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March, 2011

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 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 Compound Annual Growth Rate (CAGR) during 2010-2013.

India is expected to be the fastest growing civil aviation market in the world by 2020 with about 420 million passengers being handled by the Indian airport system, according to the Economic Survey 2010-11.

The number of passengers carried by the domestic airlines during January–February 2011 was 9.51 million as against 7.95 million in the corresponding period in 2010, thereby registering a growth of 19.6 per cent, according to the latest data released by the Directorate General of Civil Aviation (DGCA).

The domestic airlines registered a growth of almost 16 per cent year-on-year (y-o-y), carrying a record 5.2 million passengers in December 2010 as against 4.5 million passengers in December 2009.

The domestic air passenger traffic grew by 19 percent in 2010, registering 51.53 million passengers as compared to 43.3 million in 2009, according to the Economic Survey 2010-11.

In terms of market share, private carrier Kingfisher Airlines was the market leader with 19 per cent share, closely followed by Indigo with 18.7 per cent, Jet Airways with 18 per cent, Air India with 15.8 per cent, Spicejet with 13.8 per cent, JetLite with 8.1 per cent and GoAir with 6.6 per cent during the month of February 2011.

Delhi's Indira Gandhi International (IGI) Airport has been handling the maximum number of flight movements per day. The airport handled an average of 741 flights each day between April and December 2010, followed by Mumbai's Chhatrapati Shivaji Termus (CST) Airport which handled 695 flights each day during the same period.

Significantly, IGI has been rated the 14th best airport in the world in the Airports Council International's airport service quality survey for 2010. In the category of 25-40 million passengers per annum, the airport has been rated fourth.

Investment Opportunities

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 ten in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport - 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) - retained its top position in the category of airports.

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 focusing its efforts 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 products, 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.

The Indian aviation sector will grow by 18-20 per cent this year, according to aviation industry experts. Among airlines, national carrier Air India and low-cost airlines IndiGo and SpiceJet will add more than 1,000 aircrafts in 2011.

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.
  • FDI up to 49 per cent is allowed in the domestic airlines sector under the automatic route, but not by of foreign airline companies.