S I T E S E L E C T I O N NOVEMBER 2016 17Indian market through the PPP approach.The plummeting aviation turbine fuel (ATF) price served as the primary catalyst for growth within the aviation sector in the past one to two years. Indian carriers used to spend as much as 50 percent of their total costs on ATF, and now, with reduced prices, it is down to 40 percent. Other factors augmenting the sector tailwinds include the expanding middle class, the modernization of existing airstrips, relaxation of foreign direct investment rules, growth in tourists and easing visa requirements.Risks and Potential RewardsHowever, along with this exuberance, much of the civil aviation market still carries substantial risk. All Indian airlines are heavily indebted, with India’s national carrier, Air India (nicknamed “the Maharaja”) having lost nearly US$1 billion annually over the last four successive years. The ailing airline is now surviving on a US$5-billion government bailout package.Continuous discussion with the government is paramount to streamline this sector and fix the airport infrastructure bottlenecks such as problems in environmental clearance and skewed land acquisition policies. Unfortunately, little action is being undertaken by Indian authorities to increase airport capacity to keep up with the rapid market expansion happening in the last decade. India may fail to take full advantage of the promising aviation market if policy reforms and structural issues remain uncertain. With high ATF taxes (60 percent costlier than global prices) and airport infrastructure fees, India’s aviation industry operates in the world’s most costly environment. High input costs, heavy fuel surcharges, intense competition and an arcane regulatory environment are threats to the entire aviation value chain, dampening growth prospects.Access to technology remains the biggest struggle for Indian aerospace manufacturing companies, presenting an opportunity for collaboration with foreign companies. The industry is in the early stages of development and needs to keep pace with global aerospace technology across the value chain. Over the last couple of years, the Indian government has consistently worked on creating positive economic policies and actively lured global investors with several incentives. As operating conditions and ease of doing business improves across India, more and more private global companies within the aviation and defense sectors are expected to forge partnerships with local Indian companies.Sreehari Marar is a Senior Research Analyst in the India office of Tractus Asia Limited, a leading FDI advisory and site location strategy firm in Asia. He can be contacted at sreehari.marar@tractus-asia.com. Air Marshal BS Dhanoa, Vice Chief of Air Staff, Indian Air Force, inaugurates the Boeing C-17 Simulation Training Center in Gurgaon on July 8 in the presence of Pratyush Kumar, president, Boeing India; S. P. Shukla, group president, Aerospace & Defence Sector, and chairman, Mahindra Defence Systems; Gene Cunningham, vice president, Global Sales, Defense, Space & Security; and Vinayak Rajagopal, Global Services & Support, Defense, Space & Security.Photo courtesy of BoeingSreehari Marar is a Senior Research Analyst in the India office of Tractus Asia Limited, a leading FDI advisory and site location strategy firm in Asia. He can be contacted at sreehari.marar@tractus-asia.com.India.indd 1711/2/16 5:58 PM
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