CHAPTER 1 INTRODUCTION

I n d u s t r y An a l y s i s

I. Industry:

T h e I n d i a n c i v i l a v i a t i o n i n d u s t r y i s o n a h i g h g r o w t h t r a j e c t o r y.
India has a vision of becoming the third largest aviation market
by 2020 and is expected to be the largest by 2030.
The civil aviation industry in India has ushered in a new era of
expansion driven by factors such as low -cost carriers (LCC),
modern airports, foreign direct investments (FDI) in domestic
airlines, cutting edge information technology (IT) interventions
a n d a g r o w i n g e m p h a s i s o n r e g i o n a l c o n n e c t i v i t y. I n t e r m s o f
market size, the Indian civil aviation industry is amongst the top
10 in the world with a size of around US$ 16 billion.

“The world is focused on Indian aviation – from manufacturers,

tourism boards, airlines, global businesses to individual
travelers, shippers and businessmen… If we can find common
purpose among all stakeholders in Indian aviation, a bright
f u t u r e i s a t h a n d , ” s a i d M r T o n y T yl e r , D i r e c t o r G e n e r a l a n d
CEO, International Air Transpo rt Association (IATA).

II. G o v e r n me n t I n i t i a t i v e s :
Government agencies have projected that around 500 airports in
all, both brownfield and greenfield, would be required by 2020.
The private sector is sought to be involved in a big way through
different PPP models, with substantial involvement of state
support in terms of financing, concessional land allotment, tax
h o l i d a ys a n d o t h e r i n c e n t i v e s .
Some of the major initiatives taken by the government are as
follows:

 Gujarat may get a second international air port at Dholera.

The Government of Gujarat has formed Dholera
International Airport Co Ltd and is obtaining approvals
from the union government.
  The Directorate-General of Civil Aviation (DGCA) has
given its approval to Air India’s maintenance, repair and
overhaul (MRO) unit.

 The Government of India has decided to award airports in

Kolkata, Chennai, Jaipur and Ahmedabad on management
contract. The Airports Authority of India (AAI) has issued
‘Request for Qualification’ document for these four
airports.
 The Government of India plans to form a committee
comprising bankers, aviation experts and technocrats to
help turn around and look at privatising the national
airline Air India.

 The Ministry of Civil Aviation plan s to list Airports

Authority of India and Pawan Hans Ltd on the stock
exchanges.

 There is large untapped potential for growth in the Indian

aviation industry due to the fact that access to aviation is
still a dream for nearly 99.5 per cent of its large
population, nearly 40 per cent of which is the upwardly
mobile middle class. It is critical for the industry
stakeholders to engage and collaborate with the policy
makers to come up with efficient and rational decisions
that will shape the future of the Indian civil aviation
i n d u s t r y. W i t h t h e r i g h t p o l i c i e s a n d a r e l e n t l e s s f o c u s o n
q u a l i t y, c o s t a n d p a s s e n g e r i n t e r e s t , I n d i a w o u l d b e w e l l
placed to achieve its vision of becoming the third largest
aviation market by 2020 and the largest by 2030.

III. I n v e s t me n t o p p o r t u n i t i e s f o r a v ia t i o n I n d u s t r y :

 300 business jets, small aircraft and 250 helicopters are

e x c e p t e d t o b e a d d e d t o c u r r e n t f l e e t i n n e x t 5 ye a r s
 300 business jets, 300 small aircraft and 250 helicopters
are expected to be added to the current fleet in the next 5
years.

 Growth in aviation is accentuating demand for MRO

facilities.
  Greenfield airports under Public Private Partnership at
Navi Mumbai and Mopa (Goa).

 The development of new airports – the Airports Authority

of India aims to bring around 250 airports under operation
across the country by 2020.

 The North -east region – the Airports Authorit y of India

plans to develop Guwahati as an inter -regional hub and
Agartala, Imphal and Dibrugarh as intra -regional hubs.

 The Airports Authorit y of India plans to spend US D 1.3

Billion on non-metro projects between 2013 and 2017,
focusing on the modernisation and upgradation of airports.

 Indian airports are emulating the SEZ Aerotropolis model

to enhance revenues, focus on revenues from retail,
advertising and vehicle par king, security equipment and
services.

