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© IL&FS Ltd.1
AEROSAPCE INFRASTRUCTURE
-An Opportunity Mapping
Infrastructure Financial Services Limited Milind Patel- Executive
DirectorIL&FS Financial Services Limited
FICCI- INDO US SUMMIT
30 Nov 2006
© IL&FS Ltd.2
Project DevelopmentProject SponsorshipProject ManagementStakeholder Value
Management
Investment BankingStructured/Asset FinanceCorporate Advisory/M&A
Project Finance
Private EquityVenture Funds
Infrastructure Funds
DistributionBroking
Project SyndicationMerchant Banking
Successful Delivery of An Infrastructure Mandate on a PPP basis
Engineering &Project Management
Legal & ContractualDocumentation
Environmental &
Social Management
Project Design &
Sector Specialization
Management &Technical Skills
FinancialEngineering Skills
IL&FS-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
© IL&FS Ltd.5
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
Indian Economy –A Snapshot
10 year GDP growth CAGR %
8.6
6.2
5.0 5.0 4.8 4.64.2
3.5 3.1 2.8
0123456789
10
Chin
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iaIndia
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a
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Phili
ppin
es
Indonesi
a
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•-10.0
•-7.5
•-5.0
•-2.5
•0.0
•2.5
•5.0
•7.5
•10.0
•12.5
•15.0
•17.5
•Q
1, FY
03
•Q
2, FY
03
•Q
3, FY
03
•Q
4, FY
03
•Q
1, FY
04
•Q
2, FY
04
•Q
3, FY
04
•Q
4, FY
04
•Q
1,F
Y0
5
•YoY %
ch
an
ge
Industry •Services Agriculture
Trends in GDP
© IL&FS Ltd.6
…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’
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
© IL&FS Ltd.8
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
a) Indian Airlines, primarily serving domestic sectors
b) 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
© IL&FS Ltd.9
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
© IL&FS Ltd.10
YEARNo.in million % Growth
No.in million % Growth
No.in million % Growth
2003-04 17 12 32 11 49 122004-05 19 17 40 24 59 222005-06 23 18 51 28 74 24
International Domestic Total
High Growth in Passenger and Air Cargo Traffic
Source: Ministry of Civil Aviation
Passenger Traffic Trends
Air Cargo Trends
YEAR
Qty ( Thous tonnes) % Growth
Qty ( Thous tonnes) % Growth
Qty ( Thous tonnes) % Growth
2003-04 693 7 375 13 1069 92004-05 824 19 457 22 1280 202005-06 903 10 479 5 1382 8
International Domestic Total
2010 (Projection): 105-115 million (69 mn domestic & 40 mn international)
2010 (Projection): 3,360 thousand tonnes
© IL&FS Ltd.11
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 Pressure
Full
Serv
ice
Price
Low cost Carriers
changing the
game
Indig
o
COMPETITIVE LANDSCAPE
Capacity Expansion and New Players
Air Cargo Market
© IL&FS Ltd.13
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
Airport Infrastructure- Regulatory Authorities
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
© IL&FS Ltd.14
India Airport Infrastructure – Huge Growth Potential
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)
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
© IL&FS Ltd.15
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
Recent Regulatory Initiatives
© IL&FS Ltd.16
9,302 Market Opportunity by 2010
698 Other than above airportsModernization/ Improvement
1,628 35 selected airportsUpgradation
2,326 Bangalore, Hyderabad, Pakyong,-Sikkim, Cheithu-Nagaland, Itanagar, Goa, Pune, Nagpur (Hub),NaviMumbai, Halwara-Punjab
Green Field Airports
1,163 Chennai & Kolkatta
3,488 Delhi & Mumbai Restructuring/ Modernization
Cost ( USD Mn)AirportParticulars
9,302 Market Opportunity by 2010
698 Other than above airportsModernization/ Improvement
1,628 35 selected airportsUpgradation
2,326 Bangalore, Hyderabad, Pakyong,-Sikkim, Cheithu-Nagaland, Itanagar, Goa, Pune, Nagpur (Hub),NaviMumbai, Halwara-Punjab
Green Field Airports
1,163 Chennai & Kolkatta
3,488 Delhi & Mumbai Restructuring/ Modernization
Cost ( USD Mn)AirportParticulars
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
© IL&FS Ltd.17
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
Products
Market Opportunity
© IL&FS Ltd.18
Segment 2,005 Cumulative
till 2010 Cumulative
till 2015 Civil Aerospace Manufacturing 51 564 1,967
Metals 4 45 157 Composites 3 28 98 Systems and Associates 10 110 384 Avionics 9 104 364 Standard Parts 2 23 79 Manufacturing Outsourcing 7 73 256 Others (Consumables/Tooling) 3 28 98
Airport Development and Services 800 6,978 18,069 Commercial MRO 331 2,539 8,739 Optional Aircraft Equipment and Systems 15 123 400 Testing and Certification - 5 12 Consulting 12 98 286 Training 40 446 1,380 Software and Systems 134 1,071 3,123 PLM and Knowledge Engineering 4 29 88 Pilot Supplies and Navigational Aids 4 32 82 Others (Financing, Leasing, Insurance,etc) 360 6,162 18,674
USD Millions
Market Size
Estimated that more than 50% of the above market will be catered by foreign players
Source: UK Trade and
Investment
© IL&FS Ltd.19
Sell existing products and services into growing Indian market directly/indirectly (through OEM’s)
Level 1
Level 2
Level 3
Level 4
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
Setup JV’s in India to take advantage of the edge given to domestic firms, sell into Indian and Global Market
Entry Strategies for Foreign Companies
© IL&FS Ltd.20
Sell into Indian market through distributors
Huge demand for pilots and cabin crew. Set up facility in India
Electronics Components
Airport Services & Development
Maintenance/Repair/Overhaul
Interior Funrshings
Ground Support Equipments
Training and EducationalInstitutions
Be part of several consortiums to develop and manage Indian airports or form partnerships with existing consortiums in India
Establish own MRO facilities or sell to the facilities that are going to be established
Sell Ground Support Equipments by forming partnerships with Indian marketing arms to meet the Indian demand
No professional aircraft finisher in India. Immediate opportunity in India
Product Segments: Possible Strategies
© IL&FS Ltd.21
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
© IL&FS Ltd.23
38 40 41 42 51.352.3
0
20
40
60
2000 2001 2002 2003 2004 2005
Financial Year
Million
Passen
gers
HUGE POTENTIAL MARKET
Huge potential market
• Discount Fares/Low Cost Carriers fares competitive to premium railway fares
• Ever increasing reach
Indian Railways-Premium
Passengers
Growth Drivers
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
© IL&FS Ltd.24
• International Air Traffic growing at CAGR @15%
• Growing Indian economy and globalized trade
• Rise in international tourism
International Air Passengers
PA
X(
in M
n)
11.913.2
15
18
0
5
10
15
20
FY02 FY03 FY04 FY05Financial Year
Tourism
• Domestic Tourism growth CAGR @ 15%
• Boost with rising per capita income and increased consumerism
• Foreign Tourist Arrivals growth @ 20% for 2004 and 2005
136 140 160 168190
220 236270
309
370
0
100
200
300
400
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
Mn
Passen
gers
Growth Drivers