AEROSAPCE INFRASTRUCTURE

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FICCI- INDO US SUMMIT
AEROSAPCE INFRASTRUCTURE -An Opportunity
Mapping
Infrastructure Financial Services Limited
Milind Patel- Executive Director ILFS Financial
Services Limited
30 Nov 2006
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ILFS-an introduction

• Incorporated in 1987 with mandates to
  commercialise infrastructure and develop
  financial services business
• Over the years has developed both lines of
  business and each business is developed as
  separate profit centres

Successful Delivery of An Infrastructure Mandate
on a PPP basis
Project Development Project Sponsorship Project
Management Stakeholder Value Management
Project Design Sector Specialization
Environmental Social Management
Engineering Project Management
Legal Contractual Documentation
Management Technical Skills
Investment Banking Structured/Asset
Finance Corporate Advisory/MA Project Finance
Private Equity Venture Funds Infrastructure Funds
Distribution Broking Project Syndication Merchant
Banking
Financial Engineering Skills
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(No Transcript)
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INDIAN ECONOMY- The Takeoff Stage
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Indian Economy A Snapshot

• Overview
• Indian economy The 4th largest 2nd fastest
  growing economy in the world
• India GDP for FY 2006 was appx USD 570 bn at
  constant prices
• 4th largest economy in the world in terms of
  purchasing power parity
• A middle class customer base of over 300 million
  people
• More than 7 GDP growth for four consecutive
  years
• Infrastructure a key bottleneck

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Infrastructure Challenge

• INFRASTRUCTURE CAN BE A GROWTH CONSTRAINT
• India Economic Growth triggered by economic
  reforms in 1991which led to a huge growth in
  services, manufacturing and global trade
• The infrastructure development has not kept pace
  with the growth in manufacturing and services
  sector leading to a bottleneck
• Huge Investment Requirement for physical
  infrastructure for power, roads, ports, airports
  and railways

• INITIATIVES IN THE RIGHT DIRECTION
• Strong political will and Improved policy
  environment Electricity Act, Draft Maritime
  Policy, Draft Civil Aviation policy, etc
• Ring fencing of funds earmarked for
  infrastructure
• Nomination of implementation authorities
• Urgency to bring about commercial viability is
  apparent
• Momentum of private participation picking up,
  with innovative financing concepts like Public
  Private Partnerships and Viability Gap Funding

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INDIAN AVIATION Witnessing High Growth
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Indian Aviation Industry- Liberalisation

• 1953 Nationalization of Aircraft Industry
• Consequently, assets of 9 existing companies
  transferred to two entities in the aviation
  sector controlled by the Government in
• Indian Airlines, primarily serving domestic
  sectors
• Air India, primarily serving the
  international sectors
• Implication
• Aviation became a preferred mode of transport for
  elite class
• Restricted Growth of Aviation Industry
• High Cost structure
• Underdevelopment of infrastructure

• 1986 Private Sector Players permitted as Air
• taxi operators
• Players including Jet, Air Sahara, NEPC,
• East West, Modiluft,etc started
  service
• 1994 Private Carriers permitted to operate
• scheduled services
• Six operators granted license however
• only Jet and Air Sahara able to
  service
• 2003 Entry of low cost carriers
• Air Deccan, Spice Jet, Go Air, Indigo
• Implication
• Aviation has become affordable with check fares
  and discount schemes
• Various Operators with different business model
• Huge growth foreseen in the Aviation Industry

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Industry Characteristics

• HUGE POTENTIAL
• Under penetrated Market
• - Total Passenger Traffic only 50 mn as on 31st
  Dec 2005 amounting to only 0.05 trips per annum
  as compared to
• developed Nations like United States have
  2.02 trips per annum
• - High Level of potential demand with growth in
  Indian economy
• Untapped Air Cargo Market
• - Air Cargo has not yet been fully taped in the
  Indian markets and is expected that in the coming
  years
• large no of players would have dedicated
  fleets
• What this means
• - Build up of capacity by existing players and
  entry of new players
• CONSTRAINTS
• Infrastructure Constraints
• Shortage of airport facilities, parking bays,air
  traffic control facilities and takeoff and
  landing slots
• - Continued growth might be hampered
• Relatively Limited Reach
• Only 454 airports with less than 100 airports
  having more than one daily service