IV. Aviation’s Economic Footprint

 Contribution to Indian GDP: The aviation sector contributes INR 330 billion
(0.5%) to Indian GDP. This total comprises:
a) INR 147 billion directly contributed through the output of the aviation
sector (airlines, airports and ground services, aerospace);
b) INR 107 billion indirectly contributed through the aviation sector’s
supply chain, and
c) INR 77 billion contributed through the spending by the employees of
the aviation sector and its supply chain.
d) 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:
 a) 276,000 jobs directly supported by the aviation sector;
b) 841,000 jobs indirectly supported through the aviation sector’s supply
chain; and
c) 605,000 jobs supported through the spending by the employees of the
aviation sector and its supply chain;
d) In addition there are a further 7.1 million people employed through the
catalytic (tourism) effects of the aviation.

 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.

 Contribution to Public Finances:The aviation sector pays over INR 87.5 billion in
tax including income tax receipts from employees, social security contributions and
corporation tax levied on profits. It is estimated that an additional INR 9.8 billion of
government revenue is raised via the aviation sector’s supply chain and another INR
7.1 billion through taxation of the activities supported by the spending of employees
of both the aviation sector and its supply chain.

V. R e g u l a t o r y Fr a me w o r k f o r Ci v i l Av i a t i o n I n d u s t r y :
Ministry of Civil Aviation
The Ministry of Civil Aviation of the Government of India is
the nodal Ministry responsible for the formulation of
national policies and programs for development and
regulation of Civil Aviation and for devising and
implementing schemes for the orderly gro wth and
expansion of c ivil air transport. Its functions also extend
to overseeing airport facilities, air traffic services and
carriage of passengers and goods by air.
This Ministry exercises administrative control over attached
and autonomous organizati ons like the Directorate General
of Civil Aviation, Bureau of Civil Aviation Security and
Indira Gandhi Rashtriya Udan Academy and affiliated Public
Sector Undertakings like National Aviation Company of
India Limited, Airports Authority
of India and Pawan Hans Helicopters Limited.

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.
 To provide all players a level -playing field.
 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.

VI. A b o u t A AI

Airports Authorit y of India (AAI) is a Public Sector Undertaking

of Ministry of Civil Aviation that is responsible for developing,
financing, and maintaining all government airports. AAI is a
l a n d l o r d a n d a l l t h e A i r l i n e s a r e i t s p a t e n t . U n t i l r e c e n t l y, A A I
w a s t h e o n l y m a j o r p l a ye r i n v o l v e d i n d e v e l o p i n g a n d u p g r a d i n g
a i r p o r t s i n I n d i a . U p t i l l n o w A A I h a s e n j o ye d m o n o p o l y i n t h e
aviation industry but having realised the growth in the demand
of the qualit y of services being provided worldwide, the AAI’s
monopolistic status has come to an end.

T h e p r i v a t e s e c t o r p a r t i c i p a t i o n h a s b e e n i n c r e a s i n g n o w - a - d a ys .
AAI has entered into various agreements in Public -Private
Partnership (PPP) Projects for the development and
m o d e r n i s a t i o n o f D e l h i , M u m b a i , H yd e r a b a d , B e n g a l u r u , N a g p u r ,
and Chandigarh Airports with various Joint Venture Companies
(JVCs) in which the airports operate through a partnership of
government and one or more private sector companies. AAI has a
share of equity capital in JVCs.

Historical review

Airports Authority of India was constituted by an Act of

Parliament and came into bein g on 1st April 1995 by merging
erstwhile National Airports Authority and International Airports
Authority of India. Prior to this, the International Airports
Authority which came into existence in 1972 looked at the
functioning of all major airports and th e national/domestic
authority was keeping a check at other domestic airports.
With the view to look to accelerate integrated development,
expansion and modernization of the air traffic services,
passenger terminals, operational areas and cargo facilities at the
a i r p o r t s o f t h e c o u n t r y, A i r p o r t s a u t h o r i t y w a s f o r m e d . T h e
merger brought into existence a single Organization entrusted
with the responsibility of creating, upgrading, maintaining and
managing civil aviation infrastructure both on the ground and a ir
space in the country.

AAI Today:

AAI manages 125 airports, which include 18 International

Airport, 7 Customs Airports, 78 Domestic Airports and 26 Civil
Enclaves at Defence airfields (Figure 1.1). AAI provides air
navigation services over 2.8 million square nautical miles of air
space.

