AVIATION INDUSTRY IN INDIA

CONTENTS

Background and history of Aviation in India

Rise of Low cost carriers Civil aviation administration and

Airport infrastructure Domestic Airline operating matrix Recent turnarounds in Aviation

industry Suggested Policy Changes

BACKGROUND AND HISTORY

Upto 1986 The first commercial flight in India was made on

Feb 18,1911 Birth of Air India International Ltd There were 8 companies operating within and

outside the country at the time of independence Nationalisation of airlines via the Air Corporations

Act 1953, which gave birth to Indian Airlines and Air India

Indian Airline Industry from 1986 – 2003 Entry of private sector players Air Corporation Act was repealed and in 1995 and

concept of scheduled carriers introducedContd..

BACKGROUND AND HISTORY Indian Airline Industry from 2003 – 2006

Duopoly of Jet and Sahara as private carriers Entry of Air deccan and concept of low cost carriers

(LCC) Entry of new LCC players

LCC Market share

Indian Airline Industry from 2006 onwards 2007 the year of marriages in the Indian skies IA-AI, sahara – jet , Kingfisher and Airdeccan

INDUSTRY EVOLUTION- MAJOR MILESTONES

RISE OF LOW COST CARRIERS International origin of LCC : US Airline

deregulation Act 1978 Entry in Indian context : Air Deccan in 2003 and

later subsequent players like spicejet, Indigo, Go Air, jet airways, kingfisher airlines

The following table shows some of the LCC strategies

CIVIL AVIATION ADMINISTRATION AND AIRPORT INFRASTRUCTURE

The Ministry of Civil Aviation of the Government of India regulates aviation in India.

Directorate General of Civil Aviation investigates aviation accidents and incidents.

Airports Authority of India manages most of the airports in India. The AAI manages and operates 126 airports and 329 airstrips including 16 international airports,89 domestic airports and 26 civil enclaves.

DOMESTIC AIRLINE OPERATING MATRIX - REVENUES

DOMESTIC AIRLINE OPERATING MATRIX – COSTS AND EBIT

RECENT TURNAROUNDS IN AVIATION INDUSTRY

Cost Increasing factors Rising Fuel(ATF) costs Rupee depreciation High interest costs on increased debts High Airport (Aeronautical) charges Poor infrastructureRevenue Pax growth moderation Diminishing margins

RISING COSTS

Fuel CostThe impact of rising fuel cost can be seen from

the following exhibit which is fuel cost as a % of Gross sale for domestic airlines.

RISING COSTS

ATF price trend (Mumbai, Rs/Klitre)

Rupee Depreciation

MODERATING REVENUES Domestic Airlines- Gross sales growth(% YOY)

Reported PAT(% of Gross sale)

FALLING EBITDAR

If we take example of a major domestic carrier Jet Airways the trend in EBITDAR is as follows

SUGGESTED POLICY CHANGES

HOW or WHY ???

SUGGESTED POLICY CHANGES

Direct ATF Import : Benefit of tax differential

ATF tax structure in India

Difficulties in importing ,storing and transporting ATF

Stress on working capital of carriers.

FDI IN AVIATION Factors that support investment in Indian

Aviation sector

FDI IN AVIATION Factors against investment in Indian Aviation

sector

FDI IN AVIATION – CURRENT REGULATIONS

FDI – RISK OF PROMOTER STAKE DILUTION As airline stock have corrected significantly

over last two years ,fresh equity at current valuations will dilute promoters stake

The following graph shows the erosion in market capitalization of major domestic airlines (Rs. crs)

FDI – RISK OF PROMOTER STAKE DILUTION

Hypothetical projections of promoter stake post FDI

OTHER PROPOSALS

Lifting freeze on international expansion of private airlines

Financial assistance to the national carrier

THANK YOU