INVESTMENT RISK

The Indian Aviation Industry and Investment Risk



The Indian Aviation Industry and Investment Risk

Introduction

There have been a number of changes in the aviation sector in India over the past five years. It is not exclusive for the upper class to travel, and is now within reach of the middle class, as well. The recent growth is evidence of this significant change. In fact, with a wider range of airlines, a large number of people who previously could not afford to travel by air have now joined the club of air travelers. The number of passengers at airports in India increased from 40 million in 2000-01 to 119 million in 2007-08. Although there was a slowdown in 2008-09, traffic has grown again and expected the negative growth in 2008-09 could not neutralize and grow further at the end of this year (Kanter 1994, pp. 144). This phenomenal recent growth was largely due to the 'open skies policy' for the domestic sector. This is, of course, in addition to the fact that, a favorable macroeconomic situation in the country has been itself a major catalyst for growth. There are a number of steps, which the government undertook to modernize airport infrastructure and keep pace with traffic growth. This led to capacity building and improved service standards in most of the major airports. In the last 5 years, almost 60 of Indian's 90 airports have been undergoing old catch-up work and extensive modernization. There have been a number of steps to encourage a major modernization program through private capital investment, with the goal of providing world class facilities.

Discussion

Overview of the Aviation Industry

With the growth of 18% per year, the Indian aviation market reached the ninth position in the overall picture than the twelfth it had in 2006. Civil Aviation Minister, Prafur Patel, recently highlighted that there are significant opportunities in the sector in terms of personnel training and aircraft assembly.

The Government of India secured a liberal environment for airlines operating in both domestic and international sphere. In all domestic routes, airlines are free to operate independently without government permission, though they require allocating a portion of its fleet to remote or underdeveloped areas of the country to provide easy accessibility. Internationally, the Government has adopted a liberal approach to sign bilateral air service agreements with key markets, making things easier for foreign operators. For example, Emirates, the largest foreign airline in terms of capacity in India, planned to operate 185 weekly flights to 10 Indian cities throughout the country in late 2009 (Agusdinta & Klein 2002, pp. 201).

According to estimations, investment in Indian airport infrastructure requires more than 5,000 billion in 2008 to 9,000 million at the end of 2013. Approximately, 6,800 million could come through the PPP model. There are 35 secondary airports, identified by Airports Authority of India, which require modernization of infrastructure. According to analysts, the main challenges are the identification of funding and key geographies.

According to the Center for Asia-Pacific Aviation (CAPA), despite the rapid expansion in recent ...