1. Contact Information
15th Floor, Tower-B, DLF Cyber Terraces, Building No. 5,
DLF Cyber City, Phase III, Gurgaon 122 002, Haryana, India
Phone: (+91-124) 452 5300 Fax: (+91-124) 4525 399 Website: www.pulsarkc.com
Sharp Minds. Smart Solutions.
FDI Reforms:
Indian Civil Aviation Sector
March 2014
(…By Sonal Maheshwari)

2. 2
The views, opinions, analysis expressed in the following presentation are those of the
individual presenters (Ms. Sonal Maheshwari) and there is no assurance from the
presenters about the completeness and accuracy of the content. The presentation
should not be attributed to Pulsar Knowledge Centre (“PKC”), its group companies, its
directors or employees, or any organization with which the presenter is employed or
affiliated.
Disclaimer

3. 3
Overview of Indian Civil Aviation Industry
Recent Reforms in Indian Civil Aviation Industry
Foreign investments in Indian Civil Aviation Industry
Outlook for Indian Civil Aviation Industry
Annexure
Agenda

4. 4
Overview of Indian Civil Aviation Industry
 India is the 9th largest civil aviation market
in the world, with a market size of approx.
USD 12 bn
- Airline segment constitutes approx. two-thirds of the
total size of Indian Civil Aviation industry
- On account of favorable demographics, rising
disposable income and burgeoning middle class
population, Domestic Passenger traffic has grown at
a CAGR of 10% over the last six years
Source: FICCI-KPMG Research Report 2012, DGCA
*ASKM- Available seats kms

5. 5
Indian Aviation Industry presents a huge growth opportunity…
 There exists a huge gap between potential
and current air travel penetration in India
- India has only one aircraft for every 3 mn
population
- Air travel penetration in India is just 5%, which is
far behind that of developed countries like USA
and Australia where the penetration is over 200%
- Strong correlation between per capita income and
air travel penetration indicates that India presents a
huge potential for air traffic with the increase in
personal income, aspirations and the perceived
value of time International comparison of air traffic penetration
Source: FICCI-KPMG Research Report 2012, IMF World Economic Outlook
GDP per capita (USD)
USA
Australia
Malaysia
BrazilChina
India
Airtravelpenetration
 By 2020, Indian aviation market is
projected to become the 3rd largest in the
world with projected investment to the
tune of USD 120 bn

6. 6
Domestic Airlines – Operating Matrix
Source: ICRA Report March 2012
Revenues
Domestic Revenues
International Revenues
Other Operating Income
Sub-lease of Aircrafts
Cargo, Auxiliary Revenues etc.
Non-Operating Income
Aircraft Sale & Lease Back
Cost Structure
Fuel Cost
Employee Cost
Aircraft Maintenance Expenses
Landing & Navigation Charges
Other Expenses
Selling & Distribution Expenses
General & Administrative Expenses
EBITDAR
Aircraft Lease Rental
Depreciation
Interest Expense
PBT
 Domestic revenues are largely INR denominated; Robust passenger traffic growth, but yields out of
sync
 Airlines with international operations generate part of revenues in foreign currency; foreign carriers
dominate in the longer haulage and premium service offerings
 Earnings from aircraft sub-leases (dry or wet) are mostly in $ terms, helps rationalize capacities
 Low contributions from cargo and auxiliary revenue
 Sale and lease back an attractive option to book non-operating incomes, generate free cash flows
and deleverage the balance sheet
 ATF costs contributes 30-45% of overall operating costs for Full Service Carriers (FSCs) & 40-55%
for Low cost carriers (LCCs)
 Domestic ATF prices are linked to fluctuation in crude oil prices and movement in INR vs. $
 Shortage of experienced pilots require airlines to employ foreign pilots which command higher
salaries and are often paid in foreign currency
 Lease rentals are denominated in foreign currency thereby exposed to fluctuation in forex
movement; Depreciation costs mainly for owned aircrafts (Financial Lease)
 Significant rise in interest expenses due to deterioration in the capital structure, cash losses and
increased working capital requirements besides overall rise in interest rates
Domestic airlines experience strong passenger traffic growth aided by favorable demographics; but operate
under high cost environment, intense competition and have constrained yields.

