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Post Info TOPIC: SriLankan's CEO on India


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SriLankan's CEO on India
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1


Mapping the Future


- 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.


2


• 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.


3


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.


4


• 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.


5


• 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”.


6


• 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.


7


To be fair, it is an “explosion” in terms


of growth probably not anticipated, and


work had already begun on many


projects.


• 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.


8


• 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.


9


• 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.


10


• 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


11


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.”



__________________
KCM
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