AN INDICATOR OF ECONOMIC PROGRESS AIR CARGO

Role of Air Cargo in Economic Development Air Service Liberalization Improving Customs Quality Reducing Corruption

Inadequate Infrastructure - Challenge to Air Cargo Cargo warehousing facilities are not up to standards at India’s major airports Currently, India is upgrading its major airports, which account for 93% of the total international and 84.4% of the total domestic freight handled Once the infrastructure issues are addressed and the new cargo airports are made operational, the market will witness tremendous growth within the next 5years Dwell time for import and export cargo at Indian airports is 3 to 5 days as compared to an average of 6 to 12 hours in other leading international airports. The state of customs clearing and delivery of cargo has remained a rough ride for cargo operators

Recession Hits Industry The airlines industry globally lost 50 billion dollar in the past 10 years, with 11 billion dollars in 2009 alone Revenue declined by 80 billion dollar last year Singapore airlines and British airways went into losses and Japan Airways was forced to file for bankruptcy The economic slump and credit crises have caused carriers 3 ½ years of growth in freight Japan Airways this month became Asia’s first major flag carrier to seek bankruptcy protection after 4 government bailouts failed to revive it About 34 carriers have gone out of business in 2008

Forecast for 2010 IATA forecast for a 2009 loss of $ 2.5 billion at this stage last year was swiftly overtaken as the depth of the economic crisis emerged. But while the association has already added $ 2 billion to its 2010 loss forecast since its September view. It hopes there will be no repeat this year It looks as though some of the risk we were facing this time last year, we may not face this year Two principal concerns : Fuel and Yields – We do expect there will be some improvements but because of the weakness and yields and the increase in fuel prices, we do not expect more than halving the losses High fuel prices were the dominant factor in losses of 2008 and continued to haunt some in 2009 Capacity and its potential impact on yields is still the biggest risk in 2010 mainly because of low utilization of existing fleet. contd…

Forecast for 2010 Global economic projections 2010 are for a return to growth The World Bank in its 2009 global outlook summary forecasts 2% growth in world GDP for 2010,followed by 3.2% for 2011 It sees economic growth strongest in developing nations next year; China and India are forecast to grow 8.8% and 6.5% respectively Economic growth does not automatically translate to better airline fortunes “ITS ALL ABOUT WHAT HAPPENS TO CONSUMER SPEND” A lot of air freight business has been in Asia, so for a lot of airlines in the air cargo business, there is better news there because Asia will be driving this business. It maintained that worldwide airfreight traffic will triple by 2027 and that “current near-term market weakness and worldwide economic uncertainty” wont affect long-term demand significantly.

Source : World Bank

Growth and Current Air Cargo Traffic Figures Dec 09 vs. Dec 08FTK GrowthAFTK Growth Africa33.00%4.50% Asia/Pacific34.40%7.70% Europe5.20%-9.50% Latin America37.40%20.00% Middle East32.10%13.70% North America23.90%-7.80% Industry24.40%0.60% AFTK: Available Freight Tonne Kilometers measures available total freight capacity FLF: Freight Load Factor is % of AFTKs used Source - IATA

Ground Reality - India Cargo Even with Air cargo open skies, India’s air cargo growth barely kept pace with the rest of the world From 1991 – 1997, the country reported an annual air growth of 120,000 tons ; from 300,000 to 420, 000 Even though this was a 40 % increase from the seven year period, it translates to only 5.7 % annual growth ; well above world average GDP and trade growth, but somewhat less than the air cargo growth for the same period By India’s own account, poor logistics infrastructure has impeded growth In many developing countries, corruption and customs inefficiencies play further debilitating roles.

Air Cargo Given Year End Lift But Concerns Airlines around the world are breathing a sigh of relief that there was something like normal air cargo peak season towards the end of 2009,but there remains profound doubts about the durability of the recovery Despite projections of a bloodbath, especially after the glut of airline collapses in Autumn 2008,the number of airline failures in 2009 has been relatively limited by comparison-in the region of 30 so far this year Air cargo “Is kind of the tail of the dog”- The global economy is the dog and when it is sleeping, the tail isn't moving anywhere anytime soon Long -Term hopes :- In its latest 20 year forecast, its predicted that world air cargo will grow 5.8% annually over the next two decades, down just slightly from the 6.1% rate it projected in previous forecasts

Global Scenario

Air Cargo Market Opportunities in India Air cargo market in India thrives with economic development and rising international trade Increasing globalization, establishment of manufacturing facilities and India’s growing might in the IT sector have contributed to the boom since 2007 International trade has boosted prospects for the air cargo market in India Export and import have registered a double digit growth rate of 23% in 2007 Air cargo enables nations, regardless of locations, to efficiently connect to distant markets and global supply chains in speedy, reliable manner Major policies include 100% FDI permissible for existing airports and under automatic routes and 100% tax exemption for airport projects over a period of 10 years

Air cargo is the means by which the globalised world moves its valuable goods and manufacturing components As per IATA the biggest drop in airfreight started in September 2008, a drop of 7.7% and October was 7.9%. This was when IATA forecasted 5% drop in cargo over 2008 China the biggest player in air freight had a drop for 5 straight quarters and a total drop expected is around 5% to 6 % US meltdown has added to the woes of china basically since they are the biggest buyers of consumer goods Big players like FedEx / UPS and the freighter companies reported a 22% decline in cargo freight not only in US but also in Europe and Asia pacific regions. DHL losses in the US alone was $1.3 billion Daily air shipments dropped from 1.2 mio to just 100,000

However the positive sign in this recession is that it has shown strong recoveries from previous economic downturn such as the Asian Economic crisis, the 9/11 attacks and the SARS outbreak In our region India and China will continue to remain a source of strong economic growth with substantial industrialization and related investment It has been predicted that the world freighter fleet from 1950 today will increase in 2027 to 3890 over the next two decades Predictions today on the Indian market growth is around 6%- 8% Government has planned GDP in the same range which means that India will grow in the present conditions Globally the growth is around 3% to 4 % which can grow if US and China along with the G8 and G20 countries agree to settle the differences

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