INTRODUCTION

It is a very well known fact that aviation sector not only brings immense benefits to communities
and economies around the globe, but also is a key catalyst of economic growth, social
development and tourism. It facilitates connectivity and access to international markets. Air
transport currently supports 56.6 million jobs and accounts for over US$ 2.2 trillion of the global
gross domestic product (GDP).
Air passenger traffic in India is increasing on a tremendous pace. The sub-continents airport
infrastructure is undergoing modernization with the induction of most advanced facilities. It
includes setting up of new Greenfield airports and installation of security, surveillance and air
traffic navigation systems.
India is currently the 9th largest aviation market handling 121 million domestic and 41 million
international passengers. Today, more than 85 international airlines operate to India and 5 Indian
carriers connect over 40 countries.With the liberalization of the Indian aviation sector, aviation
industry in India has undergone a rapid transformation.Traffic growth in the India market
exceeded the growth rate seen in China (9.7%) and Brazil (7.5%) in Sep-2011, and was
considerably more robust than the global growth rate of 3.8%.
India's domestic aviation market expansion has been the strongest in the world, tripling in the
past five years, according to IATAThe government's open sky policy has led to many overseas
players entering the market and the industry has been growing both in terms of players and
number of aircrafts. From being primarily a government-owned industry, the Indian aviation
industry is now dominated by privately owned full service airlines and low cost carriers. Private
airlines account for around 75% share of the domestic aviation market. Earlier air travel was a
privilege. only a few could afford, but today air travel has become much cheaper and can be
afforded by a large number of people.



Developments In The Indian Aviation Industry
As Indias civil aviation sector developed and evolved over time, in order to guide market
participants the Ministry of Civil Aviation and Government of India

Periodically responded to new industry challenges by setting up and amending existing
regulatory frameworks. Up until the late 1980s, Indias civil aviation sector remained
monopolized by Indias government owned airlines. However in 1986, the Indian government
once again granted permission to private sector companies to provide air taxi service.
Additionally, Indias Open SkyPolicy of 199013 and the Air Corporations (Transfer of
Undertakings and Repeal) Act of 199414
In 2003 the introduction of a new type of airline service called low cost carriers - LCCs or no
frill sair service - by Air Deccan, reinvigorated Indias civil aviation sector. By bringing
competition into the Jet Airlines-Air Sahara duopoly, Air Deccan brought a new competitive
spirit to Indias civil aviation. Furthermore, introduction of low cost airlines also changed the
perception that air travel was reserved only for the elites. By 2007 mergers and common in
Indias civil aviation sector. Within a span of two years Air India and Indian Airlines merged, as
did Jet Airways and Air Sahara, and Kingfisher Airlines and Air Deccan.
Currently, India maintains bilateral Air Service Agreements (ASAs) with 108 countries.15
While72 foreign airlines fly in and out of India,4 four private domestic carriers - Jet Air,
IndiGo,SpiceJet17 and Kingfisher - fly to 35 destinations in 25 countries.18 Air India, the
national carrier maintains a number of international routes: seven destinations in North America,
nine destinations in Europe, 12 destinations in the Gulf, two destinations in the Middle East, two
destinations in Africa, and 13 destinations in West and East Asia.19Recently, Indias Ministry of
Civil Aviation hosted 65 International Civil Aviation member nations (ICAO) at the 4th
International Civil Aviation Negotiation Conference (ICAN 2011)during the week of 17 October
2011. The conference provided a forum for nations to amend and modernize existing ASAs.
While Indias international carriers lobbied the Indian government to
allow them to run more flights to Oman, Saudi Arabia and Hong Kong, representatives from the
Persian Gulf lobbied the Indian government for additional seats .Until 1994the Directorate
General of Civil Aviation (DGCA) controlled every aspect of flying including the licensing of
pilots, certifying aircraft and issuing all rules and procedures governing Indian airports and
airspace. However, in 1994 an Act of Parliament established the Airports Authority of India
(AAI).21 This Act gave the AAI the power to manage all national and international airports and
administer every aspect of air transport operation through the air traffic control.In 2008, the
Airports Economic Regulatory Authority of India Act established the Airports Economic
Regulatory Authority (AERA) of India. AERA regulates tariffs and other aeronautical charges,
as well as monitors airports performance standards. Within the Indian context of airport
regulation, AERA takes the following things into consideration: airports are natural monopolies;
airports are public goods, both in the case of Brownfield and Greenfield airports the Government
of India has made land available for acquisition, often under the Land Acquisition Act ,to airport
developers at a very low cost.22 Lastly, the same Act established the Appellate Tribunal which
handles appeals from service providers and consumer groups.




HISTORY
The first commercial flight in India was made on February 18, 1911, when a French pilot
Monseigneur Piguet flew airmails from Allahabad to Naini, covering a distance of about 10 km
in as many minutes. Tata Services became Tata Airlines and then Air-India and spread its wings
as Air-India International. The domestic aviation scene, however, was chaotic. When the
American Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic
airlines sprang up, scrambling for traffic that could sustain only two or three. In 1953, the
government nationalized the airlines, merged them, and created Indian Airlines. For the next 25
years JRD Tata remained the chairman of Air-India and a director on the board of Indian
Airlines. After JRD left, voracious unions mushroomed, spawned on the pork barrel jobs created
by politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas other airlines
have 350.For many years in India air travel was perceived to be an elitist activity. This view
arose from the Maharajah syndrome where, due to the prohibitive cost of air travel, the only
people who could afford it were the rich and powerful. In recent years, however, this image of
Civil Aviation has undergone a change and aviation is now viewed in a different light - as an
essential link not only for international travel and trade but also for providing connectivity to
different parts of the country.
Until less than a decade ago, all aspects of aviation were firmly controlled by the Government. In
the early fifties, all airlines operating in the country were merged into either Indian Airlines or
Air India and, by virtue of the Air Corporations Act, 1953; this monopoly was perpetuated for
the next forty years. The Directorate General of Civil Aviation controlled every aspect of flying
including granting flying licenses, pilots, certifying aircrafts for flight and issuing all rules and
procedures governing Indian airports and airspace. Finally, the Airports Authority of India was
entrusted with the responsibility of managing all national and international air ports and
administering every aspect of air transport operation through the Air Traffic Control. With the
opening up of the Indian economy in the early Nineties, aviation saw some important changes.
Most importantly, the Air Corporation Act was repealed to end the monopoly of the public sector
and private airlines were reintroduced.


PORTER FIVE FORCES IN AIRLINES INDUSTRY












Porter Analysis
1. Threat of New Entrants :High
As of now it is very easy to enter into the aviation sector in India since there are very few entry
barriers. Government is also promoting the Local Players in the sector. Various low cost carriers,
both domestic and foreign are entering the Indian skies with the increase in FDI limit to 49%
from 40%.
We need to look at whether or not there are substantial costs to access bank loans and credit. If
borrowing is cheap, then the likelihood of more airliners entering the industry is higher. The
more new airlines that enter the market, the more saturated it becomes for everyone. Brand name
and frequent ier point also play a role in the Airline industry. An airline with a strong brand
name and incentives can usually be enough to lure a customer (even if their prices are higher).
With the airline industry cruising deeper into red zone and losses mounting, government is
planning to erect a host of checks and balances on entry barriers to permit only serious and
nancially sound aviation ventures to take o. Under these fresh regulations, government intends
to make it mandatory for all wannabe aviators to rst tie-up nances; aircraft leasing deals and
recruits pilots and engineers before seeking a scheduled airline license.

2. Bargaining Power of Suppliers : High
All suppliers have tremendous bargaining power with the airline industry. There are few fuel
providers and no reliable alternative to fuel. The airline supply business is mainly dominated by
Boeing and Airbus. For this reason, there isn't a lot of cutthroat competition among suppliers.
Also, the likelihood of a supplier integrating vertically isn't very likely.

3. Bargaining Power of Buyers : low
The bargaining power of buyers in the airline industry is quite low. Obviously there are high
costs of switching airplanes, but taking a look at the ability to compete on service, the seat in one
airline is probably not more comfortable than another , unless we are analyzing a luxury liner.
Generally speaking consumers, business or regular travelers, have little bargaining power with
airlines. Either they buy the ticket or not, one traveler does not hurt the airline. The demand for
more affordable air travel is quite robust.

4. Availability of Substitutes : availability of substitute is low
For international airlines the threat is quite low as airlines is the only way for travelling to long
destination .e.g. from India to USA.for national airlines the threat might be little higher than
international airlines as passenger can use ground travel like train or bus as substitute . time
money personal preference is also needed to be considered

5. Competitive Rivalry : High
Competition among major players is extremely intense in many aspects. Switching costs are
generally low, even though companies have tried to increase switching costs with the use of
"frequent flyer" programs. Highly competitive industries generally earn low returns because the
cost of competition is high. This can spell disaster when times get tough in the economy.
Recent happenings in Indian Avation Industry





CLASSIFICATION & TYPES
The Indian airline sector can be broadly divided into the following main categories:
1. Scheduled air transport service, which includes domestic and international airlines.
2. Non-scheduled air transport service, which includes charter operators and air taxi operators.
3. Air cargo service, which includes air transportation of cargo and mail.

Scheduled air transport service: It is an air transport service undertaken between two or more
places and operated according to a published timetable. It includes:
New entry
Air inida to merge with Alliance Air
joint venture between tata group and air-asia
Merger and acqusition- Etihad Airways in talk with
jet airways
Tiger Airway in talks with spice jet
Good
Hapenings
kingfisher airlines has been forced to stop its
operation due to huge debt
All indian carrier faced loss during the year 2013
Indian own carrer Air-India faces tough competion
and heavy loss
Bad
Hapenings
1. Domestic airlines, which provide scheduled flights within India and to select international
destinations. Air Deccan, Spice Jet, Kingfisher Airline and IndiGo are some of the
domestic players in the industry.
2. International airlines, which operate scheduled international air services to and from India.
Non-scheduled air transport service: It is an air transport service other than the scheduled one
and may be on charter basis and/or non-scheduled basis. The operator is not permitted to publish
time schedule and issue tickets to passengers.
Air cargo services: It is an air transportation of cargo and mail. It may be on scheduled or non-
scheduled basis. These operations are to destinations within India. For operation outside India,
the operator has to take specific permission of Directorate General of Civil Aviation
demonstrating his capacity for conducting such an operation.
At present, there are 2 scheduled private airlines (Jet Airways and Air Sahara), which provide
regular domestic air services along with Indian Airlines. In addition there are 47 non-scheduled
operators providing air-taxi/non-scheduled air transport services.

Players in Indian aviation
Players in airline industry can be categorized in three groups:


art up players.
Public players: Air India, Indian Airlines and Alliance Air.
Private players : Jet Airways, Air Sahara, Kingfisher Airlines, Spice Jet, Air Deccan and many
more.
The startup players are those planning to enter the markets. Some of them are Omega Air,
Magic Air, Premier Star Air and MDLR Airlines
Top leading companies

Airlines founded Head
quarters
Key person
Air-India 1932 Mumbai Rohit Nandan
Jet Airways, 1993 Mumbai Naresh Goyal
Go Air Airlines,2005 Mumbai Jeh Wadia, MD
Paramount Airlines, 2005 Chennai M.Thiagarajan, MD
Jet Lite (Formerly Air Sahara), 1991 New delhi Naresh Goyal
Indigo airlines, 2005

New Delhi Bruce Ashby, President & CEO

Spice Jet, 2005

New Delhi Siddhanta Sharma,CEO & COO


SEGMENT


SEGMENT
FULLCOST
SERVICE
LOW COST
CARRIER


MARKET SHARES OF LCC



PLAYERS IN
SEGMENT
LOW COST
CARRIER
AIR -INDIA
EXPRESS
JET -LITE INDIGO SPICE-JET GO-AIR
FULL COST
CARRIER
AIR-INDIA JET-AIRWAY
19%
17%
5%
9%
20%
30%
Market shares
Air-India jet-airway jet-lite Go-Air Spicejet Indigo
In the above figure we can see that Indigo appear to be leading Air-Lines in Indian Domestic
sector with 30% of Market share while Spice Jet appear to be second with 20% of share followed
by Air-India with 19% of Market share .while other carrier such as Go-Air ,Jet-lite, having
started to make their appearance in the Indian Market

MARKET SHARES OF FULL COST SERVICE

From the above figure we can see that Emirates emerges as Indias leading
international airline in FY2013
On the international front an important development was the fact that in FY2013 for the first
time a foreign carrier, Emirates, claimed the highest market share for traffic to/from India. Air
India, historically the market leader on international routes was impacted by the grounding of its
787s for most of the last quarter with 11.5% of market share into their account .While Indias
second largest international carrier, Jet Airways, saw only a marginal increase in traffic as it
consolidated its network and dropped services to points such as New York JFK, Milan,
Johannesburg and Kuala Lumpur.
0.00% 2.00% 4.00% 6.00% 8.00% 10.00%12.00%14.00%
EMIRATES
Air-INDIA
Jet Airways
AI-EXPRESS
INTERNATIONAL MARKET SHARE
INTERNATIONAL MARKET
SHARE
COMPARISON OF MARKET SHARE OF LCC AND FCS



From the above diagram we can see that the market share of low cost airline is increasing at
rapid rate then the full cost service due to large number of domestic player into the Indian
market providing service at lower price which attracted large number of Indian passenger which
further helped them to gain more advantage then the full cost service
In the following year 2004-05 market share of full cost service was 100% as because market was
dominated only by Indian carrier Air India as number of player increased the market share of full
cost service started following down from the year 2006-07




0
20
40
60
80
100
120
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
GROWING MARKET SHARE OF LOW COST
AIRLINES
FCS
LCC
COMPARISON OF GROWTH OF PASSENGER LOAD FACTOR OF SCHEDULED
DOMESTIC AIRLINE



From the above diagram Indigo recorded highest number of passenger growth due to their low
price strategies . it recorded increase in growth at 6% during the april 2013 then the previous
year april 2012.
While there were some positive to come out for the Indian carrier Air india with the arrival of
their dream liner it helped then to generate revenue and attract passenger by changing their
strategies and cutting airlines cost which further recorded second highest growth after indigo at
5% during the april 2013 as compared to last year april 2012
we can see that most of the airline recorded a growth during the year april 2013 due to low tax
policy implemented by government on domestic sector for indian carrier.


0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Air india jet airways jet lite Spice jet Go air indigo
Apr-12
Apr-13
Future Expected Growth of Lcc over Fcs


The shift to LCCs is expected to increase, particularly among corporate travellers
Today FSCs are capturing some of their traffic because they are pricing below cost, but this is
not sustainable. As and when FSCs increase their fares to reflect their cost base and charge a
premium above LCCs, which at some point will become necessary, we can expect to see
passengers increasingly shifting to low cost.
LCCs will also continue to grow their share in part because most of the fleet expansion is
occurring in this segment. In the second half of FY14 LCCs are expected to induct an additional
20 aircraft on domestic routes, whereas little or no additional fleet deployment is likely by Air
India on domestic sectors.
Scheduled Deliveries of Narrow body Aircraft (domestic and international) to Indian LCCs
and FSCs to 2020
LCCs are best-positioned to to utilise this expanded airport capacity. We expect to see
particularly strong growth in LCC market shares on intra-metro routes.
Indias Civil Aviation Market structure Growth passenger wise and Revenue statistics

Indias civil aviation sector is much younger than other modes of transportation, and its market
structure has changed frequently over the last few decades. Indias civil aviation sector evolved
from a market tightly controlled by the government with two air carrier service providers to a
relatively competitive market with a somewhat small number of domestic and international air
carriers. Some features of Indias civil aviation sector include a large number of consumers
(passengers and cargo), a relatively small number of airlines with significant market share,
significant cost barriers to market entry, differentiated services, and competitive firms affecting
each others business decisions. These market characteristics indicate that Indias civil aviation
sector has an inherent oligopolistic market structure. Since within Indias civil aviation sector,
economies of scale and scope exist; in order for each market participant to break even, the firm
must achieve a minimum efficient scale of operation.




