Slides Prepared and Presented By:

Jayadatta S
Assistant Professor
AITM, Bhatkal
Karnataka

Road Map for the next 5-10 years

An established vision and accompanying road map for the
next 5-10 years;
Time
Money

1. The Vision
- Working with industry, establishing a way forward will be a
major aid in developing what is otherwise in danger of
becoming a gridlock system. The industry is so complex
and multi-faceted that it requires a long lead time for each
of the parts to coincide.
- Having a clear and transparent programme to move
forward is essential to removing roadblocks;

2. Time

-The development of aviation in India is being seriously constrained by

drastically inadequate infrastructure airport, road access and airways
systems.
-Solving this issue is important in time, because every day that is lost in
developing new infrastructure is worth millions of dollars to Indias bottom
line;
-The fundamental issue is that the system was allowed to stagnate for
decades, so that when the recent growth surge occurred, there were neither
hardware nor plans in place;
-The government has done wonders in the past two years moving to
privatisation of airports, merger and restructuring of the once proud
national airlines.

3. Money

For foreign investors, two main problems exist: the restrictive

regulations on investment in the aviation sector and the need
for certainty of process and policy in airport privatisation.
a) The traditional reluctance to admit foreign funds to local
entities has had clear outcomes:
-under-investment in Indian companies;
-dominance by foreign companies in international markets;
-shortage of consumer options; and
-loss of economic opportunities;
b) In a sector where government cannot deliver the large
levels of funding required and where that shortfall prevents
all the flow-on financial opportunities for tourism and other
industries there is a strong message:
-admit foreign investors;
-permit higher levels of foreign investment in aviation
enterprises.

Current Scenario of Indian Aviation

Industry
India completed 100 years in aviation sector on 18 February,
2011
The Indian Aviation Industry is one of the fastest growing
aviation industries in the world
454 airports and airstrips; 16 designated international airports
With the liberalization of the Indian aviation sector aviation
industry has undergone rapid transformation
Being primarily a government-owned industry, Indian aviation
now dominated by privately owned full-service airlines and low
cost carriers
Private airlines account for around 75% share of domestic
airline aviation market
Airline business growing at 27% per annum: Ministry of Civil
Aviation

Market Size

India is currently the

ninth largest aviation
market in the world
India's domestic air
traffic grew at a rate,
which is the second
highest after Brazil
according to global
figures for June 2011,
compiled by IATA
Domestic traffic growth
25-30% annually and
international traffic 15%
in 2010 :CAPA

Air Traffic
The country's domestic traffic grew by 14 per
Strong domestic passenger growth rate of 22.3 per
cent in July 2014
Passenger traffic has grown at 18 per cent year on
year (y-o-y) basis and the year 2013 closed at 90
million passengers both domestic and international
In July 2014, airlines in India handled 5 million
domestic passengers, according to data released by
the Directorate General Civil Aviation (DGCA) on 12
September 2014, marking the 11th consecutive month
of double-digit growth

Aviation Trends

Over the past 10 years, the Indian aviation has moved from
a closed, poorly managed and over-regulated industry to a
more open, liberalised, and investor friendly sector.
Liberalization of the sector and entry of low cost carriers
have been the main drivers for the growth. The sector has
also witnessed growth in terms of increased airport
infrastructure and increased numbers of operating airlines.
Earlier all airports were in AAI control
However, over last five years, airport infrastructure has
attracted private investment
The Government has increased the FDI limit to 100% in
Greenfield airports and airlines. Larger private sector role in
airport infrastructure and management has led the
Government to introduce an Airport Economic Regulatory
Authority Bill to regulate private airport and airline
operators market.

 The number of airlines including low cost carriers has increased. This
led to subsequent increase in competition and fare reduction which
further fuelled the air traffic growth.
The sector has witnessed accelerated fleet acquisition activities and
present fleet size of all domestic airlines has exceeded 300 aircrafts.
However, present downturn may slowdown fleet expansion plans
Higher fuel costs, structure of high taxes and higher user charges are
leading to huge margin pressures on airlines, initiating a trend of
consolidation through mergers and acquisitions of airlines.
Demand for backup and supporting industries like Maintenance Repair
and Overhaul, aviation hubs, aviation manpower etc has increased
due to the growth in the aviation sector.
Over the eleventh five year plan period, Rs. 40,880 crores of
investment is envisaged in airport infrastructure. Modernization of
metro airports comprise 40% of eleventh plan investment where as
35 non metro airports across the India will be upgraded at an
investment of Rs 6,149 crores. This forms 15% of non metros
investment. However 30% of eleventh plans investment is envisaged
in development of several Greenfield airports across the India.
Approximately 75% private sector investment is envisaged in this
period indicating larger role for the private sector.