International
Airports
Civil Enclaves 18
25
Customs Airports
7

Domestic Airports
Source: www.aai.aero 78

Figure 1.1-Airports Distribution

Among the airports mentioned above, 69 are operational

airports, 25 civil enclaves and 31 non -operational airports.
Considering the revenue figures, a reasonable increase can be
o b s e r v e d o v e r t h e p a s t f e w ye a r s . B y m e a n s o f t h i s p r o j e c t ,
p r e v i o u s a n a l ys i s o f r e v e n u e f i g u r e s h a s b e e n t a k e n i n t o a c c o u n t
along with a look at the future scope in this segment.

VISION: AAI’s vision till 2026 is to be the principal aviation,

services providers in the country for which it shall:
i) Adopt and facilitate the use of contemporary air navigation
services;
ii) Upgrade and develop airport infrastructure;
 iii) Support improving air connectivity at non-served and
under-served airports;
iv) Have a restructured organization;
v) Focus on profitable operations at major airports through
continuing efforts on cost reduction and enhancing non -
aeronautical revenue

MISSION: To be the foundation of an enduring Indian aviation

n e t w o r k , p r o v i d i n g h i g h q u a l i t y, s a f e a n d c u s t o m e r o r i e n t e d
a i r p o r t a n d a i r - n a v i g a t i o n s e r v i c e s , t h e r e b y a c t i n g a s a c a t a l ys t
for economic growth in the areas we serve.

Product Portfolio

Services

CNS/ATM Project Services Audit, Commercial, Fire Services

Cargo

CNS ATM

Airport Airport International Domestic Airport Project Contingency

Planning Construction Projects Projects Construction Consultancy Plan
.2-Product Portfolio

Figure 1.2 highlights the product portfolio of the organization

which has been further explained below:

CNS: Activities involving Communication, Navigation &

Surveillance (planning) facilities such as planning, procurement
a n d c o m m i s s i o n i n g a l o n g w i t h s u p p o r t s ys t e m s f o r a i r n a v i g a t i o n
b a s e d o n s h o r t t e r m a n d l o n g t e r m r e q u i r e m e n t s t o s yn c h r o n i z e
the organisations plan with ICAO's approved plans is managed
by CNS Planning Department.

ATM: AAI has drawn plans to upgrade Air Traffic Management

infrastructure in the country both in terms of conditional
p r o v i s i o n o f a u t o m a t i o n s ys t e m s a n d u p g r a d a t i o n o f t e c h n o l o g y
which also involves shifting from ground based naviga tion to
satellite based navigation.

Project Services: AAI is involved in a number of project

services like Airport planning, airport construction,
international projects, Project Consultancy, Contingency
P l a n s e t c . a b o u t w h i c h d e t a i l e d a n a l ys i s h a s b e e n d i s c u s s e d
throughout the report.

Audit, Commercial, Cargo Services: Annual Performance Audit

is conducted by different departments themselves. AAI has over
t h e l a s t 1 0 ye a r s o r s o d e v e l o p e d a t e a m o f e x p e r t s i n t h e f i e l d
of commercial aspects and based on th e experience gained, can
provide assistance to other airport operators in improving the
financial viability of the airports. The Department of Cargo with
1 5 7 P r o f e s s i o n a l E x e c u t i v e s , w i t h a v e r a g e o f 1 0 ye a r s , h a s
grown gradually with establishment of Gatew ay Air Cargo
Terminals at Kolkata, Chennai & Delhi.

Fire Services: Airport Fire Service is equipped with modern

Fire Fighting Equipments, Appliances and Rescue Equipments
imported in nature, which meet ICAO and other international
standards.
 Functional Chart of AAI

Chairman

Company Secretary

Aviation Safety

Member (Air- Member Member Member Member

Navigation
(Operations) Vigilance
(Finance) (H.R.) (Planning)
Services)

 ATM  Finance and  Human  Aerodrome  Planning,

 CNS (Planning, Accounts Resource Operations Design and
Operations  Internal Audit Management  Airport Security Development
&Maintenance)  Airport  Administration  Fire & Search & of Airport
 Flight Inspection Development  Public Relations Rescue Services Infrastructure
& Radio Cell  Indian Aviation  Equipment & Preparation
Construction  Consultancy Academy  Technical of Corporate
&Development and Co-  Implementation  Cargo Plan and Long
Unit ordination of Right to  Information term
 Civil Aviation  Legal Information Act Technology Perspective
Training College, Department  Industrial  Fire Training Plans
Allahabad and  Commercial Relations College
other associated  Land  Aerodrome
Training Licensing
establishments
for CNS/ATM

Regional HQ

Airports

Figure 1.3- Functional Chart for AAI.