0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013
Passenger Growth
Passenger Growth
From the above figure we can make out the passenger growth in Indian aviation is growing at the
faster rate from the year 2008 , 2009 , 2011, but there was a sudden fall in to the passenger
growth because of the sudden tax scheme increased by government of India. But after the
Foreign direct investment the government of INDIA brought down the tax by making it low
which further attracted foreign carrier which further helped Indian aviation to attract more no of
passenger internationally which further recorded highest growth rate at 7% during the
accounting year 2013
Indian aviation market is poised to become the third largest across the globe by 2020, according
to industry estimates. The sector is expected to handle 336 million domestic and 85 million
international passengers with projected investment to the tune of US$ 120 billion. Indian
Aviation Industry that currently accounts for 1.5 per cent of the GDP, has been instrumental in
the overall economic development of the country, said Mr Ajit Singh the Minister for Civil
Aviation. He further stated that given the huge gap between potential and current air travel
penetration in India, the prospects and possibilities of growth of Indian aviation market are
enormous.
Passengers carried by domestic airlines during Jan-May 2013 were 259.98 lakhs as against
258.08 lakhs during the corresponding period of previous year thereby registering a growth of +
0.74%.
Financial Report 10 year of Indian aviation sector

Sectorial Growth not the company wise
GOVERNMENT POLICY IN CIVIL AVIATION SECTOR IN INDIA
In the context of a multiplicity of airlines, airport operators (including private sector), and the
possibility of oligopolistic practices, there is a need for an autonomous regulatory authority
which could work as a watchdog, as well as a facilitator for the sector, prescribe and enforce
minimum standards for all agencies, settle disputes with regard to abuse of monopoly and ensure
level playing field for all agencies. The CAA was commissioned to maintain a competitive civil
aviation environment which ensures safety and security in accordance with international
standards, promotes efficient, cost-effective and orderly growth of air transport and contributes
to social and economic development of the country.

Objectives of Civil Aviation Ministry

To ensure aviation safety, security

Effective regulation of air transport in the country in the liberalized environment

Safe, efficient, reliable and widespread quality air transport services are provided at
reasonable prices

Flexibility to adapt to changing needs and circumstances

Encourage Private participation

Encourage Trade, tourism and overall economic activity and growth

Security of civil aviation operations is ensured through appropriate systems, policies, and
practices

OPEN SKIES POLICY
Need for Open Skies Policy

A recurring demand often voiced by interested parties is that, in order to promote Travel &
Tourism, India should adopt an Open Skies policy. It is argued that the current policy restricts
the access of foreign airlines. As a result potential tourists are not offered a choice of airlines or
seats when travelling to India. This problem is exacerbated during the holiday season when it is
difficult, if not impossible, to get a seat either into the country or out of it. It is argued, therefore,
that India should adopt an Open Skies approach to any foreign carrier wanting to fly into India,
which literally means allowing them unlimited service, capacity and points of call.

Meaning of Open Skies

At the outset we must point out that the concept of 'Open Skies' is much misunderstood in its
meaning and implications. Strictly speaking Open Skies means unrestricted access by any carrier
into the sovereign territory of a country without any written agreement specifying capacity, ports
of call or schedule of services. In other words an Open Skies policy would allow the foreign
airline of any country or ownership to land at any port on any number of occasions and with
unlimited seat capacity. There would be no restriction on the type of aircraft used, no demand for
certification, no regularity of service and no need to specify at which airports they would land.
Defined in this manner, it is not surprising that Open Skies policies are adopted only by a
handful of countries, most commonly those that have no national carriers of their own and that
have only one or two airports. No sovereign country of any eminence practices Open Skies least
of all the European Union, UK, USA, Japan, Australia or countries in South East Asia.


Bilateral Treaties

However, almost 99 per cent of Members of the International Civil Aviation Organization
(ICAO) follow the system of negotiated bilateral treaties determining the aviation relations
between two sovereign Contracting parties. In fact, the bilateral aviation regime is considered the
fundamental basis for a disciplined and regulated aviation system between the nations of the
world. It provides not only regularity of operations through scheduled services but also stipulates
the basis of ownership, number of seats to be utilized, type and certification of aircraft and
visiting ports of call. The Bilateral Agreements also protect the different kinds of aviation
Freedoms granted to contracting parties by specifying the reciprocal rights to be enjoyed by
each.

Indian Bilateral Treaties

India has signed over 180 Bilateral Agreements with different countries. In 2002 the total
number of seats available was 38.09 million. Of this, the capacity operated was approximately
19.174 million seats. Since the average size of traffic to and from the country is slightly in excess
of approximately 14 million passengers, normally the contracted rights should suffice the traffic
demand.

Utilization of Bilateral Treaty Contracts

It is in the actual utilization of the contracted seats that the problem arises. Of the contracted
amount, 50 per cent are to be utilized by the national carrier and 50 per cent by the airline owned
by the contracting country. However, whilst the foreign carriers are in a position to use over 70
per cent of their entitlement, the national carrier is only able to utilize 29.4 per cent of their
share. It is this shortfall that creates pressure on seats, particularly during peak tourism national
carriers do not have sufficient aircrafts to be able to utilize the bilateral rights available to the
country and enter into commercial and code sharing arrangements to maximize revenue. Whilst
this does improve their profitability in the short run, it has a long-term adverse effect in that it
deprives the country of much needed air bridges to bring in tourists and carry trade.

Under the present bilateral system, the utilization of the traffic rights on international routes to
and from India, as negotiated by the Government of India, is restricted to the two Government
owned 'national' carriers - namely Air India and Indian Airlines and either or both these carriers
are the Indian designated carriers under the various Air services
Agreements. The Operating Permits restrict the privately owned carriers, such as Jet Airways
and Air Sahara, to operate only domestic routes within India

FOREIGN DIRECT INVESTMENT (FDI)
The FDI policy should be to attract foreign investment in Indian Civil Aviation market. As far as
airport sector is concerned, the existing policy allows 100% funding through FDI whereas in
many of the segments of the Civil Aviation sector there are restrictions in allowing FDI. By
facilitating free flow of FDI, the industry will be able to meet the requirements of funds, get the
technical knowhow and also facilitate global access. The new Civil Aviation policy must address
the issue, if any and facilitate flow of FDI to the maximum extent possible

MARKET ACCESS POLICY
Civil Aviation market contributes significantly to the process of development of the country. It
also contributes to GDP substantially. All this demonstrate the significant footprint the Civil
Aviation sector has on the Indian economy. Considering the importance of this sector there
should be an easy entry and exit policy for the Civil Aviation sector. The policy must encourage
investment for both Indian and foreign investors. It must also ensure removal of all the
bottlenecks for easy access.
The market access policy in India is governed and monitored by Ministry of Civil Aviation,
Government of India. Market access to the designated carriers of foreign countries in India is
dealt through bilateral Air Service Agreements.

HUB POLICY

3.1 Policy should be framed to make all strategically located Indian Airports as Hub and Spoke
model to make them most efficient, cost effective, liable, safe, secure and comfortable air travel
to passengers. There are substantial economic gains which can be derived from a Hub airport
including improving employment opportunities.
3.2 The policy should be to have an integrated transport model connecting Seaport, Road and
Rail Transport and to certain extent Public Road transport utilities to make hub-spoke model
most efficient and cost effective by utilizing economies of both scale and scope and provide
passengers and cargo seamless connection and more efficient services.
3.3 The policy needs to position India as a global hub by effectively utilizing world class airport
infrastructure capacity to handle large movement of aircraft and augment trade and tourism
opportunities and to ensure seamless transition for the passenger and the airline.









AIRPORT INFRASTRUCTURE
In India, airports were totally owned and managed by central government or the armed forces.
The Airport Authority of India (AAI), a body functioning under the Ministry of Civil Aviation
was responsible for managing the airports in India. It owns 122 airports, 61 of which are
operational. The breakdown is as follows:
11 international
94 civil and
27 civil enclaves at defense airfields.
The AAI operate most aspects of the airport (including air traffic control) and procure most of
their equipment directly (via global/local tenders). Indias airports handle 42 million passengers,
of which the four Metro gateway airports (Delhi, Mumbai, Kolkata and Chennai) account for
47% of revenue and 66% of the passengers.

Until 2000, there were five major international airports, - Mumbai, Kolkata, Delhi, Chennai and
Trivandrum. But the GoI announced a further six airports including Amritsar, Bangalore,
Hyderabad, Cochin during the course of 2002.

According to projections, Indian air passenger traffic was estimated to grow to 100 million
passengers by 2012 from 36.98 million in 1998-99. Growth projections in the cargo front were
also promising. Airport infrastructure is linked to development of India's international
competitiveness and her ability to attract foreign investments. The policy opened the doors of
private investment in this sector, including investments from foreign airport authorities.

At present, India has 136 airports, of which 128 are owned by the AAI. The Government of India
has recognized the need to involve private players in developing world-class airport
infrastructure, based on the high growth of traffic handled at airports over the last few years.
With changing government policies, the involvement of private players is increasing rapidly in
the sector.
With business activity growing, the demand for non-scheduled airline services is increasing. In
200809, the country was home to 99 non-scheduled airline operators with a combined fleet of
241 aircraft, compared with 65 operators with a combined fleet of 201 aircraft in 200708.
Until recently, the AAI was the only major player involved in developing and upgrading airports
in the country. However, private sector players are now becoming increasingly involved in the
sector. Some major private sector players include GMR Infrastructure Ltd, GVK Power and
Infrastructure Ltd, Siemens, Larsen & Toubro (L&T), Unique Zurich and Maytas Infrastructure
Limited, etc.
Air India and Indian Airlines are public sector airlines that operate both domestic and
international flights. Apart from these, a plethora of private airlines operate in the Indian sky,
prominent among which are: GoAir, IndiGo, Jet Airways, Jet Konnect, JetLite, Kingfisher
Airlines, SpiceJet, Deccan, Paramount Airways, Jagson Airlines, etc. Jet Airways/JetLite had a
combined passenger level of 1.2 million passengers, or around 26%, of the market as of July
2011.
IndiGo has started international air services from September 1, 2011, after completing the
mandatory five years of wholly domestic operations. The low-cost carrier (LCC), the largest in
the domestic Indian market, marked its foray into international markets with direct services to
Dubai, followed by Singapore and Bangkok, in the first phase. Dubai's first low cost airline,
Flydubai, has started flights to Ahmedabad in Gujarat from August 2011.
The Bangalore-based National Aerospace Laboratories (NAL) and Mahindra Aerospace have
been working on manufacturing a small plane for three years. Mahindra's Australian subsidiary
GippsAero built the prototype in 10 months at its facility and has conducted the first flight.
Teams from NAL, Mahindra Aerospace and GippsAero are involved in the C-NM5 programme.


Role of Indian aviation industry in India GDP Growth
Air traffic has grown enormously and expected to have a growth which would be above
25% in the travel segment

Indian aviations economic benefits
Air transport to, from and within India creates three distinct types of economic benefit.
Typically, studies such as this focus on the economic footprint of the industry, measured by its
contribution to GDP, jobs and tax revenues generated by the sector and its supply chain. But the
economic value created by the industry is more than that. The principal benefits are created for
the customer, the passenger or shipper, using the air transport service. In addition, the
connections created between cities and markets represent an important infrastructure asset that
generates benefits through enabling foreign direct investment, business clusters, specialization
and other spill-over impacts on an economys productive capacity.

Contribution to Indian GDP
The aviation sector contributes INR 330 billion (0.5%) to Indian GDP. This total comprises:
INR 147 billion directly contributed through the output of the aviation sector
INR 107 billion indirectly contributed through the aviation sectors supply chain; and INR 77
billion contributed through the spending by the employees of the aviation sector and its supply
chain. In addition there are INR 582 billion in catalytic benefits through tourism, which raises
the overall contribution to INR 912 billion or 1.5% of GDP.

Major employer
The aviation sector supports 1.7 million jobs in India. This total comprises:
276,000 jobs directly supported by the aviation sector;
841,000 jobs indirectly supported through the aviation sectors supply chain; an
605,000 jobs supported through the spending by the employees of the aviation sector and its
supply chain.
In addition there are a further 7.1 million people employed through the catalytic (tourism) effects
of aviation.

High productivity jobs
The average air transport service High productivity jobs The average air transport services
employee generates nearly INR 1.3 million in GVA annually, which is around 10 times more
productive than the average in India.

Problem ( Issues & Challenges) in aviation in India(
Make It Different Chapter)
Imfrastructure
With infrastructure constraints one of the biggest obstacles to the growth of Indian civil aviation,
a good deal has already been invested in airport development. The Indian Civil Aviation
Ministrys Vision 2020 plan stresses a need to develop the countrys infrastructure, with a
particular focus on well-equipped, user friendly airports to handle as many as 280 million
passengers per year expected in the country by 2020. Public-private participation and FDI has
funded the construction of ultra-modern airports at Bangalore, Hyderabad and Kochi in South
India. While New Delhi airport has been given a boost with the commissioning of Terminal III in
2010, modernization programmes at Chennai and Kolkata are far from complete. Furthermore,
the countrys plan to develop and modernize airports at 35 secondary cities has yet to pick up
momentum, while the construction of Navi Mumbai Airport, which is meant to relieve
congestion at Mumbais main Chhatrapati Shivaji International Airport, has encountered
repeated delays.
There is non-availability of FBOs (Fixed Base Operator), terminals. The numbers of agencies for
ground handling are extremely restricted, there is non-availability of MRO'S (Maintenance,
Repair & Overhaul) and increases cost of maintenance. There is no separate parking and the
helicopters are operating out of airports. There are no heliports and heli-routes in India till date.
Rising Airline Turbine Fuel (ATF) prices
Aviation Turbine Fuel (ATF) prices in India are higher than the international market. The airline
industrys operational cost component is dominated by the cost of the (ATF). The ATF price
accounts for nearly 45% of the operational expenses. A 10% increase in fuel price would push up
costs by atleast 4%, thus causing a dampener on the financial health of an airline business.
Congestion
Presently capacity constraints are reported mainly at Delhi and Mumbai airports. Congestion
leads to a huge wastage of fuel. It is estimated that if a flight hovers in the sky for an additional
half an hour due to delay in allocation of landing slot, it can consume between 25 to 30 per cent
extra fuel thereby increasing the operational cost of the airline. Half an hour of hovering costs an
airline anywhere over Rs. 50,000 /-.There are over 40 flights that operate about 80 trips between
Mumbai and Delhi every day. If all of them have an average circling time of 30 minutes each,
around Rs 40 lakhs of fuel is wasted in a day. The congestion also affects the turn around time of
the aircraft and reduces the average aircraft utilization.
High airport charges
The airports / aeronautical charges include
Route Navigation Facility Charges (RNFC)
Landing, Housing and Packing Charges
User Development Fees ( in case of private airports)
Terminal Navigation Landing Charges
X-ray Baggage Charges
Emergence of substitutes
With the emergence of the Low Cost Carriers (LCC), the passengers who would have traveled in
III / II class AC rail considered the option of LCCs beneficial due to marginal cost difference as
compared to the rail travel. The railways on its part sensing competition from LCCs undertook
various measures to consciously compete with the LCCs and to retain and improve its existing
passenger base. Some of the measures included introducing faster trains between short to
medium distances, improving connectivity, maintaining on-time schedules, introducing
entertainment facilities, structuring the rail fares intelligently, providing a reliable e-ticketing
facility and in general improving the overall quality of services offered. Given the provision of
such improved rail facilities and with the recent increase in air fares, the price conscious
passengers who would have weighed the option of traveling in a LCC are again opting for rail
travel.


Safety and Security
Given the high intensity serial bombings witnessed across several parts of the country in the past
few years, there is a need to review and upgrade the nature of security and safety measures
provided at the countrys airports to mitigate against any drastic measures planned against Indian
aviation sector by any form of terrorism. There is a need for surveillance, surprise checks, safety
oversight audits, and enhanced accident prevention activity
Land Encroachment
Recent government initiatives of building Greenfield, merchant, cargo and low cost airports and
modernization of existing domestic and international airports require huge tracts of land. Of late,
a number of large projects are facing extreme opposition from landowners and the
cumbersomeness of the land acquisition process has recently come to significant highlight. The
coordination between administrative departments of the state and central government agencies
plays a major role in the land acquisition process.
Closure of old airport
With the commissioning of the new private airports at (BIAL) Bengaluru and (HIAL)
Hyderabad, the old airports at HAL and Begumpet respectively had to be decommissioned.
There would be a huge wastage of the existing infrastructure and if the infrastructure is not
utilized for aviation related or ancillary activities, it would imply a colossal waste of public
User Development Fee
The new airports have been charging user development fee resulting in increase of fares which
are already rather high.
Hugh Debt Burden
Healthy profits and increasing passenger traffic saw airlines raising significant amount of capital
from Financial Institutions and Banks to fund their aggressive expansion plans. Banks also were
liberal in lending airlines. The top three airlines including Air India, Kingfisher Airlines and Jet
Airways are now carrying a cumulative debt burden of approximately $8 billion. Incidentally,
this is almost equivalent to the losses of $8.5 billion posted by all global carriers. Restructuring
this huge amount of leverage will be a challenge as resorting to equity capital will also be
equally difficult during economic slowdown.
Poor Infrastructure
Infrastructure continues to be a major constraint for Indian Airline Industry today, which has
been aggravated further due to excess capacity created during good times. Maintenance and Air
Traffic Control (ATC) infrastructure are grossly inadequate if the industry expects to grow any
further. While steps are being taken on this front to upgrade major airports in
Mumbai, Delhi and Hyderabad, security concerns still remain to be addressed. Attracting
investments from private sector will go a long way to develop and maintain the infrastructure
which is crumbing due to the built-up excess capacity.
Regional Connectivity
Even though the industry is weighed down with excess capacity, regional connectivity continues
to be poor, primarily due to the lack of infrastructure. Industry experts suggest that increasing
regional connectivity instead of concentrating in metros and redeploying current fleet to routes
where there is demand will help airlines in managing their excess capacity.