Entries in the Aviation Industry

Singapore Airlines Ltd., one of the leading global airline brands, has announced
its entry into India in a joint venture with the Tata Group, the third foreign
airline to do so after Abu Dhabis Etihad Airways and Malaysias Air Asia Bhd.
The airlines are taking advantage of a historic decision by the Indian
government in September last year that allowed overseas airlines to invest up
to 49% in local carriers Previously, foreign investors, but not airlines, had been
allowed to hold up to a 49% stake in Indias airlines.
Under the agreement it signed with Tata Group holding company Tata Sons
Ltd., Singapore Airlines will hold a 49% stake, while Tata will have a 51% in the
yet-to-be-named, full service airline in India.
With this deal, Tata will be doubling its bet on the Indian aviation sector. Earlier
this year, the company signed an agreement to start a budget airline in
partnership with AirAsia and the closely held Indian company, Telestra
Tradeplace Pvt. Ltd. The deal is pending approvals.
Etihad was the first to enter the Indian aviation sector with a deal to buy a 24%
stake in Jet Airways, Indias second-largest domestic and international carrier.
That deal is expected to close in the next couple of weeks.

Despite this interest, the Indian

aviation sector is still a troubled one.
Indian carriers lost about $1.6 billion in the financial year ended
March 31with most of this accounted for by Air India and
Kingfisher as a result of increased expenses and declining
passenger traffic, according to a report by the Capa Centre for
Aviation in Sydney.
Any new entrant has to be prepared for several years of losses
and a tough domestic market that is dominated by low cost
carriers that hold 65% of the market, Capa said in a separate
note on the Tata-Singapore Airlines deal.
That said, India now has only two full-service domestic airlines
national carrier Air India and Jet Airwaysand without the legacy
issues faced by those two, Tata and Singapore Airlines may be in
a position to establish a more competitive, hybrid business
model, offering a high quality product with a lower cost base than
incumbent full service carriers, Capa said.

 The greatest potential may be in international routes as

international traffic in and out of India, unlike domestic traffic,
has grown every year in the past decade, including during the
economic slowdown. However, since Indian regulation
requires a new airline to operate in the domestic sector for five
years before it can fly international routes, this opportunity is
still some way off.
The more immediate question is how will Tata manage its two
competing agreements? While one is for a new budget carrier
and the other is for a new full-service airline, the two will still
largely be playing in the same sandbox, at least until Indian
authorities relax their five-year rule on international flights
(and theres no clarity on when that might happen).
Until then, there might be a lesson in management on how Tata
dances with two, competing partners.

 Case
Studies

Etihad deal good for Jet, but not for Indian aviation: experts
Jet Airways' decision to sell a minority stake to Etihad Airways for Rs.2,060
crore may not bode well for the Indian aviation sector, especially national
carrier Air India, experts say.
India's first major aviation investment by a foreign airline after the
government eased ownership rules in September comes close on the heels
of Jet seeking a three-fold expansion of air service capacity between India
and Abu Dhabi.
The deal will direct traffic away from major aviation hubs in India, such as
Delhi and Mumbai, to Abu Dhabi, where Etihad Airways is based, the
experts add.
Jitendra Bhargava, former executive director at Air India, told NDTV, "The
deal would have been fully, unconditionally welcomed had it taken place
three months ago. The very fact it is taking place in the wake of Jet's
request to the government that the seats on the India-Abu Dhabi sector be
increased from 13,000 seats to 53,000 seats makes it look like that the
valuation has been triggered by such a development."
Jet is reportedly planning to connect to 23 Indian cities with Abu Dhabi in
the long and medium term, requiring over 41,000 seats per week by 2016.
Under the current bilateral agreement with Abu Dhabi, Indian carriers are
jointly allowed to operate 13,300 seats each week on that route, with 2 per
cent operational flexibility on this capacity.
Sources told NDTV late on Tuesday that India and Abu Dhabi had agreed to
expand their bilateral capacity to over 53,000 seats per week.

