of Boeing and FICCI Aviation Committee chairman.

Leading aircraft manufacturers Airbus and Boeing have expressed optimism over the growth of the civil aviation industry in India. As per Airbus, the country would need 1,032 new aircrafts worth around US$ 138 billion by 2028. On a similar note, Boeing has also predicted that the sector would require 1,150 commercial jets worth US$ 135 billion in the next 20 years.

The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport is being managed by a public-private joint venture of the GMR Group, Malaysia Airports Holdings Berhad and the State Government of Andhra Pradesh along with the Airports Authority of India (AAI).

Timothy J Roemer, the US Ambassador to India has said that the US will work with the Indian government and the domestic private sector to make the country an aviation hub. Speaking at India Aviation 2010, Roemer said that the public-private initiative, US-India Aviation Programme, would work together with the DGCA on helicopter aviation security.

The AAI is set to spend over US$ 1.02 billion in 2010, towards modernisation of non-metro airports. AAI is planning the city-side development of 24 airports, including those at Ahmedabad and Amritsar. Additionally, 11 new greenfield airports have been identified to reduce passenger load on existing airports, according to Praveen Seth, member-operations, AAI. AAI also plans to spend around US$ 3.07 billion in the next five years for developing, upgrading and modernising metro and non-metro airports.

With the growth in the industry, airport retailing has also gained pace in the recent times. Development of new terminals and airports such as the recently inaugurated T3 in New Delhi has provided added impetus to this segment. The highest margin earners in this segment are food and beverages, beauty product, electronic items, apparel etc. It has been predicted that airports would provide around 300,000-400,000 square feet retail space by 2015. Many companies are also planning to leverage on this growing segment by launching specific products for air travellers. For instance, French premium skincare brand L'Occitane is planning to develop a special range to cater to the airport retailing segment.

Investment Policy

The consolidated document on FDI policy was released on March 31, 2010.

Currently, for the civil aviation sector (Airports):

  • FDI up to 100 per cent is allowed under the automatic route for greenfield projects.
  • For existing projects, FDI up to 100 per cent is allowed; while investment up to 74 per cent under the automatic route and beyond 74 per cent under the government route.

Government initiatives

  • To create world class airports, the government has recognised the need for the involvement of private players in the development of airport infrastructure. Development of airports at Delhi and Mumbai has been taken up under Public Private Partnership (PPP) mode. The capital expenditure is funded through private equity, borrowings, and internal resources of joint venture companies. The development work of Mumbai airport is likely to be completed by 2012 whereas the work of a new terminal (Terminal 3) at Indira Gandhi International Airport at Delhi got completed in July 2010. The development work of Kolkata and Chennai International airport has been taken up by Airport Authority of India whereas Bangaluru and Hydrabad international airports have been developed on PPP mode as greenfield airports. The AAI has taken up the development of 35 non metro airports.
  • As per the Economic Survey of 2009-10, out of 35 airports, 9 have been completed and put in operation. The other projects are in progress and likely to be completed by 2010-11
  • The adoption of Open Sky Policy has resulted in the entry of several new privately owned airlines and increased frequency / flights for international airlines.

Road Ahead

Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion towards new aircraft and US$ 30 billion towards the development of airport infrastructure, according to the Investment Commission of India.

In the largest deal in civil aviation history, Delhi-based low-cost domestic carrier IndiGo has placed an order for 180 aircraft with European-aircraft maker, Airbus. The deal is valued at US$ 15.6 billion.

Lufthansa Cargo and GMR group have signed an agreement to develop Rajiv Gandhi International Airport as a South Asian cargo hub, with focus on pharmaceutical exports.

Kingfisher Airlines and American Airlines, both members of the Oneworld alliance, will begin their codeshare and frequent flyer arrangement in 2011, the two airlines have announced.