Solution:
Focus on the point mentioned above and Develop a strategic plan one of the two problem that
government has focused on
1) Infrastructure- developing t2 chatrapti shivaji terminal
2) Revitalization of Air india Indian national caarer




Separate Chapter or in Introduction SWOT ANALYSIS
Strengths
Liberal Environment: India's airlines operate in a liberal environment in both the domestic and
international spheres. With three major airline groups and four smaller carriers all operating
domestic routes, there is no shortage of competition, although this factor combined with excess
capacity has tended to depress yields. Nevertheless, carriers are free to operate any domestic
routes without seeking permission from the government, and without restriction on pricing. One
condition that airlines find onerous however, is the requirement to operate a proportion of ASKs
to remote and underdeveloped regions of the country.On the international front, the Indian
government has pursued an increasingly liberal approach to bilateral air services agreements with
key overseas markets, resulting in greater access for foreign carriers.b Emirates for example, the
largest foreign carrier by capacity into India, will operate 185 weekly frequencies to ten cities
across the country by the end of 2009. India's carriers have a combined international capacity
share of just over 36% but face strong competition from foreign carriers, both full service and
low cost.
Modern Fleet: In light of the fact that much of the growth in Indian aviation has occurred in the
last five years, the country's airlines operate a relatively young and modern fleet, ensuring a high
quality passenger experience, improved safety and good operational reliability.
High Quality: India's airlines offer a good quality product in each of the operating models in
existence. Jet Airways and Kingfisher Airlines are competitive in terms of their in flight service
against the leading carriers in the world. Kingfisher for example is one just half a dozen global
carriers such as Singapore Airlines and Cathay Pacific, with a Skytrax 5 star rating. In fact it
could be argued that the full service product on domestic routes is excessive for the sector
lengths involved and results in a higher cost structure, which the passenger does not necessarily
see value in paying for. The LCCs too, by and large, offer a comfortable, efficient and reliable
service. Until a couple of years ago, Air Deccan was one carrier that had developed a reputation
for poor on-time performance, flight cancellations and overbooking, however since being
acquired by Kingfisher, most of these operational issues appear to have been resolved.
Economic Growth: Economic growth has historically been the primary driver of air traffic, and
the relationship has generally been even stronger in developing countries. Between 2004 and
2007, India enjoyed four years averaging 9% per annum GDP growth. This slowed to 6.5% in
2008, however against the background of a global economic recession, this was a creditable
performance. The increased business confidence following the general election result in May
2009 has eased concerns that growth may slow further. The stock market has soared 25% in the
last month and the outlook for growth and consumption has improved, which is a positive for the
aviation industry.
Political Stability: The re-election of the Congress Party, with a stronger majority is expected to
allow the new administration to push ahead with further economic reforms, which had to date
been blocked by coalition partners. The prospect of a government which has the ability to last its
full term and pursue its agenda is extremely encouraging. In addition, Minister Praful Patel, who
was the architect of the dramatic transformation of the aviation sector, has retained the portfolio,
which brings experience and stability to the aviation industry.
Weaknesses
Airport Infrastructure: The rapid growth in air traffic over the last few years exposed the
deficiencies of airport infrastructure across the country. After decades of neglect, many of India's
airports were forced to operate well above design capacity. The resulting congestion in the
terminals and on the runways delivered a poor experience for the passenger and a costly,
inefficient operating environment for the airlines. However, although a weakness today, it is also
fair to say that it is becoming less so, as the airport modernisation program starts to deliver
results, with new airports in Bangalore and Hyderabad, and improving facilities
at Delhi and Mumbai. The upgrade of non-metro airports remains behind schedule so it may be
another 3-4 years before we see good quality facilities across the country, but there are tangible
signs of improvement.
Airways Infrastructure: Although congestion on the ground is relatively visible, another
current area of weakness is the limited investment that has taken place in improving
infrastructure for air traffic management. This too results in expensive aircraft holding patterns,
indirect flight paths and sub-optimal use of runways.
National Carrier: The state-owned carrier, Air India, is in a dire situation. The carrier is
estimated to have posted losses of close to USD1 billion in 2008/09, and morale within the
bloated workforce is at a low. With no clear direction, management instability at the top and
continuing issues with the integration of Air India and Indian Airlines, the carrier is in need of
radical restructuring. It is imperative that the government develops a turnaround strategy for Air
India as an urgent priority.
Deep Pockets: Over the last three years, India's carriers have accumulated billions of dollars in
losses and debt. Ironically, a characteristic that would normally be considered a strength -
namely deep pockets - has resulted in carriers remaining afloat that would perhaps in other
circumstances have failed. With the backing of either the government or large corporations,
several carriers have been able to access funding that they might have been denied on a strictly
commercial basis as standalone airlines. As a result of the intense competition which has been
perpetuated, airlines have struggled to raise fares to break even levels.
High Cost Structure: India's airlines operate in a relatively high cost environment, primarily
due to the punitive taxation structure. The greatest impact is felt in the area of sales taxbation on
fuel, which can increase the cost to 60% above the international benchmark. The limitations of
airport infrastructure also increase costs due to the fact that carriers are unable to schedule fast
turnarounds, resulting in reduced aircraft utilisation. In addition, the fact that high quality
ancillary services such as MRO and training are not currently available in India, means that
aircraft and personnel have to be sent overseas.
Skilled Resources: Domestic air traffic in India tripled in the five years to 2008, while
international passengers doubled. This rate of growth far outstripped the capacity to develop
skilled technical and management personnel. The gap was partly addressed by employing
expatriates, particularly as pilots, and by learning on the fly. This means there is a lack of in-
depth experience and knowledge at all levels. Furthermore, there is an absence of high quality
training infrastructure in-country to deliver the resources to support future growth. This lack of
personnel affects the government as well and the FAA has expressed its concern at the shortage
of qualified safety inspectors within the Directorate General of Civil Aviation (DGCA). India has
been put on notice that unless this issue is addressed, it may be relegated to a Category II nation,
which would mean that Indian carriers would not be permitted to increase services to the US.

Opportunities
Market Growth: Despite the rapid expansion of recent years, India has only just scratched the
surface of the potential for the aviation sector. Trips per capita remain low even by the standards
of other developing countries. China's domestic market is more than four times the size of India's
40 million passengers. Even, Australia, a country with a population of just 21 million, compared
with India's 1.1 billion, has a market 25% larger. Similarly on the international front, less than
1% of Indians travel overseas each year. Inbound visitor nunbers at 5.4 million in 2008 for the
entire country, were less than for Dubai or Singapore. It is not difficult to see the expansion
potential from such a low base as economic growth continues apace.
Geographic Location: India is ideally positioned as a major aviation hub at the crossroads
between Europe, the Middle East and Asia Pacific. The fact that aviation was a neglected sector
for so long has allowed airports such as Dubai and Singapore to effectively establish themselves
as offshore hubs for Indian passengers, and they now have a significant head start. However, as
India's airports improve, and its airlines receive international awards for their service, there may
be an opportunity to leverage its huge home market to compete with these longer established
hubs.
Lower Costs, Higher Quality: India has already managed to develop a dynamic aviation sector
despite, and not because of, its environment. The improvements in airport and airspace
infrastructure, the development of indigenous training and maintenance facilities and the
potential for fiscal reform, all point to the potential for Indian aviation to increasingly operate in
a lower cost, higher quality and more efficient manner. This could in due course lead to an
opportunity for India to develop as a global outsourcing hub in areas such as aerospace
manufacturing, MRO and training.

Threats
Middle East Aviation: The carriers of the Gulf are aggressively expanding in India, with high
frequencies from multiple destinations to their hubs, from where passengers can access extensive
global networks. The ability for a passenger for example to travel one-stop
from Ahmedabad toHamburg, or multiple daily frequencies from Mumbai to London, connecting
at an attractive hub, is a strength which Indian carriers simply cannot match at present. It will
take time and the question is how far ahead will the Middle East carriers be by that stage.
Terrorism: India has seen frequent terrorist activity in recent years. The country has shown
great resilience in bouncing back after each attack, however inbound international traffic in
particular is sensitive to such events. Similarly the potential for India to develop as a global
traffic and services hub is contingent upon it being seen as a safe and attractive destination.










Chapter:
INTRODUCTION TO FDI
Foreign direct investment (FDI) is a direct investment into production or business in a country
by an individual or company of another country, either by buying a company in the target
country or by expanding operations of an existing business in that country. Foreign direct
investment is in contrast to portfolio investment which is a passive investment in the securities of
another country such as stocks and bonds.
FDI IN INDIA

In 1991, India was under great debt, to overcome such financial crisis Indian government open
the gates of foreign investment, to invest in India. This led to the economic development,
stability & foreign money which overcomes the economic depression & capital crisis. This step
boost the government to inflow the money through various sectors like industry, health,
infrastructure, service etc. to process development in a planned manner & not depend only on the
tax payers money which can be improvise through liberal fiscal & monetary policy & also to
improve the condition of banking sector. To put India at the forefront, improve GDP & to
generate employment opportunities with better diagnostic techniques. In the 1970s there was
almost no foreign investment, with little in 1980, with liberalisation in 1991 and in year 1996
inflow to India exceed $6billion. Though dampened by global financial crises after 1997, net
direct investment flows to India remain positive. India similar to international market in different
economy permit foreign investment and open gates through RBI route or through Government
approval route.
With the rapid economic development & changing scenario of market, India also permit foreign
investment in various sectors like energy, power, health, education, media, aircraft, telecom etc.
through either mode foreign direct investment, foreign portfolio investment scheme, foreign
venture capital investment, investment in government securities by Non-Resident Indian, Person
of Indian origin, Foreign entity in partnership firm, companies, LLP etc. through various
investment securities like issues of shares, debentures etc.
Due to foreign investment, it supplement domestic market, enable high growth rate, generate
employment, improvise technology & more importantly at macro-economic level it relax
potential balance of payment requirement, inflexible demand of foreign debt, foreign investment,
presence of foreign firms reduces market concentration & promotes a more competitive market
with consumer driven economy.

FOREIGN INVESTMENT POLICY

With an intent, as government also put in place a policy framework on Foreign Direct
Investment, which is transparent, predictable and easily comprehensible. This framework is
embodied in the Circular on Consolidated FDI Policy, first issued on 2005 & then on 2013 which
may be updated every year, to capture and keep pace with the regulatory changes. The
Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry,
Government of India makes policy pronouncements on FDI through Press Notes/ Press Releases
which are notified by the Reserve Bank of India as amendments to the Foreign Exchange
Management (Transfer or Issue of Security by Persons Resident Outside India) Regulations,
2000 (notification No. FEMA 20/2000-RB dated May 3, 2000). This can be done through
introduction of dual route of approval of FDI RBIs automatic route and Governments
approval The Foreign Investment Promotion Board (FIPB) route, automatic permission for
technology agreements in high priority industries and removal of restriction of FDI in low
technology areas as well as liberalization of technology imports, permission to Non-resident
Indians (NRIs) and Overseas Corporate Bodies (OCBs) to invest up to 100 per cent in high
priorities sectors. Indian companies can issue equity shares, fully, compulsorily and mandatorily
convertible debentures and fully, compulsorily and mandatorily convertible preference shares
subject to pricing guidelines/valuation norms prescribed under FEMA Regulations.
In sectors/activities with caps, including inter-alia defence production, air transport services,
ground handling services, asset reconstruction companies, private sector banking, broadcasting,
commodity exchanges, credit information companies, insurance, print media,
telecommunications and satellites, Government approval/FIPB approval would be required in all
cases where: (i) An Indian company is being established with foreign investment and is not
owned by a resident entity or (ii) An Indian company is being established with foreign
investment and is not controlled by a resident entity or (iii) The control of an existing Indian
company, currently owned or controlled by resident Indian citizens and Indian companies, which
are owned or controlled by resident Indian citizens, will be/is being transferred/passed on to a
non-resident entity as a consequence of transfer of shares and/or fresh issue of shares to non-
resident entities through amalgamation, merger/demerger, acquisition etc. or
(iv) The ownership of an existing Indian company, currently owned or controlled by resident
Indian citizens and Indian companies, which are owned or controlled by resident Indian citizens,
will be/is being transferred/passed on to a non-resident entity as a consequence of transfer of
shares and/or fresh issue of shares to non-resident entities through amalgamation,
merger/demerger, acquisition etc.
(v) It is clarified that these guidelines will not apply to sectors/activities where there are no
foreign investment caps, that is, 100% foreign investment is permitted under the automatic route.
(vi) It is also clarified that Foreign investment shall include all types of foreign investments i.e.
FDI, investment by FIIs, NRIs, ADRs, GDRs, Foreign Currency Convertible Bonds (FCCB) and
fully, mandatorily & compulsorily convertible preference shares/debentures, regardless of
whether the said investments have been made under Schedule 1, 2, 3 and 6 of FEMA (Transfer
or Issue of Security by Persons Resident Outside India) Regulations.

CHANGING DYNAMICS OF FOREIGN INVESTMENT

Overall FDI into almost all the sectors had declined in the year 2010-11, a reason for which
could be the global situation that prevailed during that time frame. Although services sector
remain the sector attracting the highest FDI inflows since 2006-07 its share has been constantly
declining. The FDI flows into computer hardware and software has been downward ever since
2005-06. It has drastically gone down from 24.8 per cent in 2005-06 to 4.0% in 2010-11.Housing
& Real Estate have shown an upward trend in terms of their share in FDI inflows. Investments in
chemicals and metallurgical industries have been erratic as no clear trend could be observed for
the time period 2005-06 to 2010-11.Citizens of Pakistan or an entity incorporated in Pakistan are
permitted to invest in India, under the Government approval route. FDI in Civil Aviation Sector
by foreign airlines has been permitted upto 49% (cumulative of investment vide FDI and foreign
institutional investors). FDI in multi-brand retail trading sector upto 51% under government
approval route. Policy of the Indian Government related to SEZ is mainly responsible for the FDI
inflows. It is because government announced the SEZ Act, SEZs scheme was launched with the
specific intend of providing an internationally competitive and hassle free environment for
exports.
Mauritius has been the largest direct investor in India. Mauritius has low rates of taxation and an
agreement with Indian double tax avoidance regime. The United States (US) is the second largest
investor in India. To take advantage of double tax avoidance regime, many companies have set
up dummy companies in Mauritius before infesting to India. Since 2000, India signed many
regional arrangement & agreements like ASEAN, Gulf Cooperation Council, BIMSTEC, South
Asia Free Trade Agreements, Bilateral Investment Treaty, SAARC. Tax Holiday for companies
who are involved in R&D having commercial application.
There were list of sectors in which FDI is prohibited such as (a) Lottery Business including
Government /private lottery, online lotteries, etc. (b) Gambling and Betting including casinos etc.
(c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (TDRs) (f)
Real Estate Business or Construction of Farm Houses (g) Manufacturing of Cigars, cheroots,
cigarillos and cigarettes, of tobacco or of tobacco substitutes (h) Activities / sectors not open to
private sector investment e.g. Atomic Energy and Railway Transport (other than Mass Rapid
Transport Systems).
Similar to that there are sectors in which FDI is permitted like in Agriculture where 100%
foreign investment with automatic approval with general conditions attached to it like complying
with compliance with environmental laws & conditions laid down in notifications issued under
Foreign Trade (Development & Regulation ) Act, 1992
Similarly for different sectors separate policy is made to with different conditions like tea
plantations, mining, media, telecommunication, service sector etc. with the general or specific
conditions attached to it either through automatic or government approval route.

In 2012 India attractiveness survey was carried out at a time when the dialogue among business
leaders about the leaders about the economic crisis was at its peak and investors were in
caution mode. Regardless of today's crisis, a strong increase in the number of foreign direct
investment (FDI) projects in India is a clear indication that global investors view the country as
an attractive investment destination.

India Inc witnessed an increase of 25 per cent year-on-year (y-o-y) to record US$ 2.32
billion of FDI in April 2013. Sectors that attracted highest levels of FDI include hotels
and tourism sector (US$ 2.32 billion), followed by pharmaceuticals (US$ 987 million),
services (US$ 238 million), chemicals (US$ 51 million) and construction sector (US$ 32
million).
Singapore alone infused FDI flows worth US$ 1.29 billion in April 2013, followed by
Mauritius, the Netherlands and the US with FDI inflows worth US$ 355 million, US$
173 million and US$ 149 million respectively. FDI inflows aggregated at US$ 22.42
billion in 2012-13.
India's foreign exchange (forex) reserves stood at US$ 280.167 billion for the week
ended July 5, 2013, according to data released by the central bank. The value of foreign
currency assets (FCA) - the biggest component of the forex reserves stood at US$
252.103 billion, according to the weekly statistical supplement released by the Reserve
Bank of India (RBI).
Private equity (PE) firms upped their investments in India Inc by a hefty 42 per cent to
US$ 5.4 billion through 197 deals during the first half of 2013; major deal being the US$
1.2 billion- Bharti Airtel deal, according to a report by EY India (formerly Ernst &
Young).
Meanwhile, Merger and acquisition (M&A) activity in India was also quite intense pril-
June 2013 period. The deal tally stood at US$ 10.9 billion across 130 transactions,
according to global deal tracking firm Merger market.