VII. Purpose of the Study

A i r p o r t s A u t h o r i t y o f I n d i a h a s b e e n t h e l e a d i n g p l a ye r i n t h e
a v i a t i o n i n d u s t r y. A s h a r p r i s e c a n b e s e e n i n t h e e a r n i n g s o f t h e
entire industry especially in a developing nation like India. This
study aims to highlight the different sources of capital for AAI
a l o n g w i t h a n a n a l ys i s o f t h e p a s t c a p i t a l r e c o r d s . The
organization earned total revenue of INR 10824.41 Crs and
incurred an expenditure of INR 7127.10 Crs in the financial ye a r
2015-16

Being a PSU, the sole motive of AAI is not to earn enormous

profits but to provide world class facilities to its customers.
Customers with respect to AAI are the individuals visiting
airports and using facilities provided there, the airlines
operating in the nation and all other related parties.

The authority manag es the designated Indian air space measuring

2.8 million square nautical miles which includes land area
measuring 1.05 million square nautical miles and oceanic
airspace measuring 1.75 million air nautical miles. Air
navigation services are also provided b y the AAI at Joint
Venture Airports (Eg Delhi, Mumbai, Nagpur), Greenfield
Airports (Eg Bengaluru, Shamshabad, Cochin, Durgapur), State
Government Airports (Eg Lengpui, Diu and Andal), and Private
Airports (Eg Mundra, Nanded) as per the terms and condition s of
CNS / ATM agreement agreed between AAI and the airport
operator concerned.

Hence the core purpose of the study is to identify the sources of

capital for the organization, thereby giving suggestions for
future growth on the basis of human perceptions for the airports
of India. The research deals with different projects of AAI
which have been significantly con tributing to the overall capital
o f t h e f i r m a l o n g w i t h i d e n t i f yi n g f u r t h e r s c o p e t h a t e x i s t s f o r
t h e g r o w t h o f t h e c a p i t a l o f A A I b o d y.

The research can thus reveal enough opportunities for the entire
aviation industry which can further be discussed for their
f e a s i b i l i t y a n a l ys i s t o g e t t h e m o s t i d e a l i m a g e i n m i n d . B y w a y
o f c o n d u c t i n g t h i s s t u d y, i t w i l l b e c o m e c l e a r a b o u t t h e s e c t i o n s
that the organization needs to look at and the sections through
which more revenue can be derived. For this, both primary and
s e c o n d a r y d a t a h a v e b e e n e m p l o ye d a n d h e n c e v a r i o u s t o o l s h a v e
been applied to get the most suitable results out of it.
VIII. Context of the Study

Airport development in India primarily comes under the purview

of the Airports Authorit y of India (AAI). The latter was created
with an aim to accelerate integrated development and
modernization of air traffic services, passenger terminals,
operational areas and cargo facilities at the Indian airports.
However, growing demand for government funds highlighted the
need for private investment in the airports sector. Even though
the sector was opened up to the private sector in the mid -2000s,
AAI continues to hold a dominant position in the airport
development space.

Airports Authority of India (AAI) continued its unparalleled role

in creating air connectivity across the nation, incurring an
expenditure of around Rs 12,500 Crs during the 11th Plan
period. AAI is upgrading and modernizing 35 non -metro airports
i n t h e c o u n t r y, i n c l u d i n g t h o s e a t A g r a , A h m a d a b a d , A m r i t s a r ,
Bhopal, Jaipur, Pune and Goa, at an estimated cost of around Rs
4,500 crores. Of these 35 airports, 26 have already been
developed, while the remaining are likely to be completed by
end of 2012. AAI is also enhancing air connectivity in the
N o r t h e a s t b y w a y o f G r e e n f i e l d a i r p o r t a t P a k yo n g ( S i k k i m ) .

