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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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

Successful Delivery of An Infrastructure Mandate on a PPP basis

Project Development Project Sponsorship Project Management Stakeholder Value Management Project Design & Sector Specialization Engineering & Project Management Environmental & Social Management

Management & Technical Skills

Legal & Contractual Documentation

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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Indian 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
10 year GDP growth CAGR %
10 8.6 9 8 7 6 5 4 3 2 1 0

Trends in GDP
17.5 15.0 12.5 YoY % change

6.2 5.0 5.0 4.8 4.6 4.2 3.5 3.1 2.8

10.0 7.5 5.0 2.5 0.0 -2.5 -5.0 -7.5 Q4, FY03 Q1, FY03 Q2, FY03 Q3, FY03 Q1, FY04 Q2, FY04 Q3, FY04 Q4, FY04 Q1,FY05

Singapore

Philippines

Hong Kong

Malaysia

Korea

-10.0

China

India

Taiwan

d Indonesia

Thailan

Industry

Services

Agriculture

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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

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 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 international sectors serving the 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 became a preferred mode of transport for elite class Restricted Growth of Aviation Industry High Cost structure Underdevelopment of infrastructure Implication Aviation has become affordable with check fares and discount schemes Various Operators with different business model Huge growth Industry foreseen in the Aviation

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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
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High Growth in Passenger and Air Cargo Traffic

Passenger Traffic Trends

YEAR

2003-04 2004-05 2005-06

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

2010 (Projection):

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

Air Cargo Trends

YEAR

International Qty ( Thous tonnes)

Domestic Qty ( Thous tonnes)

Total

% Growth

Qty ( Thous % Growth tonnes) % Growth

2003-04 2004-05 2005-06

693 824 903

7 19 10

375 457 479

13 22 5

1069 1280 1382

9 20 8

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

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Capacity 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 100 68 60 50 43 40 36 20
Indigo

Full Service
Low

cost

Carriers

changing the game

Air Cargo Market Expected to grow to 125 from 7 by 2025

Price
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AIRPORT INFRASTRCUTURE-Huge Opportunity

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Airport Infrastructure- Regulatory Authorities 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 Other Attached/Autonomous Organisations: Directorate General of Civil Aviation : (DGCA) Promote safe and efficient system Bureau of Civil Aviation Security (BCAS) Airport Authority of India (AAI) : : Regulatory authority for civil aviation security in India Accelerate the integrated development, expansion and modernization of the operational, terminal and cargo facilities at the airports
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Air

Transportation

through regulation and proactive safety oversight

India 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

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

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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Recent 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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AAI- Plans for Airport Infrastructure Airport Authority Expenditure Plans

Particulars Restructuring/ Modernization Delhi & Mumbai Chennai & Kolkatta Green Field Airports Bangalore, Hyderabad, Pakyong,-Sikkim, CheithuNagaland, Itanagar, Goa, Pune, Nagpur (Hub),Navi Mumbai, Halwara-Punjab 35 selected airports Other than above airports Airport Cost ( USD Mn) 3,488 1,163 2,326

Upgradation Modernization/ Improvement Market Opportunity by 2010

Source: Ministry of Civil Aviation

1,628 698 9,302

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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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 design & development (offsetting) Electronics/Avionics Support services (sky-chefs) Specialized Consulting (Traffic Study, Business Advisory)

Products
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
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Market Size
USD Millions

Segment Civil Aerospace Manufacturing Metals Composites Systems and Associates Avionics Standard Parts Manufacturing Outsourcing Others (Consumables/Tooling) Airport Development and Services Commercial MRO Optional Aircraft Equipment and Systems Testing and Certification Consulting Training Software and Systems PLM and Knowledge Engineering Pilot Supplies and Navigational Aids Others (Financing, Leasing, Insurance,etc)
Source: UK Trade and Investment

2,005 51 4 3 10 9 2 7 3 800 331 15 12 40 134 4 4 360

Cumulative till 2010 564 45 28 110 104 23 73 28 6,978 2,539 123 5 98 446 1,071 29 32 6,162

Cumulative till 2015 1,967 157 98 384 364 79 256 98 18,069 8,739 400 12 286 1,380 3,123 88 82 18,674

Estimated that more than 50% of the above market will be catered by foreign players
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Entry 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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Product 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
40 Million

HUGE POTENTIAL MARKET Indian Railways-Premium Passengers

60 38 40 41 42 51.3 52.3

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

Passengers

20

2000

2001

2002

2003

2004

2005

Financial Year

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

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Growth Drivers
International Air Passengers Tourism

20 18 15 11.9 13.2 15 Mn Passengers 370 400 270 300 200 100 0 5 136 140 160 168 190 220 236 309

PAX( in Mn)

10

Year

FY02

FY03

FY04

FY05

Financial Year

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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