WHY GOVERNMENT ALLOWS FDI POLICY IN INDIA

IMPACT OF GOVERNMENT POLICIES TOWARDS FOREIGN CAPITAL
India measures to control inflation, fiscal consolidation will improve investor climate, Indias
economic growth slowed down in 2008-09 in the wake of the international financial crisis. But
the recovery was rapid; the economy grew at 8% in 2009-10and at 8.5% in 2010-11. There are
fears that the Indian economy may growth at a slower rate in the current fiscal. India remained
very attractive for FDI in2011. FDI projects increased by 20% in India in 2011, attracting 932
projects, which created an estimated 255,416 jobs. This is despite a global economic grow the
that had not fully recovered from the financial crisis of 200809 and has begun to slow again,
from over 5% in 2010down to a projected 3.3% through 2012. Investors came to India to find
growth opportunities for their business and the possibility to operate at lower cost. Fifty percent
of our panel claims that India massive and growing domestic market is their number one draw
and 45% of them see India as a highly cost-competitive location.



The number of FDI projects increased by 20% in 2011 reaching 932 projects, supported by the
consumer demand, the easy access to financing and the increased approvals by the FIPB.
Investment ratio declined in 2009 and 2010, following the financial crisis, but returned in 2011.
Projects have also decreased in value; in 2007, the average project was worth US$73 million
and, in 2011, it was worth US$63 million. Despite the uncertain global economy and the slight
majority of businesses that are putting their investment projects on hold, there was not only an
increase in the number of FDI projects in India from 2010 to 2011, but the value also bincreased
by 12% and the number of jobs by 15%. Investors perceive that India presents value and
promising growth dynamics in this increasingly unstable global economy. With a rapidly
expanding middle class to consume products and the presence of a large, well-trained labor force
keeping costs down, India presents opportunities both to investors who want to produce and to
investors who want to sell.

During 2011, investors committed US$58,261 million in India, 71% of which went into the
manufacturing sector, creating 320 projects and 144,449 jobs (57% of the total jobs), and
producing an average of 451 jobs per project. @**@Since 2007 the attractiveness profile of
India has evolved. Although industry was always important, it has grown from supplying 47% of
every FDI job in India in 2007 to 57% of every FDI job in 2011. At the same time, services jobs
have fallen from creating 36% of every FDI job in India in 2007 to creating 31% in 2011.
Types
1. Horizontal FDI arises when a firm duplicates its home country-based activities at the
same value chain stage in a host country through FDI.
[4]

2. Platform FDI Foreign direct investment from a source country into a destination country
for the purpose of exporting to a third country.
3. Vertical FDI takes place when a firm through FDI moves upstream or downstream in
different value chains i.e., when firms perform value-adding activities stage by stage in a
vertical fashion in a host country.
NEED OF FDI IN AVATION
Vision: The vision for the Indian civil aviation industry for the 12th Plan period is:
To propel India among the top five civil aviation markets in the world by providing access to
safe, secure and affordable air services to everyone through an appropriate regulatory framework
and by developing world class infrastructure facilities

Summary
The Indian Aviation Industry has been going through a turbulent phase over the past several
years facing multiple headwinds high oil prices and limited pricing power contributed by
industry wide over capacity and periods of subdued demand growth. Over the near term the
challenges facing the airline operators are related to high debt burden and liquidity constraints -
most operators need significant equity infusion to effect a meaningful improvement in balance
sheet. Improved financial profile would also allow these players to focus on steps to improve
long term viability and brand building through differentiated customer service. Over the long
term the operators need to focus on improving cost structure, through rationalization at all levels
including mix of fleet and routes, aimed at cost efficiency. At the industry level, long term
viability also requires return of pricing power through better alignment of capacity to the
underlying demand growth.
While in the beginning of 2008-09, the sector was impacted by sharp rise in crude oil prices, it
was the decline in passenger traffic growth which led to severe underperformance during H2,
2008-09 to H1 2009-10. The operating environment improved for a brief period in 2010-11 on
back of recovery in passenger traffic, industry-wide capacity discipline and relatively stable fuel
prices. However, elevated fuel prices over the last three quarters coupled with intense
competition and unfavorable foreign exchange environment has again deteriorated the financial
performance of airlines. During this period, while the passenger traffic growth has been steady
(averaging 14% in 9m 2011-12), intense competition has impacted yields and forced airlines
back into losses in an inflated cost base scenario. To address the concerns surrounding the
operating viability of Indian carriers, the Government on its part has recently initiated a series of
measures including (a) proposal to allow foreign carriers to make strategic investments (up to
49% stake) in Indian Carriers (b) proposal to allow airlines to directly import ATF (c) lifting the
freeze on international expansions of private airlines and (d) financial assistance to the national
carrier. However, these steps alone may not be adequate to address the fundamental problems
affecting the industry.
While the domestic airlines have not been able to attract foreign investors (up to 49% FDI is
allowed, though foreign airlines are currently not allowed any stake), foreign airlines may be
interested in taking strategic stakes due to their deeper business understanding, longer investment
horizons and overall longer term commitment towards the global aviation industry. Healthy
passenger traffic growth on account of favorable demographics, rising disposable incomes and
low air travel penetration could attract long-term strategic investments in the sector. However, in
our opinion, there are two key challenges: i) aviation economics is currently not favorable in
India resulting in weak financial performance of airlines and ii) Internationally, too airlines are
going through period of stress which could possibly dissuade their investment plans in newer
markets. Besides, foreign carriers already enjoy significant market share of profitable
international routes and have wide access to Indian market through code-sharing arrangements
with domestic players. Given these considerations, we believe, foreign airlines are likely to be
more cautious in their investment decisions and strategies are likely to be long drawn rather than
focused on short-term valuations. On the proposal to allow import of ATF, we feel that the duty
differential between sales tax (averaging around 22-26% for domestic fuel uplifts) being
currently paid by airlines on domestic routes and import duty (8.5%-10.0%) is an attractive
proposition for airlines. However the challenges in importing, storing and transporting jet fuel
will be a considerable roadblock for airlines due to OMCs monopoly on infrastructure at most
Indian airports. From the working capital standpoint too, airlines will need to deploy significant
amount of resources in sourcing fuel which may not be easy given the stretched balance sheets
and tight liquidity profile of most airlines.Huge amounts of additional investments required to
realize the vision of the Civil Aviation industry as suggested in Working Groups report. Airport
Infrastructure would require an investment of about Rs.67,500crore during the 12th Plan of
which around Rs 50,000 crore is likely to be contributed by the private sector .Airlines in India
are expected to add around 370 aircrafts worthRs.150,000 crore. Decade 2000-2010 witnessed a
profitless growth. The Airline Industry inIndia suffers from huge debt burden close to US $ 20
billion (Estimated2011-12). Allowing foreign airlines to pick up stake in three major Indian
Airlines
(Kingfisher, Jet Airways and Spice Jet) would result in capital infusion to
the tunes of :Promoters off loading 26% of their Equity Stake can raise approximately up to Rs.
1341 crore .Figure goes approximately up to Rs.2530 crore in case 49 percent FDI is allowed.

IMPORTANCE AND NEED OF FDI IN INDIAN AVAITION

I. Importance
The aviation industry is critical for any nation to gain from participation in the global economy.
Civil Aviation in its role of a key infrastructure sector facilitates:

Growth of other industries

Trade - by offering a reliable and faster mode of transport services to move product sand
personnel across long distances

Tourism
Generates both direct and indirect employment opportunities

II. Potential
A growing middle class supplemented with rise in disposable incomes, change in life styles, a
globalized economy all act as drivers that project a huge potential for the industry. Another way
of looking at the potential of the sector is by comparing the domestic tariff of another emerging
economy China.

Domestic traffic in China is believed to be five times the size of Indias despite having a
population just 10% larger.

Forecast of air traffic carried out for 12th plan13 period suggests:
Domestic passenger throughout would grow at an average annual rate of around
12%.
Domestic passenger throughout is expected to touch around 209 million by FY-17from 106
million in FY-11.
International passenger throughout is estimated to grow at an average annual rate of
8% during the 12th Plan period

III. Investment Required
Huge amounts of additional investments will have to be made into the sector to
develop more airports, increase the existing capacities as well as improve and create additional
support infrastructure if India intends to harness the existing potential efficiently.



Broad Investment requirements:
Expense On Amount (Rs. Crores)
Total 2,15,100

Airport 67,500

Fleet Expansion 147,600


Estimates given in the Report of Working Group on Civil Aviation suggest the investments


a) Airport Infrastructure

Estimates received from AAI and the industry indicate that the Indian airports would require an
investment of about Rs 67,500 crores during the 12th Plan of which around Rs 50,000 crores
is likely to be contributed by the private sector.

Please refer to the Table

AAI Airport projects 17500

Private By Airport Operator 40,000

Investments By Others (Concessionaires, Third
Party, etc.)
10,000

Subtotal

50,000
Table: Expected investments in airports during 12th Plan
Investor Investment Category INR (Crores)
TOTAL 67,500
Source: Report of Working Group on Civil Aviation for formulation of Twelfth Five Year Plan
(2012-17)





b) Airlines

Airlines in India are expected to add around 370 aircrafts worth Rs 150,000 crores totheir fleet
by FY-17. Fleet expansion at this scale would require airlines to explore multiple

Indias Experience with FDI: Role of a Game Changer
36
funding options including capital markets, long-term borrowings and leasing etc. Pleaserefer to
table below
Airline Number of aircrafts expected to be added by 2017. Estimate value of aircrafts to be
added (Rs. crores)

Air India 40 18,000

Go Air 22 8,100
Jet Airways 79 32,000
JetLite

20 7,600
Spicejet

68 26,100

Indigo

69 26,100


TOTAL 376 147,600
Source: Report of Working Group on Civil Aviation for formulation of Twelfth Five Years
Realization of the civil aviation industrys vision would require huge amounts of funds to
be invested. However, looking at the existing financial status of the industry the
achievement of set objective seems to be ambitious14.
The decade 2000-2010 witnessed a profitless growth phase of the air lines industry.
During the three year period between 1 Apr 2007 and 31 Mar 2010, Indian carriers
incurred an accumulated operational loss in excess of Rs 26,000 crores.
As per certain estimates the Airline Industry in India suffers from huge debt burden close to
US $ 20 billion (estimated for 2011-12).
Half of this debt is aircraft related and the rest for working capital:
Half of this debt is aircraft related and the rest for working capital loans, payments to airport
operators and fuel companies.
High costs of operation and competitive pricing mechanism followed has adversely dented the
financials of the airline sector.

IV. Foreign Airlines Equity Participation

Raising huge amounts of investments would require the government to adopt more progressive
and positive fiscal regime as well as develop a collaborative approach with the industry.
Civil Aviation industry would require not only large but continuous flow of funds if the next
phase of growth needs to take place. For this to happen the government must relook at its
FDI policy which disallows foreign airlines from purchasing equity of domestic airlines.

Direct investment by foreign airlines would:
Provide managerial and technical expertise needed to improve productivity.
Raise much-needed capital for the private-sector players
Improve operating standards and services
An estimation of the amount of capital that can be raised by three prominent Indian
Private Airlines shows: (foreign non- airline investors equity has not been considered in
estimation).The promoters by off loading 26 % of their Equity Stake can raise up to Rs.1341.45
crores.
This figure goes up to Rs. 2528.3 crores in case 49 per cent FDI is allowed. Combined equity
valuation (promoter and non-promoter) at 26 % comes out to be Rs. 2834.27crores.
The valuation at 49 % goes up to Rs. 5341.52 crore.

Table: Estimates of capital that can be raised
Condition Amount of Capital Raised (Rs. Crores)


At 26 per cent At 49 per cent
(a) Promoters off load their stakes 1341.54 2528.29

NA
(b) total available equity

NA 2834.27 5341.51



Guidelines for FDI and procedure for approval









(b) "Aerodrome" means any definite or limited ground or water area intended to be
used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings,
sheds, vessels, piers and other structures thereon or appertaining thereto;
(c) "Air transport service" means a service for the transport by air of persons, mails
or any other thing, animate or inanimate, for any kind of remuneration whatsoever,
whether such service consists of a single flight or series of flights.
(d) "Air Transport Undertaking" means an undertaking whose business includes the carriage by
air of passengers or cargo for hire or reward.
(e) "Aircraft component" means any part, the soundness and correct functioning of
which, when fitted to an aircraft, is essential to the continued airworthiness or safety of the
aircraft and includes any item of equipment;
(f) Foreign Airline means an Airline, who has been issued with an Air Operator
Certificate by a State other than India to carry out specified commercial air transport operations.
(g) "Ground Handling" means (i) ramp handling , (ii) traffic handling both of which shall
include the activities as specified by the Ministry of Civil Aviation through the Aeronautical
Information Circulars from time to time, and (iii) any other activity specified by the Central
Government to be a part of either ramp handling or traffic handling.
(h) "Helicopter" means a heavier-than -air aircraft supported in flight by the reactions of the air
on one or more power driven rotors on substantially vertical axis;
(i) "Scheduled air transport service", means an air transport service undertaken
between the same two or more places and operated according to a published time
table or with flights so regular or frequent that they constitute a recognisably
systematic series, each flight being open to use by members of the public.
(j) "Non-Scheduled Air Transport service" means an air transport service, other than a scheduled
air transport service as defined in para (i) above, being operated for carriage of
passengers/mail/goods. It also includes charter operations.
(k) Charter Operation means an operation for hire and reward in which the
departure time, departure and arrival locations are specially negotiated and agreed
with the customer or the customers representative for entire aircraft. No ticket is sold to
individual passenger for such operation.
(l) "Cargo" airlines would mean such airlines which meet the conditions as given in the Civil
Aviation Requirements issued by the Ministry of Civil Aviation.
(m) "Seaplane" means an aero plane capable normally of taking off from and a lighting solely on
water;

3. Policy for FDI in Civil Aviation sector

3.1 Airports: As per the policy notified vide Press Note 4 (2006)-

(a) Greenfield projects- FDI up to 100% is allowed under the automatic route.
(b) Existing projects-FDI up to 74% is allowed through automatic route and
beyond that and up to 100%, with prior approval of the Government.

3.2 Air Transport Services:
(a) Air Transport Services would include Domestic Scheduled Passenger
Airlines, Non-Scheduled Airlines, Chartered Airlines, Cargo Airlines,
helicopter and seaplane services.

3.2.1 FDI ceiling in Air Transport Services are as under:
(a) FDI by Foreign Institution other than Foreign airlines:
(i) Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline -
FDI up to 49% and investment by Non-resident Indians (NRI) up to 100%
allowed on the automatic route.

(ii) Non-Scheduled Air Transport Service/Non-Scheduled airlines, Chartered
Airlines- FDI up to 74%, in which 49% is allowed through automatic route and
beyond that and up to 74% with Government approval. Investment by Nonresident
Indians (NRI) up to 100% is allowed through automatic route.

(b) FDI with Foreign airlines:
Foreign airlines are also, henceforth allowed to invest, in the capital of Indian
companies operating scheduled and non-scheduled air transport passenger
services, up to the limit of 49% of their paid-up capital. Such investment
would be subject to the following conditions:
(i) It would be made under the Government approval route;
(ii) The 49% limit will subsume FDI and FII investment;
(iii) The investments so made would need to comply with the relevant and
applicable regulations of SEBI, such as the Issue of Capital and Disclosure Requirements
(ICDR) Regulations/Substantial Acquisition of Shares and Takeovers (SAST) Regulations, as
well as other applicablerules and regulations.

(iv) All foreign nationals likely to be associated with Indian scheduled and
non-scheduled air transport services, as a result of such investment
shall be cleared from security view point before deployment; and
(v) All technical equipment that might be imported into India as a result of
such investment shall require clearance from the relevant authority in
the Ministry of Civil Aviation.

(c) Only such Scheduled Passenger Operators and Non Scheduled Passenger
Operators which are companies registered under the Companies Act, 1956 can
avail FDI by foreign airlines.

(d) Cargo Airlines- FDI up to 74%, in which 49% is allowed through automatic
route and beyond that and upto 74% with Government approval. Investment
by Non-resident Indians (NRI) up to 100% is allowed through automatic route.