7. 7
Competitive landscape on Domestic routes
 With the exit of Kingfisher Airlines in October 2012, Indigo
has gained market share by approx. 8%
 Private airlines account for more than 80% market share on
Domestic routes
 In a price-sensitive market like India, LCCs have increased
their market presence y-o-y and currently controls more
than 50% share
 Due to steep hike in air fares and sluggish economic
conditions, average Passenger Load Factor has slightly
declined in FY 2013
Average Passenger load factors on domestic routes
Source- CAPA-Centre for Aviation, DGCA
Airline Market share – Domestic Routes
Source- CAPA-Centre for Aviation, DGCA
* Kingfisher was grounded in October 2012
*
Market share of LCCs v/s FSCs
Source- DGCA
Note- LCCs include Indigo, Spicejet, GoAir, Jet lite
On Domestic routes, Indigo is the market leader across financial and operating metrics.

8. 8
Why are domestic airlines lagging behind on International routes??
Airline Market share on international routes to/from
India: FY 2013
Source- CAPA-Centre for Aviation, DGCA
 As per the Indian regulations, a start-up airline requires to
complete 5 years of domestic operations and reach a fleet
size of 20 aircraft, before operating on international routes.
 Since Inception, Air India was given a special privilege
called the Right of First Refusal (RoFR) in choosing
international routes and hoarding the bilateral air traffic
rights.
- In March 2011, GOI further imposed a freeze on
allowing fresh rights to private carriers for flying
international destinations.
- In March 2012, GOI lifted the freeze on overseas
expansion of private airlines
- After the removal of freeze on international permissions,
Domestic private airlines - Jet Airways, SpiceJet and
Indigo are aggressively planning to scale up their
international operations
Fuel
• Availability of
fuel at
international
rates
Auxiliary
revenue
• Higher auxiliary
revenue
through in-flight
sales
Fleet Utilization
• Higher fleet
utilization as
international
operations can
happen during
the night hours
Advantages on International routes v/s Domestic
routes
International airlines dominate in India’s outbound traffic with more than 70% market share due to excessive
restrictive Govt. policies in the country.

9. 9
0%
50%
100%
150%
200%
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
Jet Airways Spice Jet Kingfisher Airlines BSE-SENSEX
Domestic Airlines are facing severe financial crisis…
Figures in USD mn
FY 2012
Revenue
FY 2012
PAT
FY 2013
Revenue
FY 2013
PAT
2,600 (1,400) 3,000 (950)
278 (24) 375-400 18
1,000 23 1,500-1,600 100-110
3,040 (259) 3,387 (140)
1,000 (423 ) 91 (500-520)
720 (109) 1,000 (34)
Source- CAPA- Centre for Aviation, Company filings
Source- CAPA- Centre for Aviation, Company filings
Domestic Airlines – Debt (FY 2013)
Source- Bloomberg
Domestic Airlines – Share Price Performance
 On account of unfavorable aviation economics posed by
high airport charges, deprecation of the Indian rupee,
expensive ATF and low air fares, major Indian carriers are
operating under looses.
 Debt of domestic airlines reached USD 14.5 bn in FY 2013.
A key contributor to the overall debt, is the Industry’s
accumulated losses since 2007, amounting to USD 9.5 bn
 Public listed Domestic airlines experienced significant
erosion of Market cap during FY 2012 on account of
consistent losses and high debt.
Major domestic airlines are reeling under the pressure of mounting losses and rising debt burden.

10. 10
Overview of Indian Civil Aviation Industry
Recent Reforms in Indian Civil Aviation Industry
Foreign investments in Indian Civil Aviation Industry
Outlook for Indian Civil Aviation Industry
Annexure
Agenda

11. 11
FDI Reforms – Game Changing Opportunity for Airlines
Reforms Details
 As the Sales tax levied by State Governments is too
high in India, GOI permitted Domestic airlines to import
ATF directly
 For boosting international travel, GOI has granted traffic
rights to Indian carriers for flying to several new
destinations across the globe
 Reduced cost of ATF
Impact
 Higher revenues and profitability for
Indian carriers
 Better connectivity and reduced fares for
consumers
 Airlines are permitted to charge additionally for
preferential seating with extra leg space, use of
lounges, carriage of sports equipment, musical
instruments and items of value, etc.
 Additional revenues for airlines
 In September 2012, GOI liberalized FDI regulations in
Indian Aviation Sector, allowing foreign airlines to
invest upto 49% equity stake in Indian scheduled and
non-scheduled carriers under the Government
Approval Route.
Charges for
preferential services
Enhancement of
bilateral quotas
Direct Import of ATF
Liberalization in FDI
rules*
 This has given a new option to Domestic
airlines for raising capital and bringing in
strategic investors
*49% limit for the combined stake of FDI and FII

