Civil Aviation in India

Importance

The Indian aviation industry which contributed five percent of GDP, offers four million jobs and another seven million jobs through tourism and related activities. So more efforts are needed, on creating infrastructure which will enable further growth.

India’s passenger traffic stood at 115.37 million in FY21.

Domestic passenger and international passenger traffic declined at a CAGR of -9.02% and -28.64%, respectively, from FY16 to FY21, owing to COVID-19-related restrictions on flights in FY21.

In FY21, airports in India pegged the domestic passenger traffic to be ~105.2 million, a 61.7% YoY decline, and international passenger traffic to be ~10.1 million, an 84.8% YoY decline, over the fiscal year ended March 31, 2020.

Aircraft movement declined at a CAGR of -7.79% from 1.60 million in FY16 to 1.20 million in FY21. From FY16 to FY21, domestic aircraft movement decreased at a CAGR of -6.44% and international aircraft movement declined at a CAGR of -18.52%. India’s domestic and international aircraft movements reached 1,062 thousand and 135 thousand, respectively, in FY21.The expenditure of Indian travellers is expected to grow to Rs. 9.5 lakh crore (US$ 136 billion) by 2021.

 Challenges

  1. Increase in fuel prices
    Aviation turbine fuel (ATF) is an important deciding factor in cost of operation in Aviation Industry Jet fuel accounts for 45 percent of an airline’s cost of operation.
  2. MRO – maintenance and repair is costly.

Other than ATF, the other large expense item for airlines is the maintenance and repair (MRO) of aircraft.

Maintenance and repair taxation in India remains the highest globally. With an 18 percent GST levy, providers have to compete on sale price with overseas players that only pay 5 percent — that too at cost price. This gap: 20-22 percent. Consequently, most airlines contract their maintenance overseas, leading to a loss of jobs and output.

MRO setups are capital intensive and require significant investment in terms of infrastructure, material, training of manpower and technology.

The National Civil Aviation policy (NCAP 2016) attempted in part to address this issue by limiting the royalty and additional charges and mandating that these not be levied on MRO service providers for a date of five years from the date of approval of the policy. Yet, the royalty is still being imposed under different classifications ranging from 11 percent to 30 percent.

  1. Government interference is hurdles in growth

India government should follows aviation industry free from policy hurdles like regulating airfares and slash taxes, including jet fuel.

Government to focus on building infrastructure and the air navigation system.

  1. Higher airport cost

Airport (aeronautical) Charges levied by Airport Authority of India are higher. According to a latest survey, the airport charges levied by the Indian airports (Domestic and International Terminal) are amongst the highest in the Asian and the Gulf countries. This adds more burden to aviation companies.

  1. Severe competition affecting financial viability of Airlines

Established Airlines are threatened by low cost carriers, which are eating up their market share. In order to consolidate their market share, top premium airlines were forced to reduce their ticket fares to around 15- 20 per cent. Such a slash down in price will lead to a price war in the long run amongst the airlines with the only goal of increasing their market share.

  1. banks are extremely reluctant to lend to aviation. The reasons are many, including fluctuating EBITDAs, weak balance sheets, systemic impacts of crisis with Airlines like Jet Airways and the NPA cleanup.
  1. Foreign Investments

Foreign Direct Investment (FDI) inflows in air transport has been low due to FDI limits. Between 2000-17, FDI was around US$ 1,608.51 million.

FDI limits has now been raise to 100% under automatic route in scheduled air transport service, regional air transport service and domestic scheduled passenger airline.

  1. Air safety

In the past few years, there have been a number of fatal accidents snuffing out hundreds of innocent lives. Many of these accidents could have been avoided if as the planners, managers and regulators had a better understanding of the dynamics of the man-machine interface.

  1. Airport Infrastructure

Major focus is on developing terminals, while addition of new runways has been out of focus. The number of runways has not increased (with the exception of Delhi airport). New runways that are to come up are years away. For airlines this means that they are forced to fly unviable routes. And for passengers this means that fares in constrained airports will inevitably rise.

The country has a total of 449 airports but metro airports dominate in terms of aviation traffic with about 61 percent of the domestic traffic and about 73 percent of international traffic still originating from the six metros — Delhi, Mumbai, Bengaluru, Hyderabad, Kolkata and Chennai.

With the exception of Bengaluru, which will see the addition of an additional runway this year, the capacity expansion at other airports lags or is non-existent.