(e) Helicopter services/seaplane services requiring DGCA approval- FDI up to
100% allowed on the automatic route.
Note: Foreign Airlines are also allowed to participate in the equity of
companies operating cargo airlines, helicopter and sea-plane services, as per
the limits and entry routes mentioned above.

3.3 FDI ceilings in other services under Civil Aviation sector
(a) Ground Handling Services- FDI up to 74%, in which 49% is allowed
through automatic route and beyond that and upto 74% with Government
approval. Investment by Non-resident Indians (NRI) up to 100% is allowed
through automatic route. This will be subject to sectoral regulations and
security clearance.

(b) Maintenance and Repair organizations: Flying Training Institutes; and
Technical Training Institutions FDI, up to 100% allowed on the automatic
route.
Note: Investment by Persons of Indian Origin (PIOs)/Overseas Citizens of
India (OCIs) in Civil Aviation Sector is counted towards foreign
investment and in all such cases, the FDI limit contained in FDI
policy shall be followed.








Guidelines

It has, therefore, become necessary that guidelines for interpretation of indirect investment by
foreign investing institution/entity/ airlines, which are in conformity with the provisions of the
Aircraft Act 1934 and Aircraft Rules, 1937, and the existing Air Transport Policy be
promulgated.

Accordingly, the following guidelines are issued with the approval of the
Government
1. Scheduled Air Transport Service/ Domestic Scheduled Passenger
Airline
1.1 Permission to operate Scheduled Air Transport Services/Domestic Scheduled
Passenger Airline will be granted either
(i) to a citizen of India; or
(ii) to a company or a body corporate provided that
(a) it is registered and has its principal place of business within India;
(b) its Chairman and at least two-thirds of its Directors are citizens of India;
and
(c) its substantial ownership and effective control is vested in Indian
nationals.
1.2 The positions of the Chief Executive Officer (CEO) and/or Chief Financial
Officer (CFO) and/or Chief Operating Officer, if held by foreign nationals,
would require to be security vetted by Ministry of Home Affairs (MHA).
1.3 An applicant shall be required to furnish full and detailed information with
regard to the shareholding of any airline in the foreign investing institution/entity, if any, and
composition of the Board of Directors and senior management of the said foreign investing
institution/entity, and shall submit
information of changes, if any.
1.4 While the foreign investing institution/entity including foreign airlines, which
seeks to hold equity in the Scheduled Air Transport Service/ Domestic
Scheduled Passenger Airline may have representation on the Board of
Directors of the Company, such representation shall not exceed 1/3rd of the
total.
1.5 A Scheduled Air Transport Service/Domestic Scheduled Passenger Airline
other than those who have FDI by foreign airlines shall not enter into an
agreement with a foreign airline, which may give such foreign airline, the right
to interfere in the management of the domestic operator.

1.6 A Scheduled Air Transport Service/Domestic Scheduled Passenger Airline
may enter into financial arrangements with a bank and/or other financial
institutions including foreign airline for the purpose of lease-finance, hirepurchase
or other loan arrangements.
1.7 A Scheduled Air Transport Service/Domestic Scheduled Passenger Airline will
also be permitted to get maintenance, overhaul, repair works done and
training of pilots/engineers conducted either at the facilities available with
other airlines or those certified by the Director General of Civil Aviation on
such terms as may be prescribed.

1.8 An applicant who seeks permission for Scheduled Air Transport Service/
Domestic Scheduled Passenger Airline will be required to give a declaration
that he fulfills all the requirements mentioned in the above guidelines and in
case of any change, he shall notify the competent authority within one month
of such change. In addition, the applicant will be required to furnish such a
declaration every year.

1.9 A Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline
which furnishes wrong information in respect of any of the above prescribed
guidelines at any stage shall be liable for suspension/cancellation of his

Operating Permit.
1.10 All foreign nationals likely to be associated as a result of investment by foreign
airlines shall be cleared from security view point before deployment.
1.11 All technical equipment that might be imported into India as a result of
investment be foreign airlines shall require clearance from the relevant
authority in the Ministry of Civil Aviation.

2. Non-scheduled Air Transport Service/Non-Scheduled airlines/Chartered
Airlines.
2.1 Permission to operate Non-scheduled Air Transport Service/Non-Scheduled
airlines/Chartered Airlines, will be granted either-
(i) to a citizen of India; or
(ii) to a company or a body corporate provided that it is registered and has its
principal place of business within India;
2.2 The majority of Directors on the Board of the Company shall be Indian
citizens;
2.3 The positions of the Chairman, Managing Director, Chief Executive Officer
(CEO) and/or Chief Financial Officer (CFO) and/or Chief Operating Officer, if
held by foreign nationals, would require to be security vetted by Ministry of
Home Affairs (MHA). Security vetting shall be required periodically on yearly
basis. In case something adverse is found during the security vetting, the
direction of MHA shall be binding on the licensee.
2.4 An applicant shall be required to furnish full and detailed information with
regard to the shareholding of any airline in the foreign investing
institution/entity, if any, and composition of the Board of Directors and senior
management of the said foreign investing institution/entity, and shall submit
information of changes, if any.
2.5 Non-scheduled Air Transport Service/ Non-Scheduled airlines, Chartered
Airlines other than those who have FDI by foreign airlines shall not enter into
agreement with a foreign airline which may give such foreign airline the right
to interfere in the management of the domestic operator.
2.6 Non-scheduled Air Transport Service/ Non-Scheduled airlines, Chartered
Airlines, may enter into financial arrangements with a bank and/or other
financial institutions including foreign airline for the purpose of lease-finance,
hire-purchase or other loan arrangements.
2.7 An applicant who seeks permission for Non-scheduled Air Transport Service/
Non-Scheduled airlines/Chartered Airlines, will be required to give a
declaration that he fulfills all the requirements mentioned in the above
guidelines and in case of any change, he shall notify the competent authority
within one month of such change. In addition, the applicant will be required to
furnish such a declaration every year.
2.8 All foreign nationals likely to be associated as a result of investment by foreign
airlines shall be got security cleared before deployment.
2.9 All technical equipment that might be imported into India as a result of
investment be foreign airlines shall require clearance from the relevant
authority in the Ministry of Civil Aviation.
2.10 Non-scheduled Air Transport Service/Non-Scheduled airlines/Chartered
Airlines, who furnishes wrong information in respect of any of the above
prescribed guidelines at any stage shall be liable for suspension/cancellation
of his Operating Permit.
3. Cargo Airlines (Scheduled and Non-Scheduled)
3.1 An Air Cargo Operators Permit can be granted only to:
(a) a citizen of India; or
(b) a group of individuals of Indian Nationality or a trust/society registered
under the Societies Registration Act, 1860; or
(c) a Non-resident Indian (NRI)/Overseas Corporate Bodies (OCB); or
(d) a company registered under the Companies Act, 1956 , having its
principle place of business within India and with or without foreign equity
participation (excluding NRI equity) as approved by Government from time to
time;
(e) the Central Government or a State Government or an undertaking
owned or controlled by either of the said Governments.
3.2 The majority of Directors on the Board of the Company shall be Indian
citizens;
3.3 The positions of the Chairman, Managing Director, Chief Executive Officer
(CEO) and/or Chief Financial Officer (CFO) and/or Chief Operating Officer, if
held by foreign nationals, would require to be security vetted by Ministry of
Home Affairs (MHA). Security vetting shall be required periodically on yearly
basis. In case something adverse is found during the security vetting, the direction of MHA shall
be binding on the licensee.
3.4 An applicant shall be required to furnish full and detailed information with
regard to the shareholding of any airline in the foreign investing
institution/entity, if any, and composition of the Board of Directors and senior
management of the said foreign investing institution/entity, and shall submit
information of changes, if any.

3.5 An applicant who seeks permission for Cargo Airlines, will be required to give
a declaration that he fulfills all the requirements mentioned in the above
guidelines and in case of any change, he shall notify the competent authority
within one month of such change. In addition, the applicant will be required to
furnish such a declaration every year.

3.6 Cargo Airlines, who furnishes wrong information in respect of any of the
above prescribed guidelines at any stage shall be liable for
suspension/cancellation of his Operating Permit.

4. Helicopter Services/Sea Plane Services
4.1 Permission to operate Non-scheduled Air Transport Helicopter Services/ Sea
Plane Services will be granted either-
(i) to a citizen of India; or
(iii) to a company or a body corporate provided that it is registered and has
its principal place of business within India;
4.2 The majority of Directors on the Board of the Company shall be Indian
citizens;
4.3 The positions of the Chairman, Managing Director, Chief Executive Officer
(CEO) and/or Chief Financial Officer (CFO) and/or Chief Operating Officer, if
held by foreign nationals, would require to be security vetted by Ministry of
Home Affairs (MHA). Security vetting shall be required periodically on yearly
basis. In case something adverse is found during the security vetting, the
direction of MHA shall be binding on the licensee.
4.4 An applicant shall be required to furnish full and detailed information with
regard to the shareholding of any airline in the foreign investing
institution/entity, if any, and composition of the Board of Directors and senior
management of the said foreign investing institution/entity, and shall submit
information of changes, if any.
4.5 An applicant who seeks permission for Helicopter Services/Sea Plane
Services, will be required to give a declaration that he fulfills all the
requirements mentioned in the above guidelines and in case of any change,
he shall notify the competent authority within one month of such change. In
addition, the applicant will be required to furnish such a declaration every
year.
4.6 Sea Plane Services, who furnishes wrong information in respect of any of the
above prescribed guidelines at any stage shall be liable for suspension/cancellation of his
Operating Permit.

5. Maintenance and repair organizations, Flying Training institutes, and
technical training institutes

5.1 The foreign company planning to set up a maintenance and repair
organization, flying training institute or a technical training institute shall have
the option of being as an incorporated entity by incorporating a company
under the Companies Act, 1956 through a
(i) Joint venture; or
(ii) Wholly owned subsidiary

Foreign equity in such Indian company can be upto 100% depending on the
requirements of the investor.
5.2 For registration and incorporation, an application should be filed with Registrar
of Companies (ROC). Once a company has been incorporated as an Indian
company, it is subject to Indian laws and regulations as applicable to other
domestic Indian companies.
5.3 An applicant for obtaining approval for maintenance and repair organization,
flying training institute or a technical training institute would need approval by
DGCA subject to the fulfillment of the guidelines issued in this respect.





WHY INDIAN GOVERNMENT ALLOW 49% FDI IN AVIATION

Brief on allowing 49% FDI by foreign airlines in Indian Civil Aviation

1. Foreign investment, direct and/or indirect, upto 49%, by foreign airlines, permitted, under the
Government approval route, in the equity of an air transport undertaking operating scheduled and
non-scheduled air transport services.

2. Earlier FDI Policy in Civil Aviation
i) FDI Policy in air transport services
(a) Scheduled Air Transport Services/Domestic Scheduled Passenger Airlines- FDI
Up to 49% on the automatic route and the investment by NRIs upto 100% on the
automatic route subject to the condition that no foreign airlines would be allowed
to participate directly or indirectly.
(b) Non-Scheduled Air Transport Services - FDI upto 74% (upto 49% on automatic route and
beyond 49% on government approval route) and the investment by NRIs upto 100% on
automatic route the condition that no foreign airlines would be allowed to participate directly or
indirectly.
(c) Helicopter Services / Sea Planes 100% FDI on automatic route.
Foreign airlines are permitted to participate in the equity of companies operating cargo airlines,
helicopter and sea plane services.
ii) FDI in Airports
(a) Greenfield Airports - 100% FDI on automatic route.
(b) Existing Airports 100% (automatic upto 74%, Government approval beyond
74%).
iii) FDI in Other Services
(a) Ground Handling 74% FDI (100% for NRIs) automatic upto 49%, Government approval
route beyond 49% and upto 74%.
(b) Maintenance & Repair Organisations, Flying Training Institutes and Technical
Training Institutions 100% automatic route.

3. Why 49% FDI by Foreign Airlines is required
(a) There is a very low level of investment in this sector because of lack of interest by private
equity funds since airline business is highly risky. Prospective investor can only be from civil
aviation industry/airline itself who may derive the benefits of synergy. Therefore, substantial FDI
can only come if foreign airlines are permitted to invest. The purpose of removing existing
restriction on investment by foreign airlines is to bring in strategic foreign investors.
(b) It will help in rapid growth of airline sector in India, development of hubs and in providing
affordable air transport to rapidly growing passengers. It may also provide global
competitiveness to domestic airlines.
(c) It may also give advantage in tapping expertise and experience of foreign airlines and in
assimilating their experience in running domestic airlines.
4. Safeguards
(a) FDI would be under Government approval route complying with all applicable rules &
regulations including that of SEBI. It will require clearance from Home Ministry and FIPB.
(b) The scheduled Indian air operators to comply with Schedule-XI of Aircraft Rules of 1937,
which include that a scheduled operators permit can be granted only to a company:
i) that is registered and has its principal place of business within India
ii) the Chairman and at least two-thirds of the Directors of which are citizens of
India, and
iii) the substantial ownership and effective control of which is vested in Indian
nationals.
(c) All foreign nationals likely to be associated with Indian scheduled and non-scheduled air
transport services, as a result of such investment shall be cleared from security view point before
deployment.
(d) All technical equipments that might be imported into India as a result of such
investment shall require clearance from the relevant authority in the Ministry of Civil Aviation.
(e) There are number of other mechanisms to safeguard the interest of domestic carriers
including route allocations, DGCA control, control on acquisition of aircrafts etc.








Benefits of FDI for Indian Aviation

Feasibility and Impact Analysis for various stakeholders


Indian Carriers: The FDI proposal, if approved, would certainly be an important milestone in
the aviation sector and may provide much-needed relief to the domestic aviation industry reeling
under the pressure of mounting losses and rising debt burden. Besides, the move will help bring
global expertise and best industry practices over the medium term.

Foreign Carriers: It will not just provide entry into one of the fastest growing aviation market
globally but also an opportunity to establish India as their hub for connections between
US/Europe and South-East Asian countries. While full-service airlines could help them further
consolidate their market position on international routes (and improve connectivity within India),
acquisition of low-cost airlines could help them compete in a market where travelers are highly
price sensitive.

Consumers: New players could enter the market as they could now have a strategic foreign
player with deep pockets to support the airline in difficult times. Besides, it would provide more
flexibility in international travels when one travels through the same airline domestically as well
as internationally. Overall, this could increase competition, offer more alternatives, reduce tariffs
and improve customer service standards over the medium term.
However, the Global Airline industry is itself currently going through a tough phase (Bloomberg
World Airline index down 22%, Asia-Pacific Airline index down 25% in last one year), due to
below trend economic growth across advanced economies and high crude oil prices ($100-
125/Barrel). Besides, aviation economics currently remain unfavorable in India due to intense
competition, mandatory route dispersal guidelines, higher taxes on ATF, airport related charges
and inadequate airport infrastructure. For example, airlines like Air Asia (citing high
infrastructure costs) & American Airlines (parent facing financial stress) have recently
withdrawn from India. Lastly, foreign carriers already enjoy significant market share of
profitable international routes and have wide domestic access through code sharing agreements.
Given these considerations, we believe, attracting investments from foreign airlines may not be
easy.
Foreign carriers already enjoy significant share of international traffic; domestic access
through code sharing agreements
As per DGCA data, foreign carriers already enjoy ~65% market share in international traffic and
hence ~27% of total passenger traffic (Domestic + International). For Jet Airways, due to longer
haulage (~4.6 hrs avg block hours in international routes as compared to ~1.6 hrs avg block
hours in domestic routes), revenue per passenger carried on international route has been 2.5x to
3.0x revenue per passenger carried on do mestic route. We expect this ratio to be higher on an
industry wide basis as foreign carriers dominate longer haulage routes, full service offerings and
business traffic as compared to shorter haulage, low fare offerings & VFR (visiting friends and
relatives) traffic prominence of Indian carriers. As a result, we estimate that the foreign carriers
have already garnered 42-48% of total airline revenues (inbound, outbound & within India).
Besides, the stark difference between Jet Airways domestic and International EBITDAR
margins indicates that the foreign airlines could be already enjoying majority of the industry
profits, with the domestic carriers left with price conscious no-frills pax traffic, less viable routes
and hence saddled with high operating losses. Besides, due to number of code sharing
agreements, foreign carriers can offer enhanced connectivity into Indian cities without acquiring
stakes in Indian carriers.

Dilutions at Current market capitalizations unlikely to solve issues of staggering debt levels
and mounting losses

Besides, since the airlines stocks have corrected significantly over the last two years, fresh equity
infusions are current market capitalizations (although 50-100% higher YTD) could lead to
considerable stake dilution for the existing promoters who have built these businesses over the
years. Besides, the amount of fresh equity that could be raised at current market prices would not
be a game-changer considering the staggering debt levels and quarterly losses posted by the
airline industry (auditors have already raised concerns over the rapid depletion of networth for all
listed airline companies).