 On why the deal is not a good development for the Indian aviation sector,
especially national carrier Air India, Mr Bhargava said the Indian
government's aviation policy is contradictory.
"On the one side you are infusing funds into Air India to keep it afloat and on
the other side you are facilitating the taking away of passengers. The deal
cannot be described as being in the interest of the Indian aviation industry,"
he added.
Air India runs up a staggering operational deficit of Rs. 14 crore every day,
according to the Dholakia committee set up to recommend measures to bring
back the ailing airline to profitability.
Kanu Gohain, former director general of civil aviation, told NDTV: "One can
read between the lines and say that this deal will certainly funnel out Indian
traffic into Abu Dhabi from where Etihad will mount its flights to Europe and
the US at the cost of other Indian carriers, particularly Air India."
"No doubt there will be some benefits to passengers, and from the
connectivity point of view, but one should understand that if we allow too
many concessions and liberty, then after Dubai, Abu Dhabi will become the
second hub of connectivity to the Western hemisphere," Mr Gohain added.
Indian carriers, battling stiff competition and high operating costs, have also
sought massive expansion in their weekly schedules, with IndiGo demanding
over 5,000 more flights, SpiceJet 5,936 more and Air India 2,400 additional
services, official sources said.
"It will not end with (the) Abu Dhabi bilaterals. We know Emirates and Qatar
Airways are in the queue. There will be no No. 2 left on the India-Abu Dhabi
sector," Mr Bhargava said.
"We may say that this will benefit the passengers... You will lose for all times

Tata-SIA

Game Changer
Six decades
Investment of $100 million
Expected
Birth of civil aviation in India in 1932
Foiled
Whether the timing for entering the aviation sector is
opportune.
Huge debts and mounting losses, not because all of them
are inefficient or the industry is vulnerable to economic ups
and downs but because the Indian market is price-sensitive.
An increase in fares instantly impacts growth
The domestic market is divided

As the new entity will have deeper pockets than the promoters of
existing airlines
By full-service and low-cost airlines the industry will feel the
impact
Well-deliberated policy there would have been rules laying down
the number of airlines that the country could effectively have; and
the number of aircraft or seats that can be gainfully operated for
domestic operations. In the absence of a transparent mechanism,
the government is taking decisions on a case-by-case basis which
hasn't helped the industry so far
The other question that begs an answer is whether it is desirable
for the Tatas to be stakeholders in two airlines, ostensibly serving
different segments of air passengers. Will there be a conflict of
interest with both Air Asia India and the new airline operating on
the same routes? In the pre-merger era, Indian Airlines always
objected to Air India's domestic operations; and Air India did the
same with regard to Indian Airlines' international flights on the
grounds that it was hurting its commercial interests by charging

Air Asia Tata Sons

AirAsia to tie up with Tata Sons for new airline in India
India's aviation sectorhas been going through turbulent times because of high
operating costs and fierce competition. Domestic passenger traffic fell six per
cent in the first nine months of 2012 because of a steep rise in fares, Jet Airways,
India's second biggest airline group by market share, said in an analysts' call.
However, thebudget carrierhas a big advantage over the others: its cost per
passenger kilometre excluding fuel is the lowest in the world at just $2.
SpiceJet is close with $2.2. Experts say IndiGo, Jet Airways, SpiceJet, Air India and
Go Air are likely to come under pressure and drop fares further once the
proposed carrier picks up momentum.
"India, with its low flyerbase, regulatory challenges and high cost structure,
cannot afford more than four strong national airlines."
AirAsia had been waiting in the wings ever since India opened the airlines sector
to investment by foreign carriers about six months ago.
But when Fernandes announced the decision to join hands with the Tatas, many
in the industry were surprised.
The Tata's pioneered civil aviation in India when they set up Tata Airlines in 1932,
but the government took over the airline in 1953 and rebranded it Air India.

 The group made some attempts at re-entering the market over the years, but
its plans failed to take off. Now, it is back in the airline business under the Tata
group
JP Morgan analyst Corrine Png says in a note that tying up with the
Tatas/Telestra could facilitate access to route rights, accelerate regulatory
approvals and provide a better understanding of the Indian market. She adds
domestic airlines will be hit by AirAsia, which plans to operate out of Chennai.
"We think this is negative for the Indian carriers, especially SpiceJet given its
major presence in Chennai and Tier II/III cities exposure.
" Some industry experts say AirAsia's entry into India's domestic market is
aimed at insulating itself from any downturn in its business from international
routes in the country. It is the 12th largest foreign airline in India with a weekly
capacity of 18,720 seats to and from the country.
Its domestic and international routes will now complement each other
Globally, the revenues and profits are higher in international aviation.
Aviation experts sayforeign airlinesare unlikely to sit idle while international
players such as Etihad Airways and AirAsia sew up partnerships in the country.
They might find it easier to enter the country by picking up a stake in existing
airlines such as SpiceJet, or even Kingfisher, instead of floating a new airline.
"We had estimated that the FDI policy reform would lead to equity deals in two
or three existing airlines and one or two fresh startups," says KPMG's Dubey.