12. 12
Investment
Highlights
Low Valuation
Relative
underpenetrated
market
Strong Growth
Prospects
Opportunity to
create India as an
MRO Centre
 Foreign airlines enjoy the availability of cheaper investment opportunities as
market valuation of listed airlines in India has suffered due to poor performance
 Penetration of air travel at <5% is significantly below benchmarks in other
markets
 Advanced nations like USA and Australia have air penetration over 200%, i.e.
an average of 2 trips per capita per annum.
 Passenger traffic has grown at a CAGR of 16% in India over the past 10 years
 India has a strong middle class population over 300 mn
 Per capita disposable income almost doubled in the last eight years
 Foreign airlines can also leverage India’s low-cost arbitrage by setting up MRO
facilities in India
Why are Foreign Airlines keen to invest in India……??
India is an attractive market for foreign airlines provided that they are able to deploy their technical expertise to
develop the market over a long period of time.
Source: ICRA Report March 2012

13. 13
What are the key Challenges???
Key Risks Details
 Development of airport
infrastructure has not kept pace with
demand, thereby resulting in delays
and higher costs for airlines
 Periodically airlines drop fares to
gain market share
 GOI has planned aviation infrastructure expenditure worth
USD 30 bn from 2005 – 2020
 World class airports already operational in Bangalore,
Hyderabad and Delhi
 70% of total passenger traffic out of new modernized airports
Mitigating Factors
 Irrational pricing behavior cannot be sustained for long as it
compromises profitability
 Airport charges in India are one of
the highest in the world
 Efforts to keep other operating costs low
 High global fuel prices
 Excise duty of 8.2%
 State sales taxes (23-24%)
High Airport Charges
Irrational Pricing
Inadequate
Infrastructure
High Fuel Prices
 Shortfall in skilled labor leads to
undue increase in staff salaries
 India's first aviation university, the Rajiv Gandhi National
Aviation University at Rae Bareli in Uttar Pradesh, will be
operational in September 2014
Shortage of skilled
labour
 Direct import of fuel permitted
 Efforts to reduce sales tax on fuel
Source: ICRA Report March 2012

14. 14
Overview of Indian Civil Aviation Industry
Recent Reforms in Indian Civil Aviation Industry
Foreign investments in Indian Civil Aviation Industry
Outlook for Indian Civil Aviation Industry
Annexure
Agenda

15. 15
Foreign airlines are much eager to invest in India…
After the liberalization of FDI regulations, Foreign Airlines, largely in Gulf and South East Asia, have shown
interest in entering the high-growth Indian Aviation Sector.

16. 16
Investing USD 50 mn for setting up a
green-field LCC airline jointly with
Tata Sons and Telestra Tradeplace
Indian Aviation Sector started flying high with FDI reforms!!!
September 2013February 2013
April 2013
Acquisition of 24% stake in Jet
Airways for USD 379 mn
Investing USD 49 mn for setting up a
green-field FSC airline in joint
venture with Tata Sons
Three International Carriers have already announced their investment plans in India-

17. 17
Pre-Transaction Post-Transaction
Deal Advantage for Jet Airways
Jet-Etihad Deal
Deal Advantage for Etihad Airways
– Fresh infusion of Equity
– Low-interest debt of USD 300 mn from Etihad
– Access to global network, latest technology and best
management practices
– Cost Synergies
– Opportunity to tap into fast-growing outbound Indian
market.
– Access to traffic originating from India’s interiors
– As a deal sweetener, GOI revised the bilateral
agreement with Abu Dhabi and granted additional
entitlements for more than 36,670 weekly seats
Shareholding Structure
In April 2013, the national carrier of Abu Dhabi, Etihad Airways announced investment of USD 379 mn into Jet
Airways for acquiring 24% equity stake.
Source- Company Press Release

18. 18
Transaction Summary
Valuation – Jet Airways Amount in USD mn
Etihad’s Investment 379
Stake Purchased 24%
Post-money Equity Value 1,579
Pre-money Equity Value 1,200
Outstanding Debt 2,100
Pre-money Enterprise Value 3,300
Revenues (FY 2013) 3,387
EBITDA (FY 2013) 230
EV/ Revenue Multiple 0.97 times
EV/ EBITDA Multiple 14.35 times
Etihad Airways paid a transaction premium!
On 24 April 2013, Etihad Airways bought 27.3 mn new shares of Jet Airways at INR 754.74 per share, a premium
of 31.7% over Jet Airways’ last day (23 April 2013) closing share price of INR 573.15.
Source- Company Press Release, CAPA- Centre for Aviation

