Airline firms in India are expected to raise more than $1 billion in private equity and debt in 2007-08, with at least two carriers set to hit the capital market a year later, says a study released on Thursday.
The industry will also witness a shakeout in the form of mergers and takeovers, to eventually see the emergence of two full-service carriers, three-four large national operators and a similar number of regional players, the study adds.
"Despite the bullish market projections for India, overseas experience would suggest that it is extremely difficult for a market to absorb this many new entrants," says the study released at the Aero India show here.
"This is compounded by the fact that the airline management in some cases is relatively inexperienced and untested," it says.
"The merger of the two state carriers, Air India and Indian Airlines, which is scheduled to be approve by March 31, will set the ball rolling for a further consolidation and mergers and acquisitions."
According to the study, conducted by the think tank Centre for Asia Pacific Aviation and commissioned by the Federation of Indian Chambers of Commerce and Industry (Ficci), Kingfisher and the state-run airlines combined will be the two carriers likely to go for a public offer next year.
The study says despite strong growth, the combined airlines in India will post a loss of around $500 million in the current fiscal. "But the industry has the prospect of returning to profitability in the third quarter of 2008-09."
The study says that while the current airline activity in the country is focused on passenger services, the next wave is likely to include the mushrooming of a number of domestic and international cargo airlines.
"Freight volumes are exhibiting strong growth. India's increasing trade combined with a strong domestic economy will continue to drive demand for this sector," it says, and adds that global freight operators are all reporting strong growth.
"We anticipate that two-three dedicated cargo airlines will be established in India," it says. The massive investment in organized retail trade in India will also fuel the growth of air cargo business.
Looking at the long-term outlook for the Indian aviation industry, the study says that even though the prospects are fraught with difficulties, the industry has the potential to absorb $120 billion of investment.
"The majority of this would be accounted for by aircraft orders of $80 billion or more as India reaches a size of approximately 1,000 aircraft by then." The passenger traffic will also jump from 50 million to 180 million.