India’s aviation industry growing at a strong pace

Hamburg/Kiel, May 14, 2007 - The Indian aviation industry is set to grow at a strong pace in the coming years. According to the current study “Indien hebt ab – indischer Luftverkehrsmarkt im Aufwind” (India takes off – Indian aviation industry on the up) by HSH Nordbank AG, market players anticipate that the number of passengers on domestic routes will increase by some 25 per cent in the coming five years. International passenger volume will grow by around 15 per cent per annum. Aircraft manufacturers are also upbeat about the demand both for flights and for airplanes. “The market still holds considerably potential, with penetration much lower than that of the U.S. and Europe", says HSH Nordbank analyst Claudia Erdmann.

Among airlines it is the principally low-coast carriers (LCCs) that have substantially increased their market share since entering the market in 2003. In September 2006 these accounted for just under 31 per cent. Indian LCCs are expected to be able to gain some 70 per cent of the domestic market by 2010.

Apart from passenger business, India’s airfreight is also on the up-and-up. Opening up the sector to foreign operators, combined with the boom in the retail trade and the manufacturing industry, recently resulted in double-digit freight growth. The International Air Transport Association (IATA) projects that freight traffic will increase by 8.2 per cent per annum by 2010.

This sharp increase in aviation business is due above all to the strong growth of India as an emerging market. Real economic output has doubled since 1991, with current growth rates averaging eight per cent per annum since 2004. In India a middle class of around 100 million households with high purchasing power has been created, which is set to grow further. A further factor is population growth: in 2035 India will probably be the country with the largest population in the world. “The number of potential customers for airlines in India will increase steadily”, says HSH analyst Claudia Erdmann. A further reason for the sustained strong growth in passenger volume is the development of tourism. The trade association, World Travel and Tourism Council (WTTC), estimates that the sector is set to grow by around 8.6 per cent per annum by 2015. IATA anticipates that India’s passenger numbers will increase from the present 30 million per annum to up to 300 million per annum in 2030. This is equivalent to an annual growth rate of around ten per cent.

In spite of the aforementioned positive outlook for the Indian aviation market, there are factors that may slow down growth. These are principally the exhausted airport capacity and the lack of qualified aircraft personnel. The Indian government plans to invest around nine million US dollars in infrastructure and airport expansion by 2010 and intends to involve more private investors for this purpose.

According to the Indian minister for aviation, Praful Patel, between 1,500 and 2,000 new aircraft will be needed in India in the next ten years. At the moment around six new aircraft go into service in Indian air space every month – and this is likely to remain the case in the coming three years. Fleets are growing at a strong pace. However, there will not be any large gap between passenger and fleet growth in the medium to long term. The average annual growth rates projected for fleet expansion are slower than the growth rates for passengers. Nevertheless, a high level of competition is expected in the future too due to the large number of market participants.

HSH Nordbank AG is a strong regional bank in Northern Europe with total assets of € 190 billion. Some 4,400 of the bank’s employees provide corporate and high net-worth clients around the globe with premium bank products and services. In its core region of Hamburg and Schleswig-Holstein, it is the market leader in the corporate customer segment. HSH Nordbank is an acknowledged partner of the capital markets and international sector specialist. Its main focus is on transportation and real estate. In fact, HSH Nordbank is the world’s largest provider of ship finance and covers the entire value chain in the transportation segment. In the area of real estate, HSH Nordbank is one of the strongest banks in Germany, acting as a provider of services relating to all aspects of real estate. For more information please visit our website at www.hsh-nordbank.com.