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COVER STORYthe meantime, construction work meansinconvenience for passengers and delays ontaxiways and runways.“We need many more movements perhour than we have currently,” he said. “Weall lose a lot of money because of ATC delays.Sometimes you are circling for 30 or 40minutes in peak hours, especially at Mumbaiand Delhi. But these things are being lookedat and we hope we can see results in the nexttwo to three years.”GoAir’s Wadia points the finger at poorinfrastructure management. Mumbai airport,for example, is capable of handling 30 millionpassengers a year. Last year it handled only16 million, yet it has a bad reputation forcongestion.Arriving international passengers wereforced to queue for up to two hours to clearimmigration until Minister Patel ordered 40more immigration desks. “Now nobody hasto wait longer than five minutes. That’s anexample of how a commonsense approachand speedy decision-making can bring quickresults,” said Wadia.Up to $45 billion in investment isexpected in the country’s civil aviationsector in the next five years, higher than anyother sector. Modernization and rebuildingof 35 secondary airports is underway, as wellconstruction of new airports at big hubs likeMumbai. Cargo facilities are also beingupgraded.Nevertheless, Patel has been deeplyconcerned the airline bubble might burst,bringing about a repeat of a boom andbust cycle that occurred in the early 1990s,when a number of players, including EastWest, Damania and ModiLuft, went out ofbusiness.He has already moved to make it moredifficult for new carriers to launch, askingprospective entrants to provide more detailedbusiness plans before they can get a licence.They will also need to have at least fiveaircraft and more cash before they can startflying. Currently, new airline companiesneed $6.8 million in paid-up capital to start.They will now need to have $11.4 million.Late last year he called the country’sairline chiefs together to discuss the problems.Among possible measures discussed was avoluntary scheme under which they wouldslow their capacity increases.Patel is also strengthening the regulator,the Directorate General of Civil Aviation(DGCA), giving it more teeth to better copewith the increased number of airlines andaircraft.‘The issue is the ability for[new aircraft] to be absorbedprofitably and, more importantly,if the infrastructure can cope’Chris Tarrytransport strategy consultantIt is understood the DGCA will berestructured along the lines of the U.S.Federal Aviation Administration (FAA)and the European Aviation Safety Agency(EASA).The minister is planning to set up anAirport Economic Regulatory Authority toregulate airports, many of which will becomeprivately-owned.While all this is going on, strategicinvestors, both in India and overseas, areshowing increasing interest in the sector. AirDeccan is considering selling a 10 to 15%stake for up to $100 million to raise money forexpansion. LCC SpiceJet recently raised $65million from big investors, including the TataSpiceJet: it raised US$65 million from big investorsGroup, Isthimar (a Dubai-based privateequity firm), BNP Paribas and GoldmanSachs. GoAir, Kingfisher Airlines andAir Sahara are reportedly trying to raisemoney to fund expansion.CTAIRA’s Tarry said there was noshortage of investment money across alot of industry sectors and “there are a lotof suggestions the slide rule is being runover numerous airlines.” But he pointedout the global airline industry last year, onaverage, made a 2.3% margin, or around$10 billion in operating profits.“Within that there a number of airlinesmaking money and making returns inexcess of their cost of capital. But theyare very few,” said Tarry. “Even withinthe low-cost, or what I call the new-modelairline, sector there are very few airlinesthat generate more than their cost ofcapital. So you have to be very selectiveand you have to be sure that what youinvest in is going to enhance your capitalrather than destroy your capital.”Tarry, who has spent a lot of timein India, believes the current airlinecycle shows signs of peaking in 2007-08,with a consequence that affordable capitalwill become scarce for airlines whosefundamentals are not solid.Said Standard and Poor’s Yusof: “I knowbanks - and we are talking about Europeanand North American banks - who are eyeingthe [Indian aviation] sector very closely. Butthey are still reluctant [to invest], until theyare satisfied the basic structure and the thingsthat are required are in place.“There will continue to be more interestin aviation and Indian airlines, but you won’tsee any real commitment in any Indianairlines yet. People are being very cautious,and they should be.”8 ORIENT AVIATION INDIA MARCH 2007