INDIAN AVIATION INDUSTRY –

AVIATION FINANCE

BY – ADITYA D TANWAR
A047 – TY BBA LLB (HONS.)
INTRODUCTION

The term aviation finance refers to the provision of capital to airlines and leasing companies so that they
can purchase (or refinance) commercial aircraft. Aviation financing is a hot topic and likely to remain so
over the coming years, as the demand for financing deliveries of new aircraft peaks at a time when long
term financing becomes unattractive for some of the incumbent banks. On the one hand, record order books
of aircraft manufacturers reflect a period of strong orders buoyed by both new aircraft types and strong
demand in the emerging markets.

RESEARCH QUESTIONS:

1. What’s ailing the Indian Aviation Industry?

2. What is Funding & Investment and its importance in this field?

3. Why is the Economy Market & Finance important in Aviation Industry?

CURRENT SCENARIO OF INDIAN AVIATION INDUSTRY
• INDIA COMPLETED 100 YEARS IN AVIATION SECTOR ON 18 FEBRUARY, 2011.
• THE INDIAN AVIATION INDUSTRY IS ONE OF THE FASTEST GROWING AVIATION
INDUSTRIES IN THE WORLD
• 454 AIRPORTS AND AIRSTRIPS; 16 DESIGNATED INTERNATIONAL AIRPORTS
• WITH THE LIBERALISATION OF THE INDIAN AVIATION SECTOR AVIATION INDUSTRY HAS
UNDERGONE RAPID TRANSFORMATION
• BEING PRIMARILY A GOVERNMENT-OWNED INDUSTRY, INDIAN AVIATION NOW
DOMINATED BY PRIVATELY OWNED FULL-SERVICE AIRLINES AND LOW COST CARRIERS
• PRIVATE AIRLINES ACCOUNT FOR AROUND 75% SHARE OF DOMESTIC AIRLINE
AVIATION MARKET
• AIRLINE BUSINESS GROWING AT 27% PER ANNUM: MINISTRY OF CIVIL AVIATION
 Ailing the Indian Aviation Industry
Pilot Shortage
CAPA Centre for Aviation, a Sydney-based consultant, estimates the current number of pilots in
India at 7,963. In 10 years, airlines will have to hire 17,164 more. The projected growth in capacity,
because of plane orders, will lead to a 14% shortfall in commander pilots, a part of which will have
to be fulfilled by more expensive expatriates, leading to a rise in the wage bill, the second biggest
cost chunk after fuel.

Government Apathy
Airlines in India have been appealing, in vain, to the government for a decade for a reduction
in taxes on fuel. Jet fuel is 35-40% more expensive in India than in the rest of the world, because
of relatively high tax rates.
High Costs, Low Yields

Jet fuel prices constitute about 40% of costs for an

Indian carrier and are taxed higher here than
anywhere else in the world. A recent analysis by ET
of the correlation between fuel prices and airline
profitability in the last 10 years showed at least
three points — a rise in the December quarter of
2013 and significant dents in April-March 2015 and
January-March 2016 — that plunged airlines into
deep losses or catapulted them to significant
profitability.
CHALLENGES
• INITIALIZING PRIVATIZATION IN THE AIRPORT ACTIVITIES
• MODERNIZATION OF THE AIRLINES FLEET TO HANDLE THE PRESSURE OF
COMPETITION IN THE AVIATION INDUSTRY
• RAPID EXPANSION PLANS FOR THE MAJOR AIRPORTS FOR THE INCREASED
FLOW OF AIR TRAFFIC
• DEVELOPMENT FOR THE GROWING REGIONAL AIRPORTS
• WAVING OF TAX EXEMPTION ON LEASING FROM GOVERNMENT
• COSTS PRESSURES (ATF PRICES & STAFF COST)
IMPORTANCE OF AVIATION FINANCE & INVESTMENT

Why invest in aviation finance?

Aviation debt provides an opportunity for insurers to access investment grade debt collateralized on long-
lasting assets. Below we explore some of the key characteristics of this asset class.

Investment - Stable cash-flow profile

Aviation debt cash flows are contractual and to that extent are known in advance. However, some forms of
investment allow the borrower to repay early. While in many cases borrowers are required to compensate the
lender if they prepay, this introduces uncertainty to the level and timing of cash flows. Long-term cash flows
Security
In secured forms of aviation debt, cash flows are secured on physical assets. Unlike property, these assets are
fungible and can be relocated with ease. This means that sale is not restricted by the geography of the
purchaser, as in the case of real estate,
THANKYOU