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Business

Fraport Wants Stake in Indian Airport

The aviation industry is regarded as an engine for growth in India. The highly populated country is one of the most attractive markets in Asia behind China -- a fact not lost on German airport operator Fraport.

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Fraport staff could be packing their bags for India

In September 2003, India's government decided to sell 74 percent of India's two major airports -- Delhi and Mumbai. Now the government is looking for private companies to invest in the airports' expansion.

As specialists estimate that the number of airline passengers is going to rise by 16 percent each year until 2010, the investment in these airports promises a stake in a lucrative growth market. The Frankfurt airport operating company Fraport has been quick to realize this and has made its intentions towards India clear.

Frank Thiesen, assistant manager of the global investment and management division at Fraport, has been busy preparing the division for the participation in one of the Indian airports for the past one and a half years.

The process has been a long one for Thiesen and his team. Firstly, partner companies with whom Fraport sought to form a consortium with had to be selected. At the same time the process of rapprochement to the Indian government was underway.

Fraport is planning to invest a total of €30 to €50 million ($40 to $66 million) for a stake of about 10 percent in one of the two airports. "If we are going to be awarded the contract, we are going to first revise the airport's internal company processes," Thiesen explained. For this purpose, Fraport personnel have to be sent to India, training programs have to be set up, and the infrastructure needs to be improved.

Tough competition

Fraport geht an die Börse

Frankfurt International airport, operated by Fraport.

About 10 more applicants are competing for the stake, among them consortia of the airports of Paris, Singapore, and Hong Kong. The incentive is strong as the Indian government's liberalization strategy created new conditions for civil aviation policy.

Since August 2003, low-fare airlines have been given access to India's domestic market. More and more private airlines are coming to existence. Two of them, Jet Airways and Air Sahara, recently received permission to start service to international destinations. With more than one billion people and an economic growth of more than eight percent, India is regarded as the most important Asian market for the future next to China.

Up to now, too much regulation of the aviation market, a thick jungle of bureaucracy and the protection of inefficient, run-down state airlines Air India and Indian Airlines prevented private companies from raising the much invoked potential of the market.

Private airlines contend that liberalizing of aviation policies is pointless if infrastructure is not massively extended at the same time. Metropolitan airports suffered from extreme overload, they say. "If new airlines are to enter the market without infrastructure keeping up, the industry is headed for a disaster," Wolfgang Prock-Schauer, chief executive of the biggest private airline Jet Airways, warned.

The Indian government has acknowledged this need and intends to invest a two-digit euro million amount into the extension of streets, railway, sea- and airports over the coming years.

A previous investment project failed

A few years ago, Fraport's investment in the airport extension at the Philippine capital Manila was not successful. Europe's second biggest airport company had to take the blow of losing €300 million.

Ever since, shareholders and analysts have kept a critical eye on Fraport's international activities. "We learned from the experience," Fraport manager Thiesen explains. "Nowadays we concentrate on smaller, specific management tasks and try to be on the safe side as far as possible." Therefore, the Frankfurt company prefers holding several small stakes over a few big ones. This way, they keep the risk of a great loss smaller.

If Fraport will get the chance for participation in India is going be decided in the summer. Then, India's government will pick which applicant is going to be awarded the contract.

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