Key investments and developments

  1. Rs 15,000 crore (US$ 2.32 billion) have allotted for expanding existing terminals and constructing 15 new ones will be made through the Airport Authority of India (AAI).
  2. Government of India has signed an agreement with Australia allowing airlines on either side to offer unlimited seats to six Indian metro cities and various Australian cities.
  3. Guwahati Airport will be designated as an inter-regional hub and Agartala, Imphal and Dibrugarh as intra-regional hubs.
  4. Allocation to Civil Aviation Ministry has been increased to Rs 6,602.86 crore (US$ 1,019.9 million) under Union Budget 2018-19.
  5. The government has launched the construction of Navi Mumbai airport which is expected to be built at a cost of US$ 2.58 billion. The first phase of the airport will be completed by the end of 2019.
  6. The Government of Andhra Pradesh is planning to develop Greenfield airports in six cities-Nizamabad, Nellore, Kurnool, Ramagundam, Tadepalligudem and Kothagudem under the PPP model.

Reforms Under Atma-Nirbhar Bharat Abhiyan

  1. Improving Airspace Management

Route dispersal guidelines (RDG), mandates airlines to fly a certain percentage of flights in smaller, unprofitable air routes. The government announced that these restrictions on the utilisation of Indian airspace will be eased. This will lead to optimal utilization of airspace and reduction in fuel use.

  1. Airports Development through PPP

6 more airports will be auctioned under the Public-Private-Partnership (PPP) model for their development.

  1. Global Hub for Aircraft Maintenance, Repair and Overhaul

The government intends to make India a global hub for Aircraft Maintenance, Repair and Overhaul (MRO) services.

It will result in saving costs and creating liquidity for airline companies.

Also, the convergence between the Defence sector and the civil MROs will be established to bring down the maintenance cost of airlines.

Other initiatives

FDI Policy

  • Airports
  • 100% FDI allowed under automatic route for both greenfields as well as brownfield projects.9
  • Air Transport Services10
  • Scheduled air transport service/ domestic scheduled passenger airline/ regional air transport service: Up to 49% allowed under the Automatic route beyond which Government approval is required.
  • Non-scheduled air transport services and helicopter services, seaplane services which require DGCA approval: 100% FDI allowed under the Automatic Route.
  • Other Services Under the Civil Aviation Sector11
  • Ground handling services, maintenance, repair and overhaul services, flying institutes, technical training institutions: 100% FDI allowed under the Automatic Route.

Digital initiatives

  • eGCA – The function & process of Directorate General of Civil Aviation (DGCA) is being moved to an online platform to provide faster delivery of services & regulation oversight. The e-GCA was initiated on 14th May 2019. The first module on pilot licensing shall be launched in November 2019.
  • DigiSky – Pursuant to the issuance of CAR by DGCA on 27.08.2018, DigiSky online portal has been launched to meet the requirement laid down by the CAR for flying Civil Drones. The Beta version of DigiSky is available and captures the entire gamut of activities relating to drones viz. registration of drones and pilots, approval of flight path, post-flight analysis etc. based on the distinctive features of No Permission No Takeoff (NPNT).
  • e-sahaj – 100% of security clearances pertaining to the Ministry have been made online on e-sahaj online portal launched by the Ministry of Civil Aviation. The portal is operational for granting clearances in respect of 24 categories.
  • DigiYatra – Trial for the rollout of DigiYatra initiative has been started at Bangalore and Hyderabad airports. The initiative envisages seamless and hassle-free passenger travel using biometric technologies to improve passenger experience, reduce queue waiting time as passengers can walk through gates by using advanced security solutions. It will remove redundancies at checkpoints and enhance resource utilization.

UDAN (Ude Desh ka Aam Nagrik) scheme was launched to transport experts and equipment to every corner of the country (NER, hilly and island states).

RCS- UDAN24

  • RCS-UDAN was launched to Promote air connectivity to unserved and underserved airports in Tier-II and Tier-III cities to stimulate regional growth and provide affordable air travel to the citizens.

