INDIAN CIVIL AVIATION A REALITY CHECK
INDIAN CIVIL AVIATION A REALITY CHECK
To fully harness the growth prospects of Indian aviation, issues have to be addressed via deliberate and decisive measures
SATYENDRA PANDEY

FROM 44 MILLION DOMESTIC PASSENGERS IN 2008 TO 121 million domestic passengers in 2018, the airline industry in India has come a long way. This rate of growth is forecast to continue with India becoming the third largest aviation market in the world by 2030. A growing middle class that is 300 million strong as of now, a trend towards urbanisation leading to increased demand for air travel, a rising propensity to spend and significant capacity entering the market – all key factors for growth are aligned. Increasingly, passengers are taking to air as a mode of transport and India is targeting 500 million passenger trips in the next 20 years. These trips will have to be supported by an entire ecosystem including various stakeholders. From Original Equipment Manufacturers (OEMs) to Lessors and Financiers, from Maintenance Repair and Overhaul (MRO) providers to Multi-lateral agencies and from Airports to Airlines – to name a few. And the ecosystem at present has far too many distortions. The question is: can these be addressed decisively and deliberately towards continued growth, competition and sustainability?

THE GOVERNMENT’S INTENTIONS

As the Finance Minister presented the Union Budget in July this year, the message to the aviation stakeholders was that it was indeed an area of focus. Several aviation-related issues were mentioned as under:

• A vision towards India entering the aircraft financing and leasing market.

• The divestment of the national carrier Air India.

• Consideration for re-examining Foreign Direct Investment into Indian carriers.

• Policy interventions towards energising the MRO Industry in India.

• Further promoting the UDAN regional connectivity scheme. Details of these proposals are yet to be tabled. But the industry is eagerly waiting for details to be shared and stated as policy before committing additional capital or effort.

THE CORE ISSUE: ATF TAXATION

At the apex of the aviation value chain is the airline industry. And to ensure a healthy value chain, the first point of call is an environment where airlines can thrive. For airlines, the single largest choke-point is the cost of Aviation Turbine Fuel (ATF) which constitutes up to 40 per cent of an Indian airline’s cost base and is the largest expense item. Globally, this figure averages at roughly 20 per cent. The distortion of up to twenty percentage points means that Indian carriers do not enjoy a level playing field. Furthermore, it impacts the sustainability of businesses. Granted that there have been success stories; but in such cases, the airlines have leveraged financing structures and liquidity of asset types – both of which are subject to market dynamics. For Indian aviation to thrive, the issue of tax on ATF will have to be addressed.

AIRPORT CAPACITY, RESTRAINED COSTS: NEED OF THE HOUR

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March 2020