Provide adequate fiscal incentives to give fillip to aviation

Updated: Jun 26 2009, 05:57am hrs
Raajeev Batra
The aviation industry is facing its worst turbulent period due to the global economic slow down. Faced with high operating costs, low passenger traffic and mounting losses, airlines in India are struggling to keep their heads above water. While airlines have initiated several cost cutting and cost optimisation measures as capacity reduction and route rationalisation, airlines havent yet fully recovered from the slump.

The airline business in the country in terms of profitability face an uphill task due to varied high charges they pay for operations and inadequate infrastructure at airports. One aspect in particular is the price of aviation turbine fuel (ATF) that is differential in various Indian states due to high duties and unequal levy of sales tax. Landing and parking charges too are high in India and airport developers too have increased these charges on account of the investments made in airport development.

While India Inc and the stock markets is extremely pleased that that India now has a secure and stable government backed by an experienced leadership team, it is most important that the ministry of finance and the ministry of civil aviation support the airline business and the aviation sector in its critical growth and profitability phase with adequate fiscal incentives aimed to give fillip to the aviation sector from a holistic perspective.

In addition to the continued emphasis on infrastructure development and allocating funds for modernisation of air traffic services in India, some of the priorities the government may consider are the rationalisation of sales tax on ATF; recommendations for the reduction of airport charges; and bringing clarity on customs and import duty for aircraft spare parts especially in parts within the parts pool and engines, auxiliary power units (APU)s and major components on rotation and OEM power-by-the-hour contracts.

Irrational pricing of ATF is an issue discussed for a long time now and while India from a boarder perspective has transitioned to VAT and soon would be moving on to the proposed goods and services tax (GST), in light of the criticality of present day airlines operations, the government should consider bringing parity in tax structures for fuel.

On infrastructure development, it is imperative that the government raise the tempo on airport infrastructure improvement as increasingly it is noticed that tier-II and tier-III airports are taking the lead attracting international carriers especially low cost airlines. In addition to this, India soon is expected to have several new regional airlines and therefore improved infrastructure will have supportive benefits in building the aviation sector from all aspects.

Though has been a slight recovery noticed in passenger traffic with average airline loads falling between 75% to 85% and fuel prices globally increasingly becoming less speculative with present ATF levels representing a nearly 60% drop, a well tailored fiscal support package could be just what the doctor ordered in order to help the airline business recover faster and turn profitable.

Indias aviation sector is the fastest growing in the world and with sustained growth in the range of 20% to 25%, India indeed is increasingly becoming the worlds emerging destination for air transport services thanks to a new aircraft fleet. With Indias airlines commencing international operations, traffic to and within India now has also evolved to India becoming a transit hub for the South Asia region and if given the right support, India soon could surpass regional air traffic hubs as Singapore and Kuala Lumpur in terms of passenger and cargo throughput.

The government needs to act for aviation, and the time is now.

The writer is ED & head of transport advisory, KPMG