Gujarat possesses one of the largest networks of airports and airfields in the country.

It has 17 airports, including one international airport, under the operational jurisdiction of Airports Authority of India (AAI).Apart from AAI airports, there are three airstrips under State Government jurisdiction located at Mehsana, Amreli, and Mandvi. In addition, state envisages opportunities in non-passenger segment viz. Maintenance, Repair and Overhaul (MRO) of aircrafts, air-cargo, and creation of a regional hub for airline operations, aviation training and back office activities. The goals for Aviation sector state is aiming at are as under: Ensure availability of quality airport infrastructure and air connectivity to passengers in the State. Trigger development through the high visibility Greenfield international airport project. Explore opportunities in non passenger aviation segments such as maintenance, repair and overhaul of aircraft, air cargo, regional hub of airlines, air taxi services etc. Encourage manpower development and skill building in aviation sector by encouraging flight schools and aviation academies at not-in-use air fields. Current scenario

Over the past 10 years, the Indian aviation has moved from a closed, poorly managed and over-regulated industry to a more open, liberalised, and investor friendly sector. Liberalization of the sector and entry of low cost carriers have been the main drivers for the growth. The sector has also witnessed growth in terms of increased airport infrastructure and increased numbers of operating airlines. The key sector trends are as captured as under:

Earlier all airports were in AAI control, which carried out improvements by subcontracting to EPC contractors. However, over last five years, airport infrastructure has attracted private investment through the PPP route at four international airports, viz. Delhi, Mumbai, Bangalore Greenfield and Hyderabad

Greenfield airports

The Government has increased the FDI limit to 100% in Greenfield airports and airlines. Larger private sector role in airport infrastructure and management has led the Government to introduce an Airport Economic Regulatory Authority Bill to regulate private airport and airline operators market. The Authority will have functions relating to tariff determination, amount of development fees in respect of major airports, amount of passenger service fee, and monitoring of performance standards relating to quality, continuity and reliability of service. The number of airlines including low cost carriers has increased. This led to subsequent increase in competition and fare reduction which further fuelled the air traffic growth. The sector has witnessed accelerated fleet acquisition activities and present fleet size of all domestic airlines has exceeded 300 aircrafts. However, present downturn may slowdown fleet expansion plans Up gradation and modernization of airports and as well as the rising fleet size have raised need for support services such as setting up of MRO facilities and boosting cargo operations by setting up air cargo facilities. Significant planned expansion of Indias fleet has lured several global players such as Airbus, Boeing, SIA Engineering, ST Aerospace and Lufthansa Technik to establish MRO facilities in India. Large investments are expected in MRO (Maintenance Repairs and Overhauls) segment in India. Liberalizing bilateral traffic rights with several countries has taken total seats entitlement up by 123% between 2003 and 2006. This led to 17.8% growth of international traffic in 2007-08 from last fiscal. Higher fuel costs, structure of high taxes and higher user charges are leading to huge margin pressures on airlines, initiating a trend of consolidation through mergers and acquisitions of airlines. The nationwide passenger demand growth is strongly exhibited in Gujarat too. Historically, Gujarat airports exhibited a growth rate of 1.2% in passenger traffic during the five year period from 1997-98 to 2002-03, lower than the all India average of 5% during the same period. After 200203, passenger traffic witnessed 26% compounded annual growth rates which was 5% higher than the national average. This turnaround was primarily observed at Ahmedabad airport and was driven by low cost carriers, higher price elasticity, increased disposable incomes and overall buoyancy of the economy. Demand for backup and supporting industries like Maintenance Repair and Overhaul, aviation hubs, aviation manpower etc has increased due to the growth in the aviation

sector.

Over the eleventh five year plan period, Rs. 40,880 crores of investment is envisaged in airport infrastructure. Modernization of metro airports comprise 40% of eleventh plan investment where as 35 non metro airports across the India will be upgraded at an investment of Rs 6,149 crores. This forms 15% of non metros investment. However 30% of eleventh plans investment is envisaged in development of several Greenfield airports across the India. Approximately 75% private sector investment is envisaged in this period indicating larger role for the private sector. Growth in civil aviation is threatened by challenges such as declining volumes due to high fares, high operational costs, global economic slowdown, security and law and order issues and a traditional high cost loaded structure of the industry which is difficult to recover in a short time. These developments have put a huge strain on the airlines capacity to sustain volumes. The airlines are now responding through mergers, acquisitions, tie ups and cost cutting measures within leading airlines. However, downturn in oil prices, committed Government support, strong underlying fundamentals of the Indian economy may help the sector tide over the crisis.

