Indian Civil Aviation Industry Needs Attention

On May 23 this year, the nation delivered its verdict in the national elections overwhelmingly in favour of the National Democratic Alliance (NDA) led by the Bharatiya Janata Party (BJP). Leading the campaign was Prime Minister Narendra Modi himself who now has the onerous task of running the government in the second term. The mandate that the people have given to the NDA in the elections, is clear evidence that the majority in this country have placed their faith and trust in BJP based on their performance in the first tenure. The people of India will no longer accept empty promises, but would expect the government to deliver and that the nation would like to see concrete results on the ground. There is no doubt that the margin of victory for the NDA in the national elections will provide greater of stability to the new government; but it also places on it a far greater burden of responsibility. The task before the NDA government led by Prime Minister Narendra Modi is undoubtedly enormous as well as challenging as there are a number of segments of the economy that need urgent attention of the government which includes the Indian civil aviation industry.

The new government has come to power just at a time when the Indian civil aviation industry appears to be headed for a crisis. The Indian airline industry, the major constituent of the Indian civil aviation sector, has maintained a double digit growth rate over the last 52 months or so, but now is facing a distinct slow down. The fact that the number of passengers transiting annually through Kempegowda International Airport (KIA) at Bengaluru has risen from around four million in 2008-09 to 33 million in 2018-19, reflects the growth in demand over the last decade as well as the potential for growth of the Indian airline industry in the future. KIA is just one of the six metro airports in the country and with the increase in passenger traffic at all the six metros and other large airports taken as a whole, the prospects of growth for the Indian airline industry in the future, indeed appears to be bright and unquestionable. The Indian civil aviation industry is currently the ninth largest in the world and as per analysts, the industry is aspiring to attain the third slot globally in not too distant a future. There are however, a number of areas in which the new government in power must act with clarity and speed to get this segment of the economy moving forward decisively. These are enumerated in the succeeding paragraphs.

REVIEW OF EXISTING POLICIES RELATED TO CIVIL AVIATION

In view of the rapidly changing paradigms in the Indian civil aviation industry, the government needs to review the National Civil Aviation Policy (NCAP) issued in 2016. The review must focus on the following:

• Address all challenges related especially to bilateral policy, ground handling, regional connectivity scheme and schemes for establishment of Maintenance, Repair and Overhaul (MRO) facilities.
• The government needs to restructure the Directorate General of Civil Aviation (DGCA) and consider making it a self-funded independent regulator.

FINANCIAL STATE OF AIRLINES

The most pressing concern which requires immediate attention - clearly the first challenge - is the financial distress faced by multiple airlines despite booming passenger traffic. The government needs to introduce policy measures to deal with airline failures. The seriousness of the problem has been highlighted in bold relief with the bankruptcy of India’s oldest and best known private airline, Jet Airways, which has been grounded since April. In the absence of policy to handle airline failures, lending institutions are struggling to find buyers or investors.

Jet Airways had to shut down operations as its efforts at securing finances to get out of the morass, have not succeeded so far. Permanent closure of this private carrier will mean loss of jobs for thousands – not at all a very healthy situation for the government in power as this government has been held responsible for decline in employment opportunities in its first tenure.

A NUMBER OF MRO FACILITIES IN INDIA HAVE HAD TO CLOSE DOWN AS THEY WERE UNABLE TO COMPETE WITH FOREIGN MROS ON ACCOUNT OF THE UNDULY HIGH TAXES AND CUSTOMS DUTY IMPOSED ON THIS SEGMENT OF THE INDUSTRY AND FAILED

And then, of course, there’s the elephant in the sky: the stateowned Air India, which lumbers along adding to its losses. Every year, the overstaffed and inefficient airline puts taxpayers deeper in debt. Worse is its malign influence on the sector as a whole. It’s tough for any private airline to raise fares when Air India seems to have no real budget constraint and can keep fares at whatever seems politically acceptable. The national carrier needs to be privatised without further delay as it has become a major financial liability for the tax payer who ultimately has to bear the burden of financial dole on which the national carrier has been surviving so far. Also, as per the promises by the government regarding divestment, it needs to move forward in divestment of the staterun helicopter operator, Pawan Hans as well.

AVIATION TURBINE FUEL

As Aviation Turbine Fuel (ATF) constitutes around 40 per cent of the cost of operations of an airline in India, the high cost of ATF impinges directly on the economics of operations of Indian carriers. While the price of ATF is affected to a large extent by the global price of crude oil, in India, on account of the taxes imposed by the governments at the centre as well as in the states who are inclined to view the civil aviation sector as cash cows, the price of ATF in India is higher than in any other country in the region. For some reason, ATF has been deliberately kept out by the government of India from the regime of Goods and Services Tax (GST) that was introduced some time ago. It is high time that the government take steps to correct this anomaly and bring ATF under GST without delay. This will definitely help in reducing operating costs substantially for airlines as also for the smaller players in the domain of business and general aviation as well and enhance the financial viability of this segment.

TAX STRUCTURE FOR MAINTENANCE, REPAIR AND OVERHAUL SERVICES

The government needs to review and rationalise the tax structure prevalent for the Maintenance Repair and Overhaul (MRO) sector in the country. This segment of the Indian civil aviation industry is losing business to MRO facilities in the neighbouring as well as other countries in the region on account of the unduly high taxes by way of GST and import duty imposed by the government. A number of MRO facilities in India have had to close down as they were unable to compete with foreign MROs on account of the unduly high taxes and customs duty imposed on this segment of the industry and failed.

IMPORT AND MANAGEMENT OF BUSINESS AVIATION AIRCRAFT

Currently, heads of business houses or even other prosperous individuals importing business aviation aircraft are required to pay a GST of 28 per cent in addition to the basic customs duty. A non-scheduled operator permit holder (NSOP) on the other hand, has to pay GST of 18 per cent in addition to the basic customs duty. A reduction in GST to 18 per cent for private businessmen importing business aviation aircraft, would help increase in the size of the fleet of these aircraft and provide the much needed impetus to the general aviation aircraft business in the country. The other issue that is plaguing this segment is the need for businessmen importing business aviation aircraft to employ qualified personnel and set up the necessary infrastructure for the maintenance of the aircraft. These regulations need to be reviewed and recast to allow a company or a private person to import a business aviation aircraft and hand it over to an aircraft management company to maintain and operate it on mutually agreed terms. This model is followed in Europe and the United States.

REGIONAL CONNECTIVITY SCHEME

Launched with much fan fare and promoted heavily, the “Regional Connectivity Scheme” or UDAN was central to the government’s push for the aviation sector enabling the common man to fly. With the idea of connecting Tier-II and Tier-III cities to promote regional travel and subsidizing the fares so that everyone can fly, in the last three years, the government has awarded around 700 routes to various airlines; but according to reports, only one-fourth seem to be getting regular flights while the rest have failed to takeoff owing to infrastructural and other issues. The new scheme to connect smaller airports seems to have crashed before it took off, with airline licenses being cancelled left and right.

IT IS ESTIMATED THAT BY 2030, ALL THE SIX METROS IN INDIA WILL NEED A SECOND AIRPORT AND SOME SUCH AS MUMBAI, MAY EVEN NEED TO HAVE THE THIRD

Some charter operators, with the thought of riding the bandwagon, converted with a scheduled commuter operator permit, which allowed the airline to launch its services on regional routes. Air Odisha and Air Deccan bagged 84 routes under the subsidized regional connectivity scheme to begin their services to various underserved and un-served airports only to have Airports Authority of India (AAI) cancel 58 licenses shortly thereafter because the airlines were unable to either start or sustain operations. While there was an initial delay because some airports were not ready, this problem was subsequently addressed and even after the airports were ready, the airlines did not commence operations. Last few years have also seen the demise of other regional airlines like Air Costa, Air Pegasus, Air Carnival and Zoom Air who decided to pull the plug from this seemingly lucrative sector due to the hugely challenging environment, wafer-thin margins and a logistical nightmare requiring very deep pockets. This leaves only one regional carrier, TruJet, operating flights under UDAN.

EXPANSION OF AIRPORT INFRASTRUCTURE

Given the phenomenal rate of growth of civil air traffic, India will need to accelerate the rate at which new airports are being commissioned in the country. It is estimated that by 2030, all the six metros in India will need a second airport and some such as Mumbai, may even need to have the third. The government must carry out a comprehensive review of the state of airport infrastructure currently available and assess the requirement of new airports across the country. A comprehensive plan needs to be drawn up and time frame for its implementation and tracking of progress, need to be defined with clarity.