Modi 2.0: An opportunity for aviation industry

Published: August 7, 2019 6:07:04 PM

The civil aviation industry in India has witnessed a consistent double-digit growth over the last four years.

aviation sector, aviation industryOnce the amendment is passed by Parliament, the civil aviation ministry is empowered to bid out private airport projects on the basis of pre-determined tariff and in such cases the airport regulator will have no power to set or revise user charges

By Palash Roy Chowdhury

The civil aviation industry in India has witnessed consistent double-digit growth over the last four years. The Government’s focus on connectivity for all has been one of the key drivers propelling its growth and placing the civil aviation industry amongst the fastest growing industries in the country. The International Air Transport Association (IATA) forecasts India to become the third-largest aviation market in terms of passengers by 2024-2025, after China and the United States, surpassing countries such as the UK, Japan, Spain, and Germany.1

However, despite the market’s breakneck expansion over the past decade and a half, less than ten percent of Indians have ever flown in an aircraft. The industry also continues to face challenges and issues including an inverted tax structure, shortage of infrastructure, high Aviation Turbine Fuel (ATF) prices, slow growth in regional connectivity and shortage of trained manpower including pilots. An additional cause for concern is that every 3-4 years, a major airline goes defunct in the country.

Modi 2.0: An opportunity for the industry

The record mandate received by the PM Modi-led NDA in the recently concluded general elections provides a great opportunity for the government to address existing challenges and work towards realising the Aviation Vision 20402 put forward by FICCI and KPMG.

What needs to be done? At the outset, industry experts believe that a very comprehensive National Civil Aviation Policy, covering the most critical aspects of the aviation ecosystem, was created with strong industry consultation. With regional connectivity as the cornerstone, the policy provides direction for key elements like airlines, airports, cargo, ground handling and maintenance, repair & overhaul (MRO) besides aspects like aviation safety, financing and talent among others. What’s required now is the urgent implementation of the National Civil Aviation Policy to energise and boost the industry.

Largely, the expectations from the new government include a reduction in tax rates on ATF, including roll back on import duty inclusion in jet fuel, among other items. In India, high tax structure on aviation fuel makes it one of the costliest items for airlines, which is about 35-40 per cent in India as compared to 20-25 per cent globally. Also, issues including currency fluctuations and rising cost of airport operations amongst others, have contributed to airlines’ woes. The narrow margins within a range of 2 to 5 per cent make airlines vulnerable in a down market. Some relief in the form of reduced tax rates or the inclusion of ATF under the GST regime will be welcomed by the industry as will be the relaxation in customs duties on new aircraft and on aviation parts. Lowered GST on air travel and exclusion of levies on aviation related goods that affect operating costs would greatly boost the aviation industry.

While commercial aviation has done well in the country, General Aviation (GA) has lagged behind. Lack of infrastructure and high taxes have curtailed the growth of GA which can significantly charge up regional connectivity. Within GA, the helicopter industry, given the potential for intra-city commute, air ambulance, search & rescue, tourism, firefighting and agriculture is in urgent need of support. This could be in the form of equitable treatment, favourable taxation and development of heliports among other measures.

Capacity expansion of airport infrastructure is another must have for the success of aviation and especially regional aviation in the country. Low cost airports in tier 2/3 cities will be a major driver in the successful implementation of UDAN.

Among other sectors requiring attention, air cargo could benefit from more adequate enabling infrastructure, easing up of procedures, deployment of better technology and availability of skilled manpower. As returns on cargo tend to be higher than that on passengers, it has the potential to boost revenues.

There is yet another area that needs urgent attention. Although India sits on a demographic goldmine, the industry has been up against a severe shortage of skilled work force and accredited institutes to train the required engineers, technicians and other professionals to meet its growing requirement. The government has initiated a host of measures in this regard, chief among them being the launch of the Aerospace and Aviation Sector Skill Council. However, more needs to be done to bridge the gap between demand and supply for skilled professionals across the entire aviation ecosystem.3

Despite the challenges, the industry is bullish that the new government will take initiatives to make its operating environment more cost-effective and establish an integrated and sustainable aviation eco-system in the country.

The author is Chairman, AMCHAM Civil Aviation Committee and Managing Director- India, Pratt and Whitney.

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