Direct ATF Imports: Benefits and near term feasibility remain misty
In addition to the proposal on FDI, the empowered group of Minister has also recently approved
the proposal for airlines to import Aviation Turbine Fuel (ATF) directly, a demand that the
airlines have been lobbying for quite some time now. While the cabinet approval is yet come by,
in our opinion, the impact of this development is likely to be a mixed bag. Although the taxation
differential (between currently applicable sales tax rates and likely import duty) certainly suggest
a large potential saving for airlines, the availability of infrastructure is likely to be a considerable
roadblock. Given the monopoly of OMCs at major airports, airlines would have to resort to a fee-
based structure for utilizing their infrastructure for fueling, storing and transporting ATF. At the
same time, airlines will also have to engage a fair bit of working capital in sourcing imported
ATF as against credit period available from OMCs. Given the current liquidity constraints,
managing additional credit lines from banks is also likely to be a challenge for airlines and
overall would reduce the potential savings being envisaged.
At present, airlines buy ATF from OMCs which is priced on an import parity formula and is also
subject to sales tax varying from 4%-30% depending upon states. Given the higher tax rates at
major airports, airlines pay on an average 22-26% sales tax on ATF for domestic operations.
With the option to import directly, the effective taxes on ATF would prima facie reduce as
airlines will pay import duties and will be exempted from paying sales tax thus resulting in large
savings for airlines. While the savings appear to be significant, there are various practical issues
that airlines will have to sort out before they could start importing ATF directly. At most airports
(barring the private ones), state-run OMCs own and operate the infrastructure for sourcing,
fueling and storing aviation fuel. For sourcing fuel directly, airlines will have no other option but
to utilize the existing infrastructure possibly on a fee-based structure with OMCs. In addition,
airlines will also lose out on volume discounts (ranging between 4-5%) and credit period offered
by OMCs and would need to pay in cash for direct imports, implying incremental funding
requirement. There is also an additional worry that the states may implement an entry tax (as
applicable on crude oil in some states) to offset the revenue loss from sales tax. Given these
hurdles, the effective savings could be much lower than what is reflected from tax differential. In
absolute terms, the impact will be higher on airlines with higher share of domestic operations
like Indigo or SpiceJet.








International Routes: Freeze on international permissions to private carrier removed
In another major boost to private airlines (especially IndiGo and SpiceJet), the Civil Aviation
Ministry has lifted the freeze on their overseas expansions. The government had imposed the
freeze in Mar-2011 with the objective of protecting the financially strained Air India from more
competition on foreign routes. However, lower utilizations of maximum permissible limits under
the bilateral Air Service Agreements (ASAs) have prompted the move to allow eligible domestic
airlines (with more than 5 years experience) expand their international operations. The move will
benefit the private carriers (although may increase competition and losses for the national
carrier) as international flights provide better margins owing to the availability of fuel at
internanal rates, higher auxiliary revenue through in-flight sales and higher fleet utilization, as
international operations could happen during the otherwise idle night hours.

Financial guarantees to the debt-ridden national carrier in securing funding at competitive
rates
As per media reports, Group of ministers (GoM), headed by finance minister cleared the
financial restructuring plan for Air India under which the national carrier will be allowed to raise
Rs 7,400 crore through government- guaranteed bonds bearing a coupon rate of 8.5-9%.
According to official data, Air India has outstanding loans and dues worth Rs 67,520 crore. Of
this, Rs 21,200 crore represents working capital loans, Rs 22,000 crore long -term loans taken for
fleet acquisition, Rs 4,600 crore dues to vendors and it carries an accumulated loss of Rs 20,320
crore. The ministerial group also decided to restructure the carriers Rs 21,200 crore working
capital loans - Rs 7,400 crore shall be come from the bond issue, Rs 9,800 crore will be
converted into long-term debt of 10 to 15 years and the balance Rs 4,000 crore will remain
outside the restructuring exercise. While the financial guarantees may help it overcome near term
headwinds, operation turnaround at ailing national carrier remains critical for overall health of
the industry.
Disadvantage of FDI in aviation
Tough competition to Indian national carrer Air-India.
Highly competitive and price sensitive traveler base any many other etc
Low economic benefits contributed to Indian economy
FACTORS SUPPORTING INVESTMENT IN INDAIN AVAITION
Factors that support Investment in Indian aviation
Strong growth prospects
Passenger traffic growth has grown at a CAGR of 16% in India over the past 10 years
Relative underpenetrated market
Penetration of air travel at <3% is significantly below benchmarks in other markets
An opportunity to create India as hub for better connectivity with in India with international
destination.
Low valuation-Market valuation of listed airlines has suffered to poor performance

Factors that does not support investment in Indian aviation sector
Factors that does not support investment in Indian aviation sector
Aviation economics are not favorable in India
Higher taxes on ATF and Airport charges continue to be key headwinds for the sector, besides
higher cost base, airlines in India are mandatory required to fly on certain unviable routes
Inadequate infrastructure
Development of airport infrastructure has not kept pace with demands thereby resulting in delays
and higher cost of airlines
Poor financial health of most airlines
Intense competition, sharp fluctuation in ATP prices and high debt burden continues to weigh on
the financial performance of Indian airlines, foreign exchange fluctuation and lack of adequate
heading mechanism for fuel have added to the woes
Highly competitive and price sensitive traveler base








ETIHAD
VISION-Our goal is to be a truly 21st century, global airline, challenging and changing the
established conventions of airline hospitality.
Etihad Airways has in just under nine years established itself as the Worlds Leading Airline
three times*. Set up by Royal (Amiri) Decree in July 2003, we commenced commercial
operations in November 2003 and have gone on to become the fastest growing airline in the
history of commercial aviation.
We are governed by a Board of Directors under the chairmanship of HH Sheikh Hamed bin
Zayed Al Nahyan and are led by James Hogan, who was appointed Chief Executive Officer in
2006.
Our main business is the international air transportation of passengers. We also operate Etihad
Holidays, Etihad Crystal Cargo and a global contact centre organization as part of our
commercial group.


Abu Dhabi
Abu Dhabi, the capital of the United Arab Emirates, is our hub. We seek to reflect the best of
Arabian hospitality - cultured, considerate, warm and generous - as well as to enhance the
prestige of Abu Dhabi as a centre of hospitality between East and West.

Fleet and network
As of February 2012, our fleet of 63 Airbus and Boeing aircraft operated just over 1,000 flights
per week, serving an international network of 84 destinations in 52 countries.

On 19 December 2011 we announced the purchase of a 29 per cent stake in airberlin, Germanys
second largest airline. The deal brings to 239 the total number of destinations we serve, either
directly or with partner airlines. In addition, we have 34 code-share agreements in place,
building our international network.

Awards
We have received a range of awards that reflect our position as the leading premium airline
brand in the world, including Worlds Leading Airline at the World Travel Awards in 2011 and
World's Best First Class in Skytraxs 2011 World Airline Awards.

Growth
We announced the largest aircraft order in commercial aviation history at Farnborough
International Air Show in 2008, for up to 205 aircraft 100 firm orders, 55 options and 50
purchase rights.Over the next 10 years, we plan to take delivery of: six Airbus A330s by the end
of 2011; 20 A320s between 2011 and 2015; 10 Airbus A380s from 2014; 25 A350s between
2017 and 2020; 35 Boeing 787s between 2014 and 2020; and 10 Boeing 777s between 2011 and
2013.

Passenger numbers and revenue
In 2010, we saw passenger numbers top 7 million for the first time and revenue passenger
kilometres (RPKs) rise 20.1 per cent. Our revenue exceeded US $2.9 billion in 2010.

Airport
On-going redevelopment work at Abu Dhabi International Airport has significantly enhanced the
experience for Guests and allows us to expand and meet our ambitious growth plans.

The second runway, which was officially opened in October 2008, is part of a large scale AED
25 billion redevelopment and expansion project at the airport. Terminal 3 at Abu Dhabi Airport,
an exclusive facility for Etihad, was opened in February 2009, increasing the airport's passenger
handling capacity from five to 12 million passengers a year.

The first phase of a Midfield Terminal Complex is due for completion in the next few years and
will take the airport's handling capacity to 20 million passengers. The airport will be capable of
handling 40 million passengers by 2030, when the project is completed.

Head Office
In tandem with the airport expansion, we moved to a new Head Office building close to the
airport in March 2009. This purpose-built facility is part of a three building complex that also
includes a state-of-the-art Training Academy and the Etihad Plaza complex of Etihad offices and
residential accommodation for staff.

Product
We are committed to providing guests with a superior travel experience both inflight and on the
ground. We have upgraded a number of our aircraft's Pearl Business and Coral Economy Class
cabins, and our new Diamond First Class suite became available on all three-class aircraft at the
end of 2011. We took delivery of the first of our A330-300s with all cabins upgraded in
December 2009.


We also offer a range of convenient ground services, including Etihad Chauffeur, our premium
limousine service available at 24 destinations globally, and premium lounges in Abu Dhabi,
London, Frankfurt, Manchester and Dublin.

Etihad Guest
Our Loyalty program, Etihad Guest, was launched in August 2006 and now has over one million
members. The program offers members the opportunity to accumulate Etihad Guest Miles which
can be redeemed against a wide selection of over 1,800 flight and non-flight rewards from more
than 200 partners.

Sustainability
We are fully committed to conducting our business in ways which ensure the responsible
management of the effects our business have on the environment. Through the adoption of our
environmental policy, partnership with the Masdar future energy initiative and our fuel efficient
fleet, we are focused on abiding by the principles of reduce, reuse and recycle.

People
We employ almost 8,000 staff representing over 120 nationalities from around the world. We are
also committed to pioneering opportunities for the UAEs national population, and through our
Emiratisation Program, offer a wide range of training opportunities for Emiratis, including a
cadet pilot scheme, a technical engineering development program and a graduate management
development program.

Sponsorships
We are proud to support a range of sporting and cultural events in the United Arab Emirates and
worldwide. These sponsorships are consistent with Etihads values of hospitality, team spirit, and
helping bring Abu Dhabi to the world and the world to Abu Dhabi. Our major sponsorships
include Etihad Stadium, F1 Etihad Airways Abu Dhabi Grand Prix, Sport Australia Hall of
Fame, GAA Hurling All-Ireland Senior Championship





A CASE ON JET EITHAD DEAL IN DETAILS


Etihad-Jet Airways strategic alliance

On 20 November 2013, Etihad Airways and Jet Airways concluded the transaction for the
subscription of a 24 per cent minority equity stake in Jet Airways, Indias premier international
airline. This follows all government and regulatory approvals being received on 12 November
2013.
India is one of the largest and fastest-growing markets in the world and a key part of the Etihad
Airways growth strategy. Through this association, Etihad Airways and Jet Airways will both be
strengthened, as will the economies of India and the UAE. By linking our two networks and
adding new flights, new routes and more codeshare options, travel to, from and within India will
become much easier.
The infusion of foreign direct investment in the Indian aviation sector will result in economies of
scale, grow traffic at Indian airports, and create job opportunities. It will greatly benefit all our
stakeholders whilst significantly benefitting our customers who will now have access to a more
expanded global network, enhancing connectivity for tourists, business travellers, Indian families
and the wider travelling public
.



Under the strategic partnership, the airlines will gradually expand existing operations and
introduce new routes between India and Abu Dhabi, providing an ever wider choice to the
travelling public. They will combine their network of 132 destinations, with Jet Airways
establishing a Gulf gateway in Abu Dhabi and expanding its reach through Etihad Airways
growing global network.
Passengers from 55 cities in India will benefit from connections to international destinations.
New flights from Jet Airways home hubs and metro airports will further strengthen its current
operations from these airports. Jet Airways vision continues to be to develop Delhi and Mumbai
airports as its primary home hubs and connecting them to Asian, European and other regions.
The Jet Airways group currently operates a fleet of 113 state-of-the-art wide and narrow-bodied
aircraft under the Jet Airways and JetKonnect brand.
Jet Airways, a full service airline with one of the youngest fleets in the world, operates a network
that includes flights to 76 destinations spanning the length and breadth of India and destinations
in Europe, North America (USA & Canada), the Middle East and Asia.
Etihad Airways investment in Jet Airways follows the minority equity stakes taken by the
airline in airberlin, Air Seychelles, Virgin Australia, Air Serbia, Aer Lingus and Darwin Airline,
subject to regulatory approval.














FINANCIAL ANALYSIS OF ETIHAD
Emirates Financial and Operational Performance
Year
Ende
d
Passenger
s Flown
(thousand)
Cargo
carried
(thousand
)
Turnove
r
(AEDm)
Expenditur
e (AEDm)
Net
Profit(+)/Loss(
-) (AEDm)
31 March
1997
3,114.3 159.4 1,198.7 1,097.1 (+)101.623
31 March
1998
3,683.4 200.1 4,089.1 3,826.7 (+)262.413
31 March
1999
4,252.7 214.2 4,442.9 4,130.2 (+)312.959
31 March
2000
4,775.4 269.9 5,113.8 4,812.9 (+)300.900
31 March
2001
5,719 335 6,359 5,693 (+)666
31 March
2002
6,765 401 7,137 6,511 (+)626
31 March
2003
8,503 525 9,514 8,513 (+)1,001
Emirates Financial and Operational Performance
Year
Ende
d
Passenger
s Flown
(thousand)
Cargo
carried
(thousand
)
Turnove
r
(AEDm)
Expenditur
e (AEDm)
Net
Profit(+)/Loss(
-) (AEDm)
31 March
2004
10,441 660 13,116 11,368 (+)1,749
31 March
2005
12,529 838 17,909 15,290 (+)2,619
31 March
2006
14,498 1,019 22,658 20,006 (+)2,652
31 Mar 17,544 1,156 29,173 25,834 (+)3,339
31 March
2008
21,229 1,282 38,810 34,359 (+)4,451
31 March
2009
22,731 1,408 43,266 40,988 (+)2,278
31 March
2010
27,454 1,580 43,455 39,890 (+)3,565
31 March
2011
31,422 1,767 54,231 48,788 (+)5,443
31 March
2012
33,981 1,796 62,287 60,474 (+)1,813
31 Mar 39,391 2,086 73,113 70,274 (+)2,839










CASESTUDIE
Introduction
Indias competition law regulator, the Competition Commission of India (CCI) recently
approved Etihad Airways PJSCs (Etihad) investment in Jet Airways (India) Limited (Jet)

,
making it the first-ever foreign direct investment (FDI) by a foreign airline in an Indian carrier
approved by the CCI. The Government of India (Government) had liberalized its FDI policy
on September 20, 2012 and set a 49% cap for foreign investments in civil aviation sector in
India. Etihad had proposed to acquire 24% in Jet Airways in April, 2013. CCI approval came on
November 12, 2013 (Ruling), after the transaction had been approved by the capital markets
regulator Securities and Exchange Board of India (SEBI), the Foreign Investment Promotion
Board (FIPB) and Cabinet Committee of Economic Affairs (CCEA). After considering the
impact of the Jet-Etihad combination (Proposed Combination) on competition, CCI approved
the Proposed Combination and held that the Proposed Combination was not likely to have
appreciable adverse effect on competition (AAEC) in India. This is a landmark ruling as CCI
has examined in far greater detail the impact of the Proposed Combination on air passenger
services for Etihad and Jet and its consequential impact on competition in India than it has in
other cases. Additionally, for the first time, a member has issued a dissenting opinion with
respect to the Proposed Combination and this has also been briefly addressed. The Ruling adopts
a fair and balanced approach in examining and analysing the information at hand and in making
an assessment on competition and drawing conclusions on the impact of the Proposed
Combination on the competition in the market. The test adopted by CCI should serve as a good
indicator for future transactions and help standardise the tests adopted to substantiate commercial
benefits of combinations.
Jet and Etihad (the Parties) had executed an Investment Agreement, a Shareholders
Agreement and a Commercial Co-operation Agreement (CCA) (Transaction Documents)
on April 24, 2013. The Parties had filed a notice under Section 6(2)
2
of the Competition Act,
2002 (the Act) with CCI on May 1, 2013.
The Parties were required to provide additional information/document(s) to CCI under the
Competition Commission of India (Procedure in Regard to the Transaction of Business Relating
to Combinations) Regulations of 2011 (Regulations) and a final reply was filed by the Parties
with CCI on September 9, 2013. The Parties sought CCIs approval for acquisition of 24%
equity interest in Jet by Etihad and in relation to all the rights and benefits which the Parties had
commercially agreed upon in the Transaction Documents and the Corporate Governance Code.
3

