FICCI-

INDO US SUMMIT

AEROSAPCE INFRASTRUCTURE -An Opportunity Mapping

Infrastructure Financial Services Limited

Milind Patel- Executive Director
IL&FS Financial Services Limited 30 Nov 2006
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L&FS-an introduction

orated in 1987 with mandates to commercialise infrastructure and develop financial services business

e 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 Management & Technical Skills Project Design & Sector Specialization Engineering & Project Management Legal & Contractual Documentation Environmental & Social Management

Investment Banking Structured/Asset Finance Financial Engineering Skills Corporate Advisory/M&A Project Finance

Distribution Broking Project Syndication Merchant Banking

Private Equity Venture Funds Infrastructure Funds

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INDIAN ECONOMY- The Takeoff Stage

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ndian 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
Trends in GDP
17.5 15.0 12.5

10 year GDP growth CAGR %

10 8.6 9 8 7 6 5 4 3 2 1 0

YoY % change

6.2 5.0 5.0 4.8 4.6 4.2

10.0 7.5 5.0 2.5 0.0

3.5

3.1

2.8

-2.5 -5.0 -7.5 -10.0

Q1, FY03

Q2, FY03

Q3, FY03

Q2, FY04

Q4, FY03

Q1, FY04

Q4, FY04

Q3, FY04

a ae o K r

an h C i

a dn i I

i s ya a M l

na w aT i

Industry

Services

Agriculture

e opagn S r i

no K gno H

nai ahT l

en ppli hP i i

a s enodn i I

Q1,FY05

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nfrastructure 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 Industry of Aircraft 1986: Private Sector 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 Implication Aviation became a preferred mode of transport for elite class Restricted Growth of Aviation Industry High Cost structure Underdevelopment of infrastructure
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Players

Consequently, assets of 9 existing companies transferred to two entities in the aviation sector controlled by the Government in a) Indian Airlines, domestic sectors primarily serving

b) Air India, primarily serving the international sectors

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 IL&FS Ltd

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 airports8 having more than one daily service

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gh Growth in Passenger and Air Cargo Traffic

Passenger Traffic Trends
YEAR International No.in million % Growth 17 12 19 17 23 18 Domestic No.in million % Growth 32 11 40 24 51 28 Total No.in million % Growth 49 12 59 22 74 24

2003-04 2004-05 2005-06

2010 (Projection):

105-115 million (69 mn domestic & 40 mn international)

Air Cargo Trends

YEAR International Q ty ( Thous tonnes ) % Growth Total Q ty ( Q ty ( Thous Thous tonnes ) % Growth tonnes ) % Growth Domes tic

2003-04 2004-05 2005-06

693 824 903

7 19 10

375 457 479

13 22 5

1069 1280 1382

9 20 8

2010 (Projection): 3,360 thousand tonnes Source: Ministry of Civil Aviation

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apacity Expansion and New Players

Huge Growth- Huge Plans Fleet Acquisition New Fleet Orders -More than 500 Fund Requirement- USD 50-55 bn approx
Competitive Pressure

COMPETITIVE LANDSCAPE

Order Book New Players Indigo Air India Air Deccan Kingfisher Indian Airlines Jet airways Go Air Spice Jet Air Cargo Market 43 40 36 20 100 68

ec vr eSll uF i

60 50

Low cost Carriers changing game Indig o the

Expected to grow to 125 from 7 by 2025

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Price

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AIRPORT Opportunity

INFRASTRCUTURE-Huge

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port Infrastructure- Regulatory Authorities Ministry of Civil Aviation

Responsible for the formulation of policy, development and regulation of Civil Aviation. Its functions alsoextend to overseeing airport facilities, air traffic services and carriage of passengers and goods by air Other Attached/Autonomous Organisations: Directorate General of Civil Aviation (DGCA) safety oversight : Promote safe and efficient Air Transportation through regulation and proactive system : Regulatory authority for civil aviation security India : Accelerate the integrated development, and modernization of the operational, cargo facilities at the airports
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Bureau of Civil Aviation Security in (BCAS) Airport Authority of India (AAI) expansion terminal and

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a 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

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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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

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ecent 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 -Mumbai GMR-Fraport consortium GVK- South African Airports

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AI- 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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Particu

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Market Opportunity 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 development (offsetting) Electronics/Avionics Support services (sky-chefs) Specialized Consulting (Traffic Study, Business Advisory) design & Navigational aids, Products Instrument landing systems (ILS) Communications equipment Weather equipment 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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Baggage handling and information

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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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try Strategies for Foreign Companies

Level 1 Sell existing products and services into growing Indian market directly/indirectly (through OEMs)

Level 2

Formulate strategic alliances, CRM bases, support bases to sell into Indian market

Level 3

Use maturing, low cost Indian platform for Sourcing from India to sell into World Market

Level 4

Setup JVs in India to take advantage of the edge given to domestic firms, sell into Indian and Global Market

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oduct 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/Re pair/Overhaul

Establish own MRO facilities or sell to the facilities that are going to be established

Interior Funrshings

No professional aircraft finisher in India. Immediate opportunity in India

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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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 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
2000 2001 2002 2003 2004 2005 Financial Year 0

HUGE POTENTIAL MARKET Indian Railways-Premium

60 Passengers 38 40 40 41 42 51.3 52.3

Million

The

Increase

in

Consumerism

and

Passengers

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Huge potential market

Discount Fares/Low Cost Carriers fares competitive to premium railway fares Ever increasing reach

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Growth Drivers
International Air Passengers
20 18 400 370 220 236 270 309

Tourism

15 11.9 10 13.2

15

Mn Passengers

300 200 100 0 136 140 160 168

190

) n M n ( XAP i

19 96

97

19 99

3 20 0

19 9

Year

FY02

Financial Year

FY03

FY04

FY05

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

International Air Traffic growing at CAGR @15% Growing Indian economy and globalized trade Rise in international tourism
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20 0

20 04

19 9

20 0

20 0

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