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- India -

• Stars of the World Economic Forum at

Davos 2006 were the world’s new

economic giants, India & China.

• India is one of the hottest topics among

world’s leading private equity firms,

venture capital players and hedge funds.

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• India’s enormous potential for economic

development, its solid underlying

fundamentals and the impressive early

returns to the first wave of investors

makes this a market that investors cannot

ignore.

• Impact of market liberalization measures

and subsequent reforms have been

dramatic.

• Overall economic portrait for India said to

be one of explosive and sustained growth.

• Outlook for air transport sector is no

different.

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Whether it be…

• GDP forecast

• Domestic/International air travel forecasts

• Freight forecasts

• Increases in airplanes

• Emergence of new carriers.

The “Aviation Frenzy” provides more signs

that the world’s second most populous

country is lurching towards modernization

and unprecedented growth.

• “We’ve come to recognize that aviation is

an integral part of the growth process in

India” . – India’s Aviation Minister

• With this kind of potential and forecasts,

no one doubts the opportunities.

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• Latter part of 2003 Sri Lanka/India bilateral

liberalized.

• Today 106 flights per week operated by air

carriers of both countries (85-UL; 21 -

Indian carries)

• India now premier tourism generating

country to Sri Lanka.

• Sri Lanka one of the main tourism

generating countries to India.

• Visitor arrivals to Sri Lanka from India

exceeded 100,000 in 2004 and have

increased a further 8% in 2005.

• Visitor arrivals from Sri Lanka to India

130,979 in 2004.

• UL will continue to open up new markets,

in the context of the vast opportunities for

tourism, and for enhancement of bilateral

trade in goods and services.

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• However, no getting behind fact that to sustain

growth certain critical issues relating to the air

transport sector must be addressed.

• Mr Bisignani recently highlighted 5 challenges:

- Enhanced safety

- Cost efficient improvement of infrastructure

- Reasonable Taxation

- Letting airlines run their business as real

businesses

- Effective use of technology – simplifying the

business

• Top on the list is state of Infrastructure.

• Comparisons with China do not shed

flattering light on India.

• Secretary, Ministry of Civil Aviation agrees

that India’s airports need work.

“Whatever needs to be done needs to

be done quickly”.

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• Overkill of concentration on extra seat capacity.

• Not enough planning and investment in

infrastructure.

• November 06 edition of Fortune Magazine

reports that India is enjoying a tech. revolution,

a new middle class, a sizzling economy, but

asks, can it get the basics right?

• Therefore discordant notes have crept in.

• Many airports – few to international

standards

• Facilities offered at airports rudimentary.

• For passengers superiority of inflight

comfort negated by poor service on

ground.

• Congestion at Bombay/Delhi (50% of air

traffic movements)

• Price of jet fuel significantly higher than

global average.

• Shortage of Pilots and Engineers.

• 24 hour radar coverage not available in

some areas.

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• Greenfield airports –Bangalore/Hyderabad

• J/Vs for Ground Handling and MRO facilities

• Highly advanced GPS aided Geo augmented

navigation (GAGAN) system operational this year.

• AAI set up more radar stations – to bring entire

Indian airspace under radar monitoring.

• Training more Air Traffic Controllers.

• Raising retirement age of pilots to 65 from 61.

• Govt. has estimated that an investment of

US$ 10 billion in aviation infrastructure

needed.

• Not easy for any Government, particularly

if the development is to be accelerated.

• So far little or no private investment in

aviation infrastructure.

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• No one would suggest that India is lacking

in entrepreneurial spirit – quite the contrary.

• Private investment activity concentrated in

IT, telecom, healthcare, automobile

components etc.

• Indian capital markets are also now mature

and robust. IPO’s are becoming popular

and have been successful.

• Perhaps in recognition of the fact that

infrastructure bottleneck will slow down

growth, and that there is potential for

strong returns, several dedicated

infrastructure funds are emerging – This is

a good sign.

• Airport infrastructure and aviation

infrastructure sectors, initially there may

be a gap between funds invested and

revenue generated.

• But, going forward, with the kind of

potential there is – these investments will

pay rich dividends.

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• Rarely have we heard of airports that don’t

make money if the right ingredients available.

• Kochi airport – gulped all the funds and

offered no returns in the first few years.

• Now with more services, better amenities

and ever growing traffic a turnaround in

fortunes.

• For successful airport operators 70% of

revenue comes from non-aeronautical

activities. Estimated that AAI gets less than

30%.

• Time is of the essence.

• Yes, liberalization and restructuring of

airport infrastructure going to be more

difficult than restructuring air services.

• Market liberalization and regulatory

reforms in other sectors have borne fruit.

• No reason why it cannot be for air

transport sector.

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• Market liberalization under a

strong/dependable regulatory regime that

provides investor confidence.

• Unions must be brought on side – recent

public sector strikes at BOM/DEL Airports

do not inspire investor confidence.

• If aviation infrastructure does not keep

pace with burgeoning increase in seat

capacity it will not be long before airlines

become “sick”.

• Higher costs associated with less than

optimum operations.

• Already thin margins will disappear and

companies will go under.

• May result in cost being passed down on

to the consumer.

• Natural shakeout driven by market forces

– will be inevitable Jet/Sahara Merger

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I would like to sum by with this thought –

China with the same population as India

has more than 20 airlines and 800 +

aircraft – while India has 11 airlines and

200 aircraft. This lends credence to our

belief that India’s true potential is yet to be

tapped.

“The elephant may be slow, but it is real and

a long distance runner. The dragon, for all

its fire and ferocity, is still a mythical

animal.”