During the twelfth plan period (2012 -2017), AAI has

(₹ in crores)
estimated a total investment of Rs 1 7,500 Crs in various
a r e a s i n c l u d i n g s e c u r i t y, a e r o d r o m e , I T e t c . T h e t a b l e b e l o w
highlights the investment pattern as proposed by the Ministry of
Civil Aviation (MCA).

Table 1.1 Investment Pattern

2012- 2013- 2014- 2015- 2016-
Particulars Total
13 14 15 16 17

Non- Metro 2163.0 2921.0 3265.0 3423.0 3138.0 14910.0

Airports 0 0 0 0 0 0

Metro Airports 685.00 509.00 335.00 335.00 270.00 2134.00

Equity
Contribution
71.00 72.00 72.00 71.00 73.00 359.00
in Joint
Venture
 Company

Lump Sum
Provision for 20.00 20.00 20.00 19.00 18.00 97.00
Misc Schemes
2939.0 3522.0 3692.0 3848.0 3499.0 17500.0
Grand Total
0 0 0 0 0 0
(Source: Committee Reports, MCA)

As we can see from the report above that the major chunk is
proposed to get invested on Non -Metro Airports, of which a few
highlights are the aerodrome work, navigational services, Gagan
p r o j e c t , s e c u r i t y, I T e t c . H e n c e , t h e i n v e s t m e n t i n t h i s a r e a
showcases the growth in revenue that will be there out of these
projects. New airports mean new opportunities to come into
ex istence and hence we would be able to observe an increased
revenue in future.

T h u s , t h e s t u d y f o c u s e s a t i d e n t i f yi n g t h e c u s t o m e r p a t t e r n s w i t h
respect to the airports and facilities available along with
a n a l ys i n g t h e s e c o n d a r y d a t a s u c h a s t h e r e v e n u e b u d g e t s a n d
estimates to get the future insights and give suggestions using a
combination of results from Primary as well as Secondary data.
F u r t h e r , a b r i e f a n a l ys i s a b o u t t h e a l r e a d y e x i s t i n g p r o j e c t s s u c h
a s G a g a n , a n d t h e n e w ( ye t t o b e i n t r o d u c e d ) p r o j e c t s h a s a l s o
b e e n d o n e . T h i s t y p e o f t h o r o u g h a n a l ys i s s h o w c a s e s t h e f u t u r e
scope that exists in the aviation sector.

IX. Significance of the Study

The study aims at understanding the revenue patterns of the

organization and also shows the highlighting factors which can
expand the scope of this sector in future. The research is followed
b y a n u m b e r o f s u g g e s t i o n s a l o n g w i t h t h e i r f e a s i b i l i t y a n a l ys i s i n
order to make the study more valid. As it has been discussed in
the above subsections, it is of extreme importance to study the
growing revenue patterns and understand the future projections
a n d s c o p e i n t h i s g r o w i n g i n d u s t r y.

The major areas that the research highlights are as follows:

 i. Capital Growth: As it has been clearly stated earlier that AAI
earns good revenue from its services such as ATM/CNS,
s e c u r i t y, I T a n d o t h e r s , i t i s o f k e e n i m p o r t a n c e t o s t u d y t h e
past patterns and identify the sources o f revenue to make
future predictions. Every organization focuses at growing its
earnings, hence aviation industry will be one of the best
examples to understand the growth of earnings in this ever -
increasing sector. So, AAI is taken up along with all its
records to understand the revenue patterns and growth in it.
ii. P a s t R e p o r t s A n a l y s i s : B y t a k i n g u p t h i s s t u d y, i t w i l l b e
striking to understand the previous reports and then make any
future decisions. Along with the primary data, the research
focuses at taking up the secondary data from the previous
r e c o r d s o f t h e o r g a n i z a t i o n a n d a n a l ys e i t t o i d e n t i f y a n y
notable factor which led to the growth in past or could lead to
its rise in future.
.

Along with the above these broad perspectives, there are a

number of factors which make the study significant such as the
c o n t r i b u t i o n o f a v i a t i o n i n d u s t r y i n o v e r a l l e c o n o m y, r e v e n u e
b u d g e t i n g a n a l ys i s , f e a s i b i l i t y s t u d i e s e t c . a n d t h u s h a v e b e e n
discussed throughout the project report.