19. 19
 On 19 February 2013, Malaysian budget-carrier Air Asia entered into a joint venture with Tata
Group & Arun Bhatia headed Telestra Tradeplace, for starting a low-cost airline in India
– Headquartered in Chennai, the airline will retain the Air Asia brand and was approved by the FIPB in March 2013
– Expected to be operational by April 2014, the airline will initially concentrate on Southern India before expanding to other
parts of the country
– Air Asia strongly believes in the huge potential of Indian Aviation Market and has aggressive expansion plans for the
country; Aims to add 10 planes every year.
 The entry of Air Asia is expected to bring following advantages to India-
– Increased air connectivity to smaller cities/towns
– Transplantation of a proven low cost business model
– Increase in passenger traffic owing to lower fares
– Easy import of aviation fuel to save on taxes
– Industry consolidation
Tripartite JV between Air Asia, Tata Group & Telestra Tradeplace
Source- Company Press Release

20. 20
 In September 2013, Singapore Airlines (SIA) entered into a Joint Venture (JV) with Tata Group, for
launching a Full Service Carrier in India
- This airline venture is the third combined attempt by the Tatas-
SIA for entering Indian Aviation Sector
- In October 2013, the JV received approval from the FIPB and is
expected to be operational in late 2014
- Both the JV partners have together contributed an initial
investment of USD 100 mn in the joint venture
- The JV will operate airlines under “Tata-SIA Airlines” brand
name and would also provide supporting services like
operation or airport flying facilities, radio beacons, flying control
centers and radar stations.
- As a majority shareholder, Tata Sons will play an active role in
the operations of JV
JV between Tata Group and Singapore Airlines
Source- Company Press Release
Joint Venture

21. 21
Overview of Indian Civil Aviation Industry
Recent Reforms in Indian Civil Aviation Industry
Foreign investments in Indian Civil Aviation Industry
Outlook for Indian Civil Aviation Industry
Annexure
Agenda

22. 22
Indian Civil Aviation sector to see many more such investments……
Domestic Airlines – Share Holding Pattern as on 31 March 2013
Source- CAPA- Centre for Aviation, Company filings
Promoters
FIIs/ Overseas
Partners
Future Prospects/ Potential
suitors
SpiceJet 52% 5%
Kuwait Airways, Qatar
Airways, Tiger Air
GoAir 95% - Qatar Airways
IndiGo 52% 48%
Foreign Investment unlikely,
as 48% stake held by a US
partner
Kingfisher 32% 0.85%
In a serious financial and
legal mess
Air India Govt. Owned Potential Privatization
 The entry of foreign airlines in Indian Aviation Industry will result into improvement of economics
of aviation, as illustrated below-
- Indian Air Carriers are badly in need of capital. Strategic investment from foreign airlines will give in much needed
liquidity & break-out of a loss making cycle to Indian carriers
- Global airlines will bring in international expertise, best industry practices, technology and innovative products in the
country
 Domestic Carriers with low Foreign
Investors’ shareholdings are
potential strategic investment
opportunities for Foreign Airlines
- Combined limit for FDI & FII is pegged at
49%
- SpiceJet and GoAir stand out as good
investment prospects in near future. Fresh
investment, if happens, would highly
benefit these airlines in their expansion
plans
The historic reform of allowing FDI by foreign airlines in Indian Civil Aviation sector is a welcome move and
encouraging signal to private players that GOI recognizes the needs and interests of the business.

23. 23
Thank You

24. 24
Overview of Indian Civil Aviation Industry
Recent Reforms in Indian Civil Aviation Industry
Foreign investments in Indian Civil Aviation Industry
Outlook for Indian Civil Aviation Industry
Annexure
Agenda

25. 25
Evolution of Indian Civil Aviation Industry
1932: Tata
Sons started
Tata Airlines
1946: Tata
Airlines
renamed as
Air India
1953: Nationalization
of all private airlines
through Air
Corporation Act
1990:
Enactment of
Open Sky Act
1995:
Permission
granted to
Private
scheduled
Airline
Operators.
Jet, Sahara,
Modiluft,
Damania,
East West
started
operations
2007:
Major
Mergers.
Jet
acquired
Sahara;
Kingfisher
acquired
Air Deccan
2005:
Kingfisher,
SpiceJet,
Indigo, Go
Air,
Paramount
start
operations
Early market developments State Control Deregulation and M&A
1911: India’s
first
Commercial
plane
1934:
Enactment of
Aircraft Act
1986: Permission
granted to Private
air taxi operators
1994:
Enactment of
Airports
Authority Act
2001: ATF
prices
decontrolled;
2003: Entry of
Low Cost
Carriers, Air
Deccan starts
operations
2012:
Government
allows direct
ATF imports,
FDI reforms
allowing foreign
carriers to pick
up to 49% stake
1948: Joint Stock
Co-Air India
International Ltd. set
up by GOI and Air
India
1910 1930 1970 2000 20121950 1990
Source: ICRA Report March 2012

