( CNN ) -- When India 's aviation sector began liberalizing in 2003 , a regional powerhouse was unleashed . The country 's state-owned airline Air India was soon competing for passengers with six private airline groups in a market that has grown steadily in the past decade . In 2009-10 Indian airlines carried 45 million domestic passenger and 11 million international passengers , according to figures from the CAPA Centre for Aviation . Fueled by India 's stellar GDP growth and a growing middle class , passenger numbers handled at Indian airports exceeded 120 million , making it one of the ten largest markets globally , according to CAPA . But by 2008 , the sector was in trouble . Debts mounted for billionaire Vijay Mallya -- the flamboyant owner of Kingfisher Airlines -- whose fleet of 66 planes , with a further 130 on order - faces losses of $ US1.62 billion . Can Kingfisher survive ? Last week , Mallya said he was on the cusp of some airline-saving deals , but investors have not been convinced and the stock has continued to slide . Even though Mallya says the airline does not need a government bailout -- and India 's civil aviation authority has categorically ruled out any kind of lifeline for the industry -- the markets , and some industry analysts , say the sector will need a magic wand to reverse the descent . How did the tiger of the world 's aviation industry go into such a steep decline ? According to Tom Ballantyne , the chief correspondent with Oriental Aviation , where once Indian aviation suffered from too little competition , now it suffers from too much . `` There were just too many low-cost carriers and this created a situation where there are simply too many seats flying through air , '' he told CNN . `` It 's a problem of over-capacity . `` Air India has debts of more than $ 8 billion and Kingfisher has debts of more than $ 2 billion . All of them are losing money with the possible exception IndiGo , '' Ballantyne said . India 's aviation industry leaders lay much of the blame at the feet of Air India which they accuse of unfairly competing with India 's newer airlines , slashing fares while at the same time enjoying the luxury of government subsidies . The airline has been unprofitable since 1997 and has received government bailouts of $ 625 million and is requesting more before the end of the fiscal year that ends in March 2012 , according to company figures . Air India agrees restructuring deal . The national carrier employs between 50,000 and 60,000 people and analysts say the bailouts are likely to continue . `` When the main state-owned carrier is in such dire shape then it tends to affect the whole of the industry , '' says Ballantyne . `` The carrier has been one of the main culprits in terms of discounting . '' M Shivkumar , the head of finance at Jet Airways , India 's biggest carrier , recently identified Air India 's price war as a key factor for the problems in Indian aviation . `` Ideally , fares should go up when oil-import costs go up . That 's not happening and that 's why airlines are in this situation , '' he said . Have rising oil prices contributed to steep losses ? Aviation turbine fuel ( ATF ) costs have soared this year as oil import costs everywhere skyrocket . But on average , fuel costs are around 60 % higher in India than in other countries . This is because of a mosaic of state taxes , some as high as 35 % , making India one of the costliest places in the world to run a fleet of planes . `` The states are unwilling to give up a good source of revenue , '' said Ballantyne . `` Combing that with rising fuel costs and this further cuts into the slim margins and yields on which these airlines already operate . '' He said India 's central government may soon be forced to address this problem if the country is to have a functioning aviation industry . `` The government has already had to step in to back credit for Air India whose suppliers were demanding that it pay upfront before they would make deliveries of aviation fuel , '' Ballantyne said . With an Indian rupee last week dropping to its lowest level in history , recently hitting 52.50 against the U.S. dollar , the pain is set to increase of Indian airlines . `` When you add to that costs associated with catering , maintenance and landing fees , as well as low yields per seat , then the airlines are really struggling . '' How competitive is the Indian domestic industry ? `` With many airlines bringing prices down to below the cost of producing the airline seat , the government is looking at issues of predatory pricing , '' Ballantyne said . `` Yields are very tight anyway and pricing is seriously affecting the airlines . The government is looking at setting up a regulatory body to make sure that Indian airlines are operating on a proper basis . '' Is opening the sector to investment by foreign airlines a solution ? `` No foreign airlines are permitted to invest in Indian carriers and three government ministries are now looking into ways to change that , '' Ballantyne said . `` This would be an important change because investment by foreign airlines brings with it all kinds of advantages , not least expertise in airline management and other synergies . `` At the moment , however , in this sort of economic climate , the airlines are having trouble attracting any sort of investment at all , '' he said . `` It really is an awful situation . '' Do Indian airlines suffer from a shortage of qualified manpower ? `` The growth has been so rapid in the Indian aviation space , that airlines have had difficulties keeping up with the staffing needed in terms of pilots , maintenance workers and engineers , '' Ballantyne said . `` Not only are the Indian airlines pirating staff from each other , but India is very close to the Gulf where airlines have no problem with money and no problem with pirating staff from just about everywhere . '' What 's the solution ? `` Many of the government 's solutions will take a long time to enact , '' he said . `` India is still a very chaotic country and nothing happens quickly . `` If Air India , for example , needs action from the government then it that has to go from ministry to ministry , from committee to committee . `` It 's forced into a situation where it is not very quick or very agile in a market where speed and agility are everything . ''
Analysts believe too many low-cost carriers are to blame for India 's aviation woes . Comment: Airline has been unprofitable since 1997 and has received government bailouts of $ 625M .