The present report tries to absorb the above developments. We begin with an analysis of the passenger opportunity in Gujarat
Airports 2003-04 2004-05 2005-06 2006-07 2007-08

Ahmedabad

7.24

9.17

14.39

20.92

24.62

Vadodara

3.12

3.62

3.60

4.04

5.02

Rajkot

1.27

1.58

1.40

1.61

1.54

Bhuj

0.61

0.65

0.78

0.85

0.92

Bhavnagar

0.53

0.64

0.53

0.65

0.69

Jamnagar

0.45

0.59

0.70

0.84

0.96

Total

13.22

16.25

21.4

28.91

33.75

For the purpose of forecasting demand, methods identified by International Civil Aviation Organization (ICAO) were used to the extent possible. ICAO provides three basic methods of forecasting, namely Trend Projections (based on historical growth), Econometric Relationship Modelling (based on correlation with GDP of the catchments area) and Market

and Industry Survey (based on the industry and market survey). In absence of reliable long term historical economic data for catchments area of different airports, a combination of trend and market/industry survey methods has been adopted for demand projections. By analyzing the past trends and through inputs from market analysis, informed judgment for the growth rate of each airport has been formed. Different growth rates have been adopted for the period 2007-15 and 2016-20.
Growth rates adopted for domestic passenger demand forecast Airport 2007-15 Period 2016-20 12% 7%

Ahmedabad Vadodara Rajkot Bhuj Bhavnagar Jamnagar

24%

14%

7.5% 9% 7% 12%

4%

5%

4%

6%

Ahmedabad has exhibited domestic traffic growth of 36% CAGR during last five years. However impeding challenges in the aviation sector may slow this growth and hence a conservative 24% growth in the traffic of Ahmedabad airport has been adopted. Vadodara and Jamnagar for the second category of growth airports at the middle level. For other airports relatively slower growth rates have been adopted, mainly based on past trends. Based on the above, on an unconstrained capacity basis, the traffic forecast for domestic passengers for Gujarat airports is as under.

Exhibit: Domestic passenger traffic projection for Gujarat airports (lakh passengers)

Airport

Year

2007-08

2009-10

2011-12

2016-17

2019-20

Ahmedabad

24.6

37.9

58.2

139.2

195.6

Vadodara

5.0

6.5

8.5

14.4

17.6

Jamnagar

1.0

1.2

1.5

2.4

2.9

Rajkot

1.5

1.8

2.1

2.8

3.1

Bhuj

0.9

1.1

1.3

1.8

2.1

Bhavanagar

0.7

0.8

0.9

1.2

1.3

Airport

Year

Total

33.7

49.3

72.5

161.8

222.6

Source: CRISIL Analysis (Base Data:AAI) (2007 are actual numbers) The above forecast shows that the Ahmedabad will continue to have the major share of the air traffic on the State given its higher growth rate. Vadodara will be a distant second. The balance key airports will continue to have low traffic numbers and low overall market share
International Passenger Traffic

International passenger traffic at Ahmedabad has grown at a CAGR of 29% in the last five years from 2002-03 to 2007-08. There was a drop in growth in 2006-07 but the recovery has been robust in 2007-08 with increased direct flights. However, the current year (2008-09) may see a slump. However, given the huge investments planned, introduction of many new international flights, easing of oil prices and the new international terminal with apron will become available in 2009. Considering these, a conservative, lower than historical growth rate of 25% has been adopted for the period of 2007-15 while 15% has been adopted for period beyond 2015. The projections are as under.
Passengers) Exhibit: International passenger traffic projection for Ahmedabad airport (Lakh Airport Period

2007-08
Ahmedabad 7.02

2009-10

2011-12

2016-17

2019-20

10.96

17.13

44.25

67.30

MRO opportunity in Gujarat

Air transport MRO business in the world was estimated at $40.8 bn in 2006. The Asia-Pacific aircraft and engine MRO market totalled $ 8.71 billion in 2005 and is estimated to touch $12.90 billion in 2011. North America is the largest MRO market of the world, accounting for around 40% of the world market. Western and Eastern Europe drive 28% of spending. Asia Pacific, China and India combined represent 22% of the market share. However India alone represents only 1% market share of the global MRO business. The market share of each region in terms of MRO spend is brought out as under;

Exhibit: Region wise share of MRO market in 2006 Exhibit: World MRO market in 2006 Exhibit: Changing trends of MRO industry Exhibit: Present MROs in India Exhibit: Emerging MRO service providers in India

AIR CARGO OPPORTUNITIES IN GUJARAT

Air cargo comprises goods with high-value, high-time dependency, or perishable cargo. Growing at 6% pa, the world airlifted cargo accounted for 2% of international trade by volume and 30% by value in 2006-07. Its growth has traditionally exhibited strong correlation with world GDP growth. Boeing forecasts that 60 million tonnes of cargo will be transported by air in the year 2017.