Future of Aviation Industry due to the deals

Confidence returning to Indian aviation: Minister Ajit Singh
The increasing interest of international airlines like Etihad, AirAsia and Singapore Airlines into the
Indian passenger carriers signals renewed confidence in the sector, says Civil Aviation Minister Ajit
Singh.
"All airlines-Etihad, AirAsia, Singapore Airlines-are the biggest and most professional companies in
the aviation business. If they are interested in India, this shows a renewed confidence in the sector,"
Singh told IANS in an interview.
"In the long run, there is tremendous potential in the sector to grow."
The cabinet approval for the Jet-Etihad deal was a positive move, which will help the industry,
bogged down by heavy fuel and interest costs.
"The alliance between Jet-Etihad is positive for the industry. It will ultimately benefit the passengers
and boost the sector further."
"This will open possibilities of India becoming a hub for international travel. With projections
showing a very rapid growth in passenger numbers and favourable geographic location, India requires
more alliances for servicing passengers needs."

 "We are looking into the matter as fuel constitutes nearly 50 percent of (airline)
cost. We have also asked the states to cut the taxes on jet fuel."
Fuel prices comprise about 50 percent of the operating costs of airlines in India
and have dented the sector as most airlines bleed under the high state sales tax
regime.
The high state taxes are a legacy of a long-standing perception that jet fuel,
which is a super-refined form of kerosene, should not be subsidised for air travel.
However, the Indian government continues to subsidise sensitive products like
diesel, LPG (liquefied petroleum gas) cylinders and kerosene.
Currently, jet fuel sold in the country is nearly 50-60 percent costlier than in
overseas markets like Bangkok, Singapore and Dubai, as an additional 4-34
percent state sales tax hikes its price.

 WTO
GATT

WTO
The World Trade Organization (WTO) is the only global
international organization dealing with the rules of trade
between nations.
At its heart are the WTO agreements, negotiated and signed
by the bulk of the worlds trading nations and ratified in their
parliaments.
The goal is to help producers of goods and services,
exporters, and importers conduct their business.
Its main function is to ensure that trade flows as smoothly,
predictably and freely as possible.
By lowering trade barriers, the WTOs system also breaks
down other barriers between peoples and nations.
The goalis to improve the welfare of the peoples of the
member countries

Air transport services

Air transport services are governed by a specificannexof the General
Agreement on Trade in Services (GATS).
The annex excludes from the agreement the largest part of air transport
services: traffic rights and services directly related to traffic.
These services are nevertheless subject to aregular reviewby the Council of
Trade in Services, with a view to considering the possible further application of
the GATS to the sector.
Afirst reviewtook place in 2000-2003.
Thesecond reviewis on-going. In preparation for the second review, the WTO
Secretariat developed theQuantitative Air Services Agreements Review
(QUASAR)database and methodology to assess, on a universal scale, the
degree of liberalization achieved by the air transport sector.
The Secretariat also produced theAir Service Agreements Projector (ASAP), an
analytical tool that allows for the visualisation of elements of the QUASAR
database, notably information on an economy's network of bilateral Air
Services Agreements and correlated traffic flows.
On 16 January 2013, the Secretariat released an update to its ASAP tool, based
on 2011 regulatory and traffic data.

Plurilateral agreement on trade in

civil aircraft

This agreement entered into force on 1 January 1980. It

now has 31 signatories. Most WTO agreements are
multilateral since they are signed by all WTO members. The
agreement on trade in civil aircraft is one of two plurilateral
agreements (with the agreement on government
procurement) signed by a smaller number of WTO
members. It eliminates import duties on all aircraft, other
than military aircraft, as well as on all other products
covered by the agreement civil aircraft engines and their
parts and components, all components and sub-assemblies
of civil aircraft, and flight simulators and their parts and
components.

General Agreement on Tariffs and

Trade

The General Agreement on Tariffs and Trade (GATT) was a

multilateral agreement regulating international trade.
According to its preamble, its purpose was the "substantial
reduction of tariffs and other trade barriers and the
elimination of preferences, on a reciprocal and mutually
advantageous basis." It was negotiated during the United
Nations Conference on Trade and Employment and was the
outcome of the failure of negotiating governments to create
the International Trade Organization (ITO). GATT was signed
in 1947 and lasted until 1994, when it was replaced by the
World Trade Organization in 1995.

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