– 76 Airports operational till 2014.
– 53 airports added to the network in the last 6 years
– Total operational airports today 76 + 53 = 129 in 2020

Krishi Udaan – Airlifting agri-produce for better value realisation for farmers:

  • The total tonnage of agri-perishables handled in the 12th month of FY 2020-21 ending on 31 March 2021 was 18,962 MT

UDAN Scheme

Under National Civil Aviation Policy (NCAP)

The following are its salient features:

  • Duration- 10 years
  • Selection of Airline through a competitive bidding process
  • The Central government will provide the following:
    • Subsidy to cover Value Gap funding (VGF) for participating airlines
    • Concessional GST on tickets booked using the scheme
    • Code sharing for flights under the policy
  • State Governments will extend the following measures:
    • GST reduction to 1% for 10 years
    • Coordination with oil companies to facilitate refueling facilities
    • Provide land for airport and ancillary development
    • Trained security personnel
    • Utilities at subsidized rates
    • 20% of VGF
  • Airport operators such as AAI will provide the following concessions:
    • No parking, landing and storage charges at participating airports
    • Nil TNLC (Terminal Navigation Landing Charges)
    • Allow ground handling by the airline selected through the bidding process
    • RNCF (Route Navigation and Facilitation Charges) will be discounted to 42.4% of normal rates by the Airports Authority of India

Value Gap Funding is not provided to cargo airlines. All other terms and conditions remain the same as passenger airlines. The fares are graded based on distance and flight hours for both fixed-wing and rotary-wing services.

The RCS subsidy is funded by a levy of Rs 5000 per flight on major routes. Flights regulated under this policy framework can be booked from the UDAN website and major travel portals by passengers.

Challenges

  • Infrastructure–
    • Building a greenfield airport isn’t enough, unless flights are able to take off and land.
    • Weather conditions make it difficult for flights to land on the airports located on mountainous terrains on most days.
    • Also, lack of instrument landing systems (ILS) lead to flight cancellations and the repeated cancellations make it difficult to build traffic on the route on a sustained basis.
  • Traffic route –
    • While the infra challenge might be easier to fix, the bigger challenge is putting in place an ideal network design.
    • Thus, the key is to discover routes where there is sustained traffic, not just in a few months of the year, but all round the year.
    • To generate steady, predictable traffic, a hub and spoke design should be followed by connecting the large metro airports to the new Udan routes, as opposed to a point-to-point service.
  • Capacity –
    • India’s metro airports are largely choked and they have already run out of capacity in terms of landing and parking slots.
    • Also, passenger traffic in these airports continues to gallop at nearly 18-20% every year.
    • To manage these traffic, the existing airlines have responded by ordering aircraft that could almost double the existing aircraft capacity in another three years.
    • This will stretch India’s airport capacity in the metros even further.
    • Though the Udan routes was intended to help manage this traffic flow from metro routes, it affects more from this rise in air traffic.
    • This is because, the airport operators are expected to waive off landing and parking charges on these routes and thus more airlines are expected to ply on these routes.
  • Time slots –
    • Subsequently, finding convenient time slots for every route will become an administrative challenge.
    • This is because, the number of runways is not increasing in high traffic airports and the airport capacity lag the passenger traffic growth.
    • Especially, the new regional airlines have faced a major challenge in connecting the metro airports to the new Udan routes, since they don’t have pre-existing slots in them.
    • This has made these regional operators difficult to start operations for more than a year, which has also resulted in their licenses getting stripped off later.

Way Forward

  1. Enhance Aviation Infrastructure

Ongoing projects under the UDAN initiative need to be completed in a time-bound manner.

In addition, the existing capacity of international airports should be augmented under the International UDAN initiative.

  1. Long term plan need to be formulated for advanced research in aviation technologies. It will help in creating a manufacturing ecosystem in the country
  2. Address Shortage of Skilled Manpower

There is a need for promotion of collaboration between original equipment manufacturers (OEMs), industry and educational institutes to assimilate the latest technology and management practices in the aviation industry.

  1. Augmenting Finances

Taxation and pricing structure of aviation turbine fuel (ATF) should be aligned to global benchmarks by considering bringing under the ambit of GST.

Vacant real estate near Airports Authority of India (AAI) airports in all major centres can be monetised to increase non-aeronautical revenues.

  1. Making India a Transhipment Hub

India can reap multiple benefits by establishing itself as a transhipment hub in the region. This will augment India’s trading capacity as a service provider, emerging as a foreign exchange earner and enabler for better connectivity in the region.

This may be done by the development of digital business enablers such as e-contracting, e-transportation multimodality, e-compliances and an e-grievance redressal module.

In this context, the National Civil Aviation Policy 2016 and National Civil Aviation program 2018 can help India to become a major civil aviation market in the world.

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