Exhibit: Share of air lifted export commodities in India in 2006-07 Source: AAI/Air India and CRISIL Analysis. Perishable include seafood, fruits & vegetables, cut flowers, eggs etc Miscellaneous includes hazardous Chemicals, Pharmaceuticals, Unaccompanied baggage, Tea, Mica, Dangerous goods etc. Major destinations for Indias perishable goods are Gulf countries (66% of total perishables) and UK (12%). Mumbai and Delhi are major cargo center of India accounting for 57% of air cargo export and 54% of Indias air cargo import. This is owing to well developed infrastructure and vicinity of industrial activities around these two metros. Mumbai is leading in export of perishable product export with 49% market share. )It can be noticed that Gujarat has strong industrial presence in major air cargo categories. Gujarats share of national output is 30%, 16% and 6% in chemical and pharma, textiles, apparel and engineering goods respectively. Currently Gujarats airports handle 2% of Indias air cargo of 2007-08 as seen below. Ahmedabad is the leading air cargo center accounting for 83% of states air cargo traffic in 2007-08. Cargo traffic of Ahmedabad airport comprised 44% domestic and 56% international cargo (2006-07. Exhibit: Air cargo traffic at Gujarat's airports (tonnes)
Airport 2005-06 2006-07 2007-08

Ahmedabad

16878

20211

23576

Vadodara

3435

3422

3377

Rajkot Indias total Gujarats share Source: AAI and CRISIL Analysis

825

872

812

1403977

1553465

1713656

2%

2%

2%

Ahmedabad is also the leading airport handling 67% of Gujarats domestic air cargo traffic. This is followed by Vadodara (26%) and Rajkot (7%) Rajkot airport. In last three years, the growth of air cargo at Ahmedabad Airport was 16.6% as against 10.5% of national air cargo industry growth . Ahmedabad is also the leading airport handling 67% of Gujarats domestic air cargo traffic. This is followed by Vadodara (26%) and Rajkot (7%) Rajkot airport. In last three years, the growth of air cargo at Ahmedabad Airport was 16.6% as against 10.5% of national air cargo industry growth .
Exhibit: Share of air lifted export commodities at Ahmedabad airport in 2006-07

Source : AAI In this perspective, Gujarats strength in chemical, textiles and horticulture can be leveraged by augmenting air cargo export from the state. Air cargo by definition is extremely time sensitive and/or high value cargo and it is possible to find export orders if facilities for quick transport are available. Gujarat also has a potential in perishable goods due to considerable emphasis on the development of horticultural crops. The major fruits crops grown in Gujarat are banana, mango, citrus and chikoo. Major vegetables grown in Gujarat are onion, potato, brinjal, tomato, okra and cucurbits. The productivity of fruit crops and vegetable are estimated at 18.18 MT/ha, 16.56 MT/ha which is higher than the national average The State also produces spices such as cumin, fennel, and garlic and enjoys a virtual monopoly in seed spices. Area under flowers like Rose, Lily and Marigold is increasing. Various aromatic plants like

pacholi & pamaroza is cultivated in the southern part of the State. There is a scattered cultivation of medicinal plant like allovera, sena, gugal in the State. Gujarat also has 12 co-operative milk plants with combine milk handling capacity of 70.10 lakh litres per day, 11 private dairy plants and 12991 co-operative dairy societies. South Gujarat region is leading producer of flowers and fruits and central Gujarat region is leading producer of milk and flowers. Thus the production of perishable industries products in central and southern regions can further be strengthened through provision of adequate air cargo lifting facilities at Ahmedabad and Surat. Given the large presence of chemicals and pharmaceuticals in the air lifted cargo, it could be extremely beneficial to locate an air cargo hub around Bharuch / Dahej area. PCPIR could host a large air cargo complex along with proposed MRO facility.

To give a boost to the sector, the state government has decided to extend tax sops on aviation turbine fuel (ATF) to companies operating intra-state flights. "The subsidy on fuel will give non-scheduled operators a level playing field. Also, if traded by a government-owned company, ATF would be available in Gujarat on a 10 - 13 % lesser price than prevailing market rates. Similar benefits have been extended to intra-state operators in Madhya Pradesh,". The policy will also make space for Gujarat Civil Aviation Board (GUJCAB) which will facilitate and develop aviation infrastructure in the state and will be headed by chief minister.

Our Achievement: