The National Transport Development Policy Committee, set up under the Planning Commission, has also suggested steps to relax ownership and control rules governing airline sector, saying such a move was "expected to result in significant benefits in terms of financing costs especially at a time when the industry has launched itself in the path of higher trajectory of growth".
The Committee, headed by former RBI Deputy Governor Rakesh Mohan, also recommended setting up of an Airport Approvals Commission within the Civil Aviation Ministry to review and clear the airport development plans on an ongoing basis.
Given the projected growth in the aviation sector, a strategic plan was required to enable this growth, it said and suggested creation of a National Master Plan for airport development over a 20-30 year timeframe.
It said taxation of the sector as a whole was "disproportionately high which retards the industry's development vis-a-vis the overall growth in the economy, and limits its potential economic contribution.
"To fully reap the economic benefits of air transportation, airlines must be treated as economic assets rather than as convenient source of taxation."
Observing that the viability of airline industry was central to entire sector and crucial for sustaining growth, it said that despite the phenomenal growth in traffic, most Indian carriers were reeling under losses.
Between April 2007 and March 2010, Indian carriers incurred an accumulated operational loss in excess of Rs 26,000 crore, of which three large airlines accounted for nearly Rs 23,000 crore. The airline industry also suffered from huge debt burden of close to USD 20 billion, as estimated for 2011-12.
On development of new airports or modernisation of the existing ones, the committee said generally the states are of the view that Public Private Partnership (PPP) model was appropriate.
"As the governance system matures with implementation of several projects under PPP model, it is hoped that, further refinements could be made to the design of PPP model for obtaining robust results," it said.
The panel also said the high tax regime was a "major deterrent" for the growth of the Maintenance, Repair and Overhaul (MRO) industry.
Besides, it also suggested "close monitoring" of mergers and acquisitions in the airline industry should be closely monitored "with a view to ensure that market power of the merged entity does not become dominant enough to constrain competition in the market".