26. 26
Company Country
ASKMs
(mn)
RPKM*s
(mn)
PLF
Revenue per
employee
(USD 000)
Yield **
(US Cents)
FSCs
All Nippon Airways Japan 97,167 65,330 67.2% 405 15.6
Delta Airlines United States 370,816 310,561 83.8% 498 10.2
Singapore Airlines Singapore 125,360 98,988 78.9% 519 9.2
Garuda Indonesia Indonesia 36,013 27,342 75.9% 495 9.9
Air China China 151,589 123,499 81.5% 288 11.1
Deutsche Lufthansa Germany 259,861 204,775 78.8% 575 14.5
Cathay Pacific Airways Hong Kong 129,595 103,805 80.1% 411 8.7
Jet Airways India 37,428 29,502 78.8% 224 7.5
LCCs
South West Airlines United States 206,172 165,524 80.3% 373 9.7
Air Asia Malaysia 28,379 22,731 80.0% 269 7.1
Tiger Airways Singapore 12,907 10,827 83.9% NA 6.3
Ryan Air Ireland 117,181 96,322 82.2% 696 5.4
Spice Jet India 16,338 12,171 74.0% 172 7.6
Key operating indicators for the Global Airline Industry
Source- Latest Company Filings (FY 2012/FY 2013)
* RPKM- Revenue Passenger Kms; ** Yield- Passenger Revenues/ RPKM

27. 27
Company M. Cap* EV*
Sales
(LTM)
EBITDA
(LTM)
Net
Profit
(LTM)
ROE
EV/Sales
(LTM)
EV/Sales
(1YFW)
EV/EBIT
DA
(LTM)
EV/EBIT
DA
(1YFW)
P/E
(LTM)
P/E
(1YFW)
FSCs
All Nippon
Airways
7,438 11,552 16,044 2,043 231 6.56% 0.76 0.74 5.99 5.73 30.96 37.16
Delta Airlines 26,428 34,351 37,773 5,460 2,068 NM 0.91 0.87 6.29 5.66 9.82 11.96
Singapore
Airlines
8,735 5,642 12,216 1,445 372 2.91% 0.47 0.46 3.97 3.42 27.68 22.64
Garuda
Indonesia
900 1,365 3,773 254 32 10.87% 0.36 0.36 5.38 5.46 28.11 19.86
Air China 8,226 19,343 15,672 2,976 827 9.62% 1.22 1.13 8.87 6.64 9.93 13.71
Deutsche
Lufthansa
11,119 12,818 39,471 3,174 1,657 12.23% 0.31 0.31 3.91 3.72 10.78 22.65
Cathay Pacific
Airways
7,839 12,552 12,777 1,823 273 1.62% 0.98 0.96 6.89 8.28 32.41 23.14
Jet Airways 417 2,487 3,465 173 (143) NM 0.74 0.79 14.74 31.19 NM NM
LCCs
South West
Airlines
14,714 14,382 17,700 2,232 754 10.52% 0.81 0.79 6.45 5.48 18.70 15.34
Air Asia 1,954 4,324 1,684 534 177 36.85% 2.72 2.68 8.57 8.44 11.82 9.14
Tiger Airways 330 600 650 15 (114) NM 0.93 0.99 40.14 NA NM NM
Ryan Air 13,487 14.011 6,680 1,346 694 17.31% 2.05 2.07 10.19 10.27 19.65 19.91
Spice Jet 138 381 1,054 (74) (105) NM 0.40 0.36 NM NM NM NM
Key valuation multiples for the Global Airline Industry
* Figures are as on 7 February 2014
Figures in USD mn
Source- Bloomberg

28. 15th Floor, Tower-B, DLF Cyber Terraces, Building No. 5,
DLF Cyber City, Phase III, Gurgaon 122 002, Haryana, India
Phone: (+91-124) 452 5300 Fax: (+91-124) 4525 399
Website: www.pul kc.com
15th Floor, Tower-B, DLF Cyber Terraces, Building No. 5,
DLF Cyber City, Phase III, Gurgaon 122 002, Haryana, India
Phone: (+91-124) 4525 300 Fax: (+91-124) 4525 399
Website: www.pul kc.com