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High Growth in Passenger and Air Cargo Traffic
Passenger Traffic Trends

2010 (Projection) 105-115 million (69 mn
domestic 40 mn international)
Air Cargo Trends

2010 (Projection) 3,360 thousand tonnes
Source Ministry of Civil Aviation
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Capacity Expansion and New Players

• Huge Growth- Huge Plans
• Fleet Acquisition
• New Fleet Orders -More than 500
• Fund Requirement- USD 50-55 bn approx
• Order Book New Players
• Indigo 100
• Air India 68
• Air Deccan 60
• Kingfisher 50
• Indian Airlines 43
• Jet airways 40
• Go Air 36
• Spice Jet 20
• Expected to grow to 125 from 7 by 2025

COMPETITIVE LANDSCAPE
Air Cargo Market
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AIRPORT INFRASTRCUTURE-Huge Opportunity
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Airport Infrastructure- Regulatory Authorities
Ministry of Civil Aviation Responsible for the
formulation of policy, development and
regulation of Civil Aviation. Its functions
also extend to overseeing airport facilities, air
traffic services and carriage of passengers and
goods by air

Other Attached/Autonomous Organisations
Directorate General of Civil Aviation
Promote safe and efficient Air Transportation
(DGCA) through regulation and
proactive safety oversight system Bureau
of Civil Aviation Security Regulatory
authority for civil aviation security in
(BCAS) India Airport Authority of India
(AAI) Accelerate the integrated
development, expansion and modernization of
the operational, terminal and cargo
facilities at the airports
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India Airport Infrastructure Huge Growth
Potential

• AAI manages Civil Airports
• There are 454 airports / airstrips in the
  Country. This includes Operational, Non
  Operational, Abandoned and Disused Airports
• Majority of Civil Airports managed by Airports
  Authority of India
• AAI responsible for airport infrastructure
  development

• Current Status
• The increased passenger and cargo traffic has
• posed new challenges in the area of providing
• adequate infrastructure at airports
• Imperatives
• Expansion of capacity at existing airports
• Up gradation / modernization of Metro and
  Non-metro airports
• Development of new Greenfield Airports
• Induction of modern technology for efficient
  handling of Aircraft, Passenger and Cargo at
  airports
• Up gradation of CNS/ATM facilities

• AAI manages 127 airports which includes
• 13 International airports (excluding Delhi
  Mumbai and including 3 civil enclaves)
• 7 Custom airports
• 28 Civil Enclaves
• 80 Domestic airports
• 2 Joint Venture Airports (Delhi Mumbai)

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Recent Regulatory Initiatives

• STEPS HAVE BEEN TAKEN TO DEVELOP AIRPORT
  INFRASTRCTURE
• Private investment encouraged both in Airlines
  as well as Airports
• Airport Infrastructure Policy,1997 permits
  private equity participation for development of
  airports to bridge resource gap and to bring
  efficiency
• Foreign Direct Investment has been allowed upto
  100 in airports, beyond 74 requiring Government
  approval
• Foreign equity upto 40 and NRI/OCB investment
  upto100 is permissible in the domestic air
  transport services with prior GOI approval
• Domestic Carriers permitted to operate
  international flights
• Open Sky policy for cargo flights
• Attractive fiscal incentives/concessions,
  moderate tax rates Tax holidays
• Public-Private Partnership encouraged
• Liberal Equipment Import regime
• Comprehensive Civil Aviation Policy to be
  finalized very shortly
• Airport Privatization
• -Delhi GMR-Fraport consortium
• -Mumbai GVK- South African Airports

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AAI- Plans for Airport Infrastructure

Airport Authority Expenditure Plans
Source Ministry of Civil Aviation

• IMPACT
• Opens a huge market for companies operating in
  Aerospace and Allied Industries
• Opportunity big for sophisticated and high end
  technology products like communication and
  security equipments
• A large pie for foreign players as Indian players
  not equipped to cater to demand

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Market Opportunity

Products

• Opportunity Universe
• Airport Operations
• Cargo Facilities and Warehouses
• Supply of components (to HAL, others)
• Raw material - sheet metal, forgings, surface
  engineering
• Aerospace Software - Systems
• MRO facilities equipment
• Simulation, training consultancy
• Outsourcing/offshoring design development
  (offsetting)
• Electronics/Avionics
• Support services (sky-chefs)
• Specialized Consulting (Traffic Study, Business
  Advisory)

• Navigational aids,
• Instrument landing systems (ILS)
• Communications equipment
• Weather equipment
• Baggage handling and information systems
• Aerobridges
• Centrifuge,
• Simulators
• Smart Cards systems,
• Baggage Screening systems,
• Multi-zone Door Frame Metal Detectors
• Airfield lighting systems
• Radar systems,
• Flight information systems

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Market Size
USD Millions
Source UK Trade and Investment
Estimated that more than 50 of the above market
will be catered by foreign players
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Entry Strategies for Foreign Companies
Sell existing products and services into growing
Indian market directly/indirectly (through OEMs)
Level 1
Level 2
Formulate strategic alliances, CRM bases, support
bases to sell into Indian market
Use maturing, low cost Indian platform for
Sourcing from India to sell into World Market
Level 3
Setup JVs in India to take advantage of the edge
given to domestic firms, sell into Indian and
Global Market
Level 4
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Product Segments Possible Strategies
Electronics Components
Sell into Indian market through distributors
Airport Services Development
Be part of several consortiums to develop and
manage Indian airports or form partnerships with
existing consortiums in India
Maintenance/Repair/Overhaul
Establish own MRO facilities or sell to the
facilities that are going to be established
No professional aircraft finisher in India.
Immediate opportunity in India
Interior Funrshings
Ground Support Equipments
Sell Ground Support Equipments by forming
partnerships with Indian marketing arms to meet
the Indian demand
Training and Educational Institutions
Huge demand for pilots and cabin crew. Set up
facility in India
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Summation

• Indian Aviation has seen high growth on account
  of sustained Indian socio economic growth and
  liberalized Government initiatives
• Airport Infrastructure needs to improve
  significantly to meet the current and future
  demand of the Indian Aviation Sector
• Authorities have initiated various steps to
  implement modernization, reconstruction and
  development of airport infrastructure to
  implement infrastructure development plan
• Provides a huge opportunity for private players
  operating in Aerospace and allied industries
• Significant opportunity for foreign companies as
  Indian companies not technologically equipped to
  cater to requirements

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• THANK YOU

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Growth Drivers

• HUGE POTENTIAL MARKET
• Huge potential market
• Discount Fares/Low Cost Carriers fares
  competitive to premium railway fares
• Ever increasing reach

• DEMAND DRIVERS
• GDP Growth has been more than 7 in the last 4
  years
• The rising middle class of more than 300 mn is
  fuelling the growth
• The Increase in Consumerism and Affordability of
  Air travel
• Government Liberal Policy to allow private
  carriers and entry of Low Cost Carriers has lead
  to a increase in demand in passenger traffic
• Domestic Tourism and International Business
  Travel and Tourism has also greatly fuelled the
  rise of Indian aviation sector

Indian Railways-Premium Passengers
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Growth Drivers

• International Air Traffic growing at CAGR _at_15
• Growing Indian economy and globalized trade
• Rise in international tourism

International Air Passengers

• Tourism
• Domestic Tourism growth CAGR _at_ 15
• Boost with rising per capita income and increased
  consumerism
• Foreign Tourist Arrivals growth _at_ 20 for 2004
  and 2005