Issue before CCI
The only issue before CCI was whether the Proposed Combination was likely to cause AAEC in
India. Although CCI approved the Proposed Combination by its majority view (Majority
Ruling), a single member issued a separate dissenting opinion (Dissenting Opinion) which
has also been considered below.
Majority Ruling
Notice under section 6(2) of the Act on the Proposed Combination was given to CCI on May 1,
2013. Subsequently, the Parties sought time to furnish additional information since the
Transaction Documents were amended. The final set of information was submitted by the Parties
in October and the Ruling was pronounced on November 12, 2013. Based on a review of the
information that was submitted by the Parties, the Majority Ruling approved the Proposed
Combination and made the following observations on the Proposed Combination:
Relevant Market
1. To examine the impact of the Proposed Combination, CCI first ascertained the relevant
market. CCI concluded that the relevant market for passenger air transport services was
normally defined on the basis of a point of origin and point of destination (O&D) pair
approach
4
on a non-directional basis
5
(demand based approach). Thus, each O&D pair
constituted a separate market from the consumers perspective. It was possible that two
airports would be seen as part of the same market and in certain cases an O&D pair was
substitutable.
2. CCI also reasoned that consumers might consider direct flights and indirect flights as
substitutable. CCI noted that several factors determined substitutability of direct and
indirect flights and that it was possible that indirect flights offered by competitors could
be considered as an alternative for passengers.
3. CCI also noted that in the demand based approach it was important to identify different
classes of passengers and noted that different services would be substitutable for
different class of passengers. CCI noted that there were time sensitive passengers and
price sensitive passengers and it would be important to examine the impact of the
Proposed Combination in respect of services to both class of passengers.
4. CCI concluded that for an assessment of the Proposed Combination the effect of the
Proposed Combination on the service offered by both the Parties would have to be
ascertained.
5. Based on these factors and also noting that Etihad was not providing services in the
domestic sector, CCI concluded that the relevant market was the international air
passengers market:
on the O&D pairs originating from and ending in 9 cities in India (Kochi, Bombay,
Thiruvananthapuram, Bangalore, Kozhikode, Ahmedabad, Delhi, Hyderabad and
Chennai) to/from United Arab Emirates;
on the O&D pairs originating from or ending in India to/from international destinations
on the overlapping routes of the Parties to the combination.
Competition assessment of O&D pairs between India and UAE
1. The seat allocation for India UAE is based on a Bilateral Air Services Agreement
between India and UAE (BASA) and is not an open sky policy as in the case of India
US, and hence there were limited number of seats.
2. CCI noted that there were 3.5 million O&D passengers (primarily price sensitive) per
year and that Jet had only 20% share while Etihad had 5%. For each of the 9 O&D pairs,
CCI noted that the presence of Air India as a credible competitor ensured that there were
no competition concerns. The combined market share of the Parties for all 9 O&D pairs
was only 36% which revealed considerable competition. Additionally, since for all 9
O&D pairs, passengers were predominantly price sensitive, increase in price would not
be beneficial to the Parties.
3. CCI observed that since it was possible that the Parties and Air India would increase
services between certain of the 9 O&D pairs and it was also possible that other airlines
might show interest in the routes, any potential
4. apprehension regarding reduced competition would stand mitigated.


Network effects
1. CCI noted that there were 38 routes to/from India to other destinations where Etihad and
Jet flew and there was at least one competitor on each of these routes. On only 7 routes
the combined market share was greater than 50% and out of these 7 routes, on 3 routes
either Jet or Etihad individually had a market share of less than 5 per cent. For instance,
on the Bombay Brussels route, Jet had a market share of 72.90% and Etihad had a
market share of 3.30%. Therefore, CCI concluded that the effect of Proposed
Combination was marginal on the market and it did not affect competition in the market.
2. 6 out of the 7 routes mentioned above, where Jet-Etihad had an indirect overlap and the
market share was greater than 50%, consisted of Brussels and 6 Indian cities as O&D
pairs. On the basis of an analysis as was considered for UAE, CCI noted that when
substitutability was considered, the combined market share of Jet-Etihad came down to
30%. For the last route where the market share was greater than 50%, there was at least
one credible alternative and consequently, there was a carrier apart from Jet-Etihad to
choose from.
CCI observed that the competition assessment is generally carried out beyond gateway traffic
and is not restricted to O&D pairs when considering network effects. CCI noted that the airline
systems are formed either through alliances or strategic equity partnerships. In the present case, a
linked hub-and-spoke airline network forming an integrated system of complementary markets
was envisaged under the Transaction Documents. It was seen that the complementary routes of
Jet and Etihad only made the network effects more efficient. CCI noted the commercial benefits
of Jet and Etihad combining resources and also observed that merely having high market share in
an O&D pair did not mean absence of competition.
Abu Dhabi as the exclusive hub
1. As per the CCA, Jet was to use Abu Dhabi as the exclusive hub for services to and from
Africa, North and South America and UAE and there would be certain O&D pairs for
which Jet could not code share with other airlines. CCI noted that cancellation of existing
code share agreements with Jets existing partners would not lead to dominance of the
Parties as there was strong competition from various airlines.
2. Based on the Proposed Combination, CCI noted that Jet was able to access the wide
network of Etihad and passengers would have seamless connectivity to more than 80
cities.
3. Further, Abu Dhabis proximity to India would enable the option of deploying smaller,
narrow body aircraft from the secondary markets in which larger wide body aircraft
would have been unviable. Additionally, by utilizing the hub in Abu Dhabi and the
transfer of flows that it would create, Jet would be able to sustain larger aircraft on the
routes from Delhi and Mumbai to North America which would increase the capacity and
increase the choice available to the Indian consumer.
Potential efficiencies
CCI concluded that:
1. airline alliances lead to creation of new and improved services through expanded
networks or seamless service (from demand side) and increase in the ability to produce
the same services at lower cost taking advantage of traffic densities with improved
utilization of capacity and lower transaction costs (from supply side).
2. the Proposed Combination would result in lower airfare for passengers travelling to
smaller cities in India through one of the 9 major destinations served by Etihad.
3. post Proposed Combination, Jet and Etihad would coordinate pricing, fares and
inventory/yield management and this could eliminate inefficiencies in pricing.
4. passengers from smaller cities would have greater access to international destinations
without interlining to Delhi or Mumbai and thus save on air fares.
5. one of the most fundamental benefits was from economies of traffic density. CCI noted
that it was industry practice for airline alliances to extend hub and spoke networks with
large presence at both ends of the market and that this infrastructure would increase the
traffic density on O&D pairs, facilitate operational efficiency and also help cater to a
larger number of passengers.
6. airline alliances had an increased incentive to integrate their operations and provide a
greater array of services and also qualitatively improve the standard of air travel for
passengers. CCI noted that these additional benefits would flow to airlines and
passengers without anti-competitive results.
7. lastly, CCI considered the importance of the proposed equity infusion and its implication
for the Indian aviation sector as Jet had been beleaguered with debt in the past. The
Proposed Combination was seen to be a partnership between Jet and Etihad which would
allow Jet to continue to compete effectively in the relevant market in India and
internationally.
Conclusion
1. CCI noted that as per the BASA, the number of seats per week was to be increased to
37,130 from IATA winter 2014 schedule. Jet and Etihad were estimated to have a 22%
share of this potential market and CCI concluded that this market position did not reveal
the possibility of any abuse.
2. CCI also observed that since most European airlines were not fettered by limited capacity
as they flew under an open sky policy, it was possible for such airlines to bolster their
services to and from India. In this regard, CCI noted that while the responses of
competing airlines to the Proposed Combination could not be evaluated ex-ante, the
response would undoubtedly be beneficial to airline passengers.
Based on the analysis above, CCI concluded that the Proposed Combination was not likely to
have an AAEC and consequently approved the Proposed Combination. In contrast, the
Dissenting Opinion has concluded that it was not possible to independently verify the details
submitted by the Parties and consequently, the impact of the Proposed Combination could not be
satisfactorily examined. Further, the negative impact of Jet exiting its code share agreements on
competition could not be discounted. The Dissenting Opinion also notes that the O&D pairs
examined might not justify complete substitutability and consequentially the conclusion of the
Majority Ruling that there would be no impact on competition might not be accurate. In view of
the same, the Dissenting Opinion concludes that possibility of AAEC cannot be ruled out.
Subsequent events
After the Majority Ruling, the Parties filed for rectification of the Ruling as regards CCIs
observations pertaining to Etihads joint control over Jet made therein. The Parties stated that
after the Proposed Combination, the board of directors of Jet would comprise of 12 directors of
which 6 would be nominated by shareholders and other 6 would be independent. Of the 6
shareholder nominees, Etihad would be able to nominate only 2 while Jet would nominate 4,
including the chairman who would have a casting vote. Hence, the observations with respect to
Etihad controlling Jet required rectification. This request was rejected by CCI on the ground that
there was no mistake or factual error in the Majority Ruling. CCI held that while mistakes
apparent on the record could be rectified, observations and decisions could not be challenged
under section 38 of the Act.
From the perspective of the Act, an analysis of the issue of control (controlling the affairs or
management of one enterprise by another enterprise jointly or singly) might be academic since
the Parties had approached CCI under section 6(2) of the Act disclosing the Proposed
Combination as a combination for the Act. However, the principle of control is extremely
relevant and significant for compliance under FEMA, Companies Act and IT Act for disclosure
and treatment of related party transactions.


Breakdown of the $900mn investment
$380mn 24% Stake in Jet Airways (India) Ltd.
$150mn Investment up to the tune of 49% stake in Jet Privilege Pvt. Ltd.
(A wholly owned subsidiary of Jet Airways (India) Ltd.)
$70mn Sale and Lease Back of London Heathrow (LHR) Slots
$300mn Further commitment amount at 3% interest rate.

On Senior Management Positions
It is very clear when a new investor comes in, they want to exercise some control. In this case,
Etihad wants to hold key positions in order to get the best returns out of there $900mn
investment.

As the final deal is yet to be completed, we have seen key management resignations as well as
major changes in the management. This is considered to be efforts for realignment and
restructuring of the airline before the FDI goes through.

The first one to put in his papers in June 2013 was Mr Nikos Kardassis, CEO who has been with
the company since its inception with two terms from 1993-1999 and 2008-2013. He was always
known as the most trusted lieutenant and right hand man to Mr Naresh Goyal, Promoter, Founder
and Chairman of Jet Airways. Shortly after his resignation, we saw that Mr Gary Kenneth
Toomey an Australian national was nominated as the new CEO of the airline. He is a long
trusted aide of James Hogan, CEO of Etihad Airways.

The second one to put in his papers in August 2013 was Mr KG Vishwanath, VP-Commercial
Strategy and Investor Relations who has been with the company since 1998. He joined the airline
as a Management Trainee in 1998 and was promoted to VP in less than 10 years. He was
associated with Chairmans core team during the IPO exercise in 2005, again was a key member
during the Air Sahara buyout and was also a key member in the negotiation processes between
Jet-Etihad deal.

In other administrative changes, Mrs Anita Goyal, EVP-Network Planning and Revenue
Management has been re-designated as Chief Advisor to CEO. She has been with the airline
since its inception as a key member of the senior management. Previously, she was apart of the
Jet Air GSA since 1975 looking after Sales and Marketing functions, until the formation of the
airline.

Also, Mr Abdulrahman Albusaidy, GEO has been re-designated as Chief Strategy and Planning
Officer. He has been associated with the airline in its initial years as a Director on the Board of
Jet Airways between 1994-1997. He rejoined the airline as a key member of the senior
management in 2007 and was in charge of all the functions of the Gulf and Middle East regions.

In weeks and months to come, we expect many more key resignations and reshuffles within the
airline as a new investor needs to be secure of its investments and get a better return.

Mr James Hogan, CEO, Etihad Airways and Mr James Rigney, CFO, Etihad Airways are
expected to join the board once the deal is completed.

On Network Planning
As shared earlier, we expect to connect 25 Indian destinations directly to Abu Dhabi. The rollout
will be in 3 phases as shown below:


Phase 1- Ahmadabad, Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Thiruvananthapuram
and Cochin

Phase 2 Amritsar, Jaipur, Lucknow, Kolkata, Goa and Mangalore

Phase 3 Other Tier II and III Cities

A major question to everyone is about The European Hub at Brussels, Belgium. It would be too
early to comment on this currently. One must understand the strengthening efforts between the
two countries (India-Belgium), initial investments plus further investments made over the years
for development of the hub, a huge passenger base between India-Belgium-US/Canada sectors,
partnerships between Thayls High Speed Railways, Brussels Airlines, etc...

However on the other hand, it is very clear that Jet Airways forcefully wants to pull out of
Brussels, perhaps a decision that is being exercised by its partner Etihad Airways. Mr James
Hogan, CEO, Etihad Airways was quoted stating that Jet Airways will shift its hub to
Amsterdam a few months back. However, a few months ago the airline requested for slots for the
winter schedule at Amsterdams Schipol Airport. The slots and flight numbers were allotted
however returned back as they missed the winter schedule deadlines.

The plan to shift The Brussels Hub to Amsterdam was as follows:

Currently Proposed
Mumbai Brussels Newark Mumbai Abu Dhabi Newark and
Mumbai - Amsterdam
Delhi Brussels Toronto Delhi Amsterdam - Toronto

The Bilateral Agreements between Middle East Countries and Canada do not permit more than 7
weekly flights a week.

UAE - Emirates Airlines operates 4x to Toronto (3x Passenger Flight, 1x Cargo),
Etihad Airways operates 3x to Toronto
Qatar - Qatar Airways operates 4x to Toronto, 3x to Montreal

Therefore, Delhi - Toronto had to be served via Amsterdam and Mumbai Amsterdam would be
a feeder flight into the hub.

Recently a Commercial Cooperation Agreement (CCA) was signed between India/UAE/Canada,
which may permit Jet Airways to fly to Canada via Abu Dhabi with no restrictions.

The plan of using Abu Dhabi as an international hub is as follows:

Currently Proposed
Mumbai Brussels Newark Mumbai Abu Dhabi Newark
Delhi Brussels Toronto Delhi Abu Dhabi New York
Bangalore Abu Dhabi Chicago
Delhi Abu Dhabi Toronto*
**Abu Dhabi San Francisco
**Abu Dhabi Washington DC
**Abu Dhabi Los Angeles

*Subject to approval of the CCA Commercial Cooperation Agreement
** Indian City yet to be decided

Additionally we will see services as follows:
Mumbai/Delhi-Shanghai
Mumbai/Delhi-Paris
Mumbai/Delhi-Amsterdam
Mumbai/Delhi-Munich
Mumbai/Delhi-Frankfurt

On Financial Aspects
The airline has a debt of about $2.1bn out of which $1.8bn is long term debt which is basically
aircraft loans. The investment from Etihad will be used to retire majority of this debt as well as
for expansion purposes.

The operating revenue and margins has dipped over the last few quarters due to low demand for
air travel in the domestic region. This is mainly caused by a depreciating rupee currency, higher
costs of ATF, increase in airport charges and taxes.

The non-operating revenue has however increased. The ancillary revenue has been up over the
quarters and we expect it to contribute to about 10% of revenues by the next 12-18 months.

On General Aspects
MRO
Due to heavy taxation on imports of engines, spare parts, etc., it is very likely that Jet Airways
would be conducting is MRO activities abroad especially on its wide body fleet. There it is a
common practise for the joint purchase of engines, spare parts, etc. would be carried out in order
to save costs of both Etihad Equity Alliance Partners and Jet Airways as a whole. Thus a
commonality of an MRO is expected to get a huge discount on servicing of the fleet.

The ATR/B737 is already serviced to a certain extent at the Jet Airways Hanger in Mumbai,
India. The A330s and B777s are serviced in South Asia.

Simulator training is also expected to be routed through Abu Dhabi and the cost of sharing the
same is to be borne by the airline partners as well.

WORLD WIDE LOUNGES / FREQUENT FLIER PROGRAMME
There will be world wide sharing of lounges/FFP on the entire network of the Etihad Equity
Alliance Partners.

CUSTOMER SERVICE / INFLIGHT SERVICES TRAINING
There are a set of trainers form Etihad who have been training staff at Jet Airways in order to
provide a better standard of service delivery to its customers.



Jet Airways Chairman Naresh Goyal (left) and James Hogan of Etihad Airways signed a code
sharing agreement in 2008. In 2012, 19 percent of Etihads revenue came from codeshare with
partner airlines
Etihad Airwayss Australian CEO James Hogan doesnt have to think too hard about what to say.
This week, he said: Etihad will discuss ways to further integrate the two networks and help the
airline achieve efficiency, build revenue

He wasnt talking about Jet Airways, his most high-profile investment which is likely to be given
permission for take-off any time now. He was speaking in Belgrade, where he signed an
agreement with the Serbian deputy prime minister to pick up a majority stake in Air Serbia, the
latest carrier to come into Etihads embrace. When the formalities are complete over the next few
months, Etihad will own 49percent in the loss-making Serbian national carrier.

At different times in the past two years, Hogan has made very similar statements about Air
Berlin, Aer Lingus, Air Seychelles, Virgin Australia and Jet Airways. Just a decade old, the mid-
sized Etihad (70 planes, mostly wide-bodies) has been executing its own version of the string-
of-pearls strategy around the world, and Jet is only one of them. At the core is not just an equity
holding, but a well-crafted airline-cum-airport strategy where Abu Dhabi becomes a crucial hub
in this part of the world. Etihads expansive web
of bilateral agreements with many airlines is
built on the reality that airline hubs bring
economic prosperity. In many ways, Hogan is
thus not only shaping the future of Etihad, but
even the future of the Emirate of Abu Dhabi.

In financial terms, Etihads investments have just
begun to pay off. In 2012, revenue from code
shares with partner airlines was about 19 percent
of total revenues. Codeshare and equity
partnerships delivered close to $629 million. In
terms of scale, though, Etihad is still far behind
its older and possibly more glamorous rivals
Emirates and Qatar Airways. Yet it is gradually
making a mark through its unique model. It
already boasts of the largest network for any
Middle East carrier, even if less than a third of it
is operated with its own metal birds.
Rebuilding Jet
Hogans strategy for Jet Airways and India is
unlikely to be very different from what he has
done around the world. Though the Foreign
Investment Promotion Board cleared Etihads
proposal to pick up a 24 percent stake in Jet, the
deal drew much flak for being a sellout. Reality
is that Naresh Goyals business model was broken and would not have been able to last very
long (see: Jet Airways: Heading South). Old Jet soldier Saroj Datta, who has been part of the
airline since its inception, minces no words on the situation. Raising funds was proving to be
extremely difficult, and survival would have been tough if not impossible, he says. Datta had
been part of Jets senior management for 18 years and has been reading the writing on the wall
for years now.

Jet Airways lost its lead position in the Indian market over the past five years after low-cost
carriers (LCCs) hit their stride. Goyal was unable to adapt to this shift in market preference for
LCCs, but not for want of trying. In fact, he tried too hard and fell flat. From acquiring Air
Sahara to fend off Vijay Mallya and Kingfisher, to lobbying fiercely against foreign airline
investment, to trying to make his own low-cost airline Jet Konnect click, he tried everything in
the book and outside it. Nothing worked. Jets debt mounted to $2.1 billion and needed rescuing
by a white knight.

Will Etihad save Jet? Addisson Schonland, president of Innovation Analysis Group, an aviation-
focussed market research company based in the US, says: We have seen airlines tied into the
Etihad network; [they] all show big improvements once they come under the umbrella. So I
would expect to see the same at Jet. According to Schonland, the challenge will be how the
people at Jet deal with this change. Change is coming, he warns, no doubt about it.

Schonland says the folks at Jet will have to realise that their focus is not on Indian competition,
but global competition. Etihad and its partners compete against global alliances. Jet will have to
up its game and that would mean a change of pace for its people. Every alliance is only as
good as its weakest partner, and Jet wouldnt want to be the weak link, he says.















ANALYSIS OF CASE DEAL

April 24 - Jet Airways and Etihad sign strategic alliance. Etihad agrees to pick up 24 percent stake in
Jet Airways for about Rs 2060 crore

May 24 - Jet Airways share holders approve sale of stake to Etihad. The airline defers resolutions to
amend company's articles of association
May 27 - The two airlines amend shareholder agreement to address shareholder and Sebi concerns on
control and ownership
May 29 and 31 - Subramanian Swamy and Jaswant Singh complain to Prime Minister against the deal
June 13 - PMO writes to civil aviation ministry to redraft the cabinet note on Abu Dhabi traffic rights
June 14 - Foreign Investment Promotion Board defers approval to Jet-Etihad alliance
July 2 - PMO defends the Abu Dhabi bilaterals, says there is no division in government on the issue
July 29 - FIPB gives a conditional approval to Jet-Etihad deal
Sept 3 - Cabinet approves the enhanced traffic rights on India-Abu Dhabi route
Sept 16 - Swamy files a petition in Supreme Court against the deal, demands CBI probe
Sept 25 - Sebi writes to Swamy, says the agreement does not trigger will not trigger an open offer
Oct 3 - Cabinet Committee of Economic Affairs clears the deal
Nov 12 - Competition Commission of India gives its clearance to the deal
The deal was finalised only after receiving appropriate ministerial push. Here is the
chronology of how Jet pulled it off. Incidentally, well before the FDI limit in airlines was
raised, the major shareholder in Jet was Isle of Man based Tailwinds



The deal between Naresh Goyal-led Jet Airways and Etihad Airways, the national airline of the
United Arab Emirates (UAE), and the signing of the bilateral between India and Abu Dhabi
comprises chain of events taking place one after another. The smooth and automatic flow of
events makes one wonder whether these incidents were mere coincidence or part of collusion.
It all started on 14 September 2012 with the Cabinet Committee on Economic Affairs (CCEA)
approving the proposal from the Department of Industrial Policy and Promotion (DIPP) to permit
foreign airlines to invest up to 49% in scheduled and non-scheduled air transport services in
India.

During January 2000 to April 2012, total foreign direct investment (FDI) inflows into the air
transport sector were $434.75 million, constituting only 0.25% of the total FDI inflows in India.

Interestingly, the move to allow 49% FDI in airlines was looked upon more at facilitating the
ailing and debt-ridden Kingfisher Airlines. In fact, the Vijay Mallya-led carrier was the first to
initiate talks with Etihad. But by that time, Kingfisher was merely surviving on hopes. After
scaling down the fleet, in October 2012 Kingfisher finally decided to cease operations. This gave
a chance for Naresh Goyal, a non-resident Indian (NRI) to push for the deal between Jet and
Etihad. It also opened up opportunity for SpiceJet, which was rumored to be in talks with
Malaysian carrier AirAsia and UAEs Qatar Airways. However, there is not much progress on
SpiceJets deal.
In January 2013, officials from both Jet and Etihad met Ajit Singh and Anand Sharma, minister
for commerce and industries. After the meeting, Singh confirmed that both the carriers were
negotiating a stake purchase deal.
On 1st February, the board of Jet Airways approved stake sale to Etihad and was expected to
finalize the deal within a week. However, it did not materialise as expected. Even as both the
carriers were negotiating the deal, on 27th February, Etihad paid $70 million to buy Jet's slots
at London's Heathrow Airport, said a report from Reuters. Etihad was quoted in the report as
saying that the deal to buy slots was a part of a sale and lease-back agreement, and Jet would
continue to operate flights to London using those slots.
It is important to note that initially the Jet Airways deal was to be consummated and concluded
on the 28 February 2013. This had been announced much earlier by Jet and Etihad themselves.
At that time, the chairman of Etihada member of the ruling familystated that all the
requirements of Etihad and Abu Dhabi had not been fulfilled and hence Etihads investment in
Jet was yet to be concluded.
PROBLEMS
May 29 and 31 - Subramanian Swamy and Jaswant Singh complain to Prime Minister against
the deal because of law but the law was changed in march only so their complaint was rejected
Changes made in the law
DGCA swings into action
On the next day, i.e. on 1 March 2013, the Director General of Civil Aviation (DGCA) issued
fresh guidelines as approved by the ministry of civil aviation. Clearly, the changes made in the
2008 guidelines were aimed to facilitate the deal between Jet and Etihad. Here are the
modifications made in the guidelines...

2008 - Clause 1.7 states A Scheduled Air Transport Service/Domestic Scheduled Passenger
Airline shall not have agreements such as shareholders agreements, etc. with a foreign airline,
containing provisions/arrangements empowering such foreign airlines or others on their behalf to
have effective control in the management of the domestic airline.
1 March 2013 - this was deleted.
2008 - Clause 1.8 states A Scheduled Air Transport Service/Domestic Scheduled Passenger
Airline shall not enter into an agreement with a foreign airline which may give such foreign
airline the right to interfere in the management of the domestic operator.
1 March 2013 - replaced by Clause 1.5 that states A Scheduled Air Transport Service/
Domestic Scheduled Passenger Airline other than those who have FDI by foreign airlines shall
not enter into an agreement with a foreign airline, which may give such foreign airline, the right
to interfere in the management of the domestic operator.

It is evident from the above change that a foreign carrier, through its investment in a domestic
operator, can now interfere with the management of the Indian carrier. These changes in
guidelines are in total contradiction to the policy, which mandates the effective control in the
hands of an Indian shareholder. It is therefore obvious as to why this clause has been diluted and
the clause earlier referred to namely, Clause 1.7 has been delegatedthe reason to dilute the
definition of effective control.

In order to facilitate Jet in receiving the consideration of $300 million through a soft loan at 3%
the guidelines were required to be changed.

2008 - Clause 1.9 states A Scheduled Air Transport Service/Domestic Scheduled Passenger
Airline may enter into financial arrangements with a bank and/or other financial institutions for
the purpose of lease-finance, hire-purchase or other loan arrangements, but such a tie-up shall not
be permitted with a foreign airline.

1 March 2013 - Clause 1.6 states A Scheduled Air Transport Service/Domestic Scheduled
Passenger Airline may enter into financial arrangements with a bank and/or other
financial institutions including foreign airline for the purpose of lease-finance, higher
purchase or other loan arrangements.

The bilateral and sealing the deal
The 48-hours between 22nd and 24 April 2013 are most crucial in finalising the Jet-Etihad deal.
On 22nd April under the direction of the Prime Minister the Cabinet Committee approved the
signing of the grant of 40,000 additional bilateral seat rights per week to Abu Dhabi. However,
the prime minister's office in a note issued on 13 June 2013 clarified that the decisions were not
taken under the direction of the Prime Minister.

In short, 22nd April was the most crucial day at the government level. It was on the same day,
Ajit Singh convinced PM Manmohan Singh to urgently clear the bilateral deal between India and
Abu Dhabi. Prime Minister Singh then directed finance minister P Chidambaram to hold a
meeting with Ajit Singh, Anand Sharma, and Salman Khurshid, minister of external affairs. This
meeting was held on 22 April 2013 itself.

Immediately after this meeting, Chidambaram along with the other three ministers and
Shivshankar Menon, National Security Advisor and Pulok Chatterji, principal secretary, met the
PM. This time, the PM raised some issues about the bilateral. However, Ajit Singh and other
ministers assured the PM that all these concerns were considered while arriving at the
enhancement.

The finance minister and external affairs minister were in agreement with and endorsed the
views of the other ministers. On the basis of the above, it was agreed to give an in principle go-
ahead to the negotiating team as per the formulations (40,000 seats per week), the note from the
PMO says.

Although PM Singh directed the matter to be brought before the Cabinet for a decision before
operational zing any agreements, on 24th April, the bilateral was signed.

Immediately after signing the bilateral (thus granting 40,000 additional bilateral seat rights per
week to Abu Dhabi), Etihad and Jet finalized their stake purchase deal. As per the proposal, Jet
Airways would sell 24% stake to Etihad for about Rs2,058 crore.
OTHER FACTS
It is therefore, obvious that the consideration to be received or received by Jet Airways was
clearly linked and co-related to the value of the bilateral that Abu Dhabi was receiving along
with its investment in carrier. The sole beneficiary of the largesse of this bilateral deal was
Naresh Goyal and not India as the government wants us to believe.

This is because the Jet founder controls about 80% stake in the carrier through his 100%
ownership in Tail Winds. Earlier in May, Tailwinds, an Isle of Man registered entity sold 2.51
crore shares in Jet to Goyal at Rs570 per share. This was done because Tailwinds cannot trade
shares of an Indian company with another foreign company. However, Goyal can sell his
personal stake to anyone.

As of 7 June 2013, Naresh Goyal holds 65.99% while Tailwinds hold 9.01% in Jet Airways.
Another promoter group, Anita Naresh Goyal holds just 1,000 shares. All three promoters or
promoter group entity hold 75% stake in the carrier, as per BSE.


This is interesting because among the promoter group entities, only those 1,000 shares held by
Anita Naresh Goyal, wife of the Jet founder, are shown as from Indian promoter. The rest are
owned by foreign promoters, Goyal and Tailwinds. This is also an example of how rules and
regulations are being interpreted to facilitate mutual interests.


As per the law, foreign companies can hold maximum 49% stake in a domestic carrier. This was
permitted in September 2012. However, even on March 2013, Tailwinds, a foreign registered
entity, was holding 79.99% stake in Jet Airways. This was way above the stipulated 49% limit of
FDI. However, neither the ministry of civil aviation nor any other regulator seems to be bothered
by this.

According to the companys Articles of Association, the bulk of Goyals shares in Tailwinds are
held on behalf of several other individuals who all seem to be resident citizens of India. While
Indian government officials have been satisfied that these arrangements do not compromise Jet
Airways status as an Indian-owned airline that is effectively controlled by Indian citizens, they
were viewed as problematic by the American authorities.

Earlier, it took Jet Airways more than two years to get the necessary clearances from US
authorities to fly to the US. The US State Department gave permission to proceed on 15
November 2006. The more serious allegation that delayed Jet Airways being permitted to fly to
the US focused on its opaque ownership structure as well as its alleged links to organised crime
in India and abroad. Jet was originally set up as a subsidiary of Tailwinds, an Isle of Man-based
holding company designed as a tax shelter, whose sole shareholder was Goyal, the airlines NRI
founder and chairman.






























FINDINGS AND BENEFIT OF DEAL FOR JET AIR WAYS

As part of the deal, there will be an overall cash infusion of $ 750 million in debt and equity. The
infusion will help Jet cut its debt from $2.1 billion to $ 1.5 billion
$379 million Equity investment
$150 million Investment in Jets frequent-flyer programme
$150-million loan Assistance to be provided in securing debt
$70 million Sale and lease-back of Jets Heathrow slots
Reduce debts
The proposed deal of acquisition of 24% stake in Jet Airways by Abu Dhabi-based Etihad
Airways would help the Mumbai-based company in three distinct ways. First, it should provide
immediate funds to either reduce its debt or expand its presence domestically. At present, Jet has
a debt of Rs12000 crore of which Rs7500 crore is a long-term lease loan, while the remaining
Rs4500 crore include working capital loans and other non-lease debt.
Shareholders- share holder of Jet will value the stock at Rs. 610-640, higher than the current
market price but substantially less than Etihad's Rs. 754.74 apiece, Mr Sabarad said. The Jet
Airways stock has risen 15 per cent since April 17.
Fuel cost
Jet Airways getting access to low cost fuel, flying could become cheaper.

Passenger
If the deal goes through, then the passengers will get benefit from Etihad's global network.
As the Jet-Etihad hub will be located in Abu Dhabi, passengers will have access to a number of
new routes to cities on Africa, the USA and Europe








Market share-
After the deal took place market share of jet airways has gone up




Improved quality of services: With capital infusion and more rivals, airlines may have no
choice but to consolidate and improve their service quality, including on time arrival/departure
and better in-flight services.
Better regional connectivity: People in Tier 2-3 cities will see better global connect and that
may give a fillip to the trade and tourism in those locations, says KPMG. Saroj Datta, former
executive director at Jet, said the deal will expand the destination range that the Indian airline
can service









CONCLUSION:
Yes I would like to conclude that this Deal would benefit both Airways as well as Other Indian
and foreign player in following ways
Strategic investment under FDI policy of the Government of India will deliver wide-ranging
revenue growth and cost synergy opportunities for both airlines
Alliance will bring significant benefits to the Indian economy, both in terms of growth, job
creation, trade and tourism.
Jet Airways passengers from 23 cities in India to gain direct access to an expanded global
network Jet Airways to enhance its services from its primary hubs of Delhi and Mumbai, and
introduce new flights from Hyderabad and Bangalore.
The strategic alliance between the two airlines will bring additional traffic, frequencies and
revenues to metro airports, as well as other airports of AAI. New India-Abu Dhabi routes and Jet
Airways to establish a Gulf gateway for flights to the US, Europe, Africa and the Middle East,
The strategic investment enables Etihad Airways to tap into Indias fast-growing 42 million
strong travel market.
Both airlines' passengers will benefit from fully integrated frequent flyer programs with
reciprocal earn-and-burn.
Alliance will result in both consumer benefits and/or all round efficiencies. This strategic
investment with a US$600 million commitment from Etihad Airways will help further
strengthening of Jet Airways financial position.
Tata Singapore Airlines - Initital investment $100 million. Singapore Airlines will invest $49
million and the balance will be invested by Tata group
National carrier Air India is likely to join the 28-member Star Alliance by June this year.
Without giving a specific date, one can say that we will complete all the ground work and
formalities of Air Indias entry into the Star Alliance club by this summer. After that, they will
be ready to join straightaway, says Star Alliance CEO Mark F. Schwab.
Tata AirAsia - AirAsia to hold 49% investment, Tata Group will hold 30% while 21% will be
held by telestra Tradeplace. The initial investment is around Rs 80 crore
Air lines will contribute to higher growth if the airlines followed the mention points above such
as infrastructure, employment, Airport security etc