Civil aviation industry in India

Civil aviation industry in India
 

News: Recently, budget airline Go First abruptly filed for bankruptcy protection and cancelled its flights for a few days.
 

Why did Go Air file for bankruptcy protection?
 Go Air faced problems with Pratt & Whitney (P&W), the engine manufacturer, which led to an increasing number of failing engines. This resulted in a significant portion of Go Air’s fleet being grounded, causing operational challenges.
 It’s over-reliance on fewer international suppliers for its operational needs
 India’s lack of large-scale maintenance, repair, and overhaul (MRO) facilities contributed to Go Air’s struggles, as grounded aircraft couldn’t be quickly repaired and put back into service.
 Fierce competitions with its rivals.
 

What is the potential of Indian aviation industry? 

Potentia
o Domestic passenger traffic increasing at CAGR of 14%
o World's 3rd largest civil aviation market
o Low penetration of domestic travel
o Potential expansion in growth of Maintenance, repair and overhaul (MRO) facilities
o Rise in demand for Skilled workforce

Challenges in Aviation Industry
 Aviation turbine fuel – Taxes are high, not under GST – It hurts profitability of companies
 Predatory pricing – Deliberate selling product below cost price to eliminate companies. Eg – Spicejet
 Issue of grounded aircrafts across all airlines due to maintenance, engine replacements and supply chain challenges
 Increasing cash flow woes and grounded aircraft highlights the financial challenges faced by the industry.
 Passenger safety compromised – Low profitability, repair service not regularly done
 The pandemic has severely affected the aviation industry
 Regulatory bodies like DGCA have faced criticism for not conducting thorough financial audits and ensuring safety and operational standards in the industry.
 

What should be done to overcome aforementioned challenges?
An advisory firm Primus Partners released a report that suggests several reforms. They are,
 Encourage domestic financing solutions to reduce dependency on international leasing markets and keep Indian funds within the country.
 Improve the implementation of regulations to facilitate faster repossession and redeployment of aircraft.
 Simplify and streamline tax regulations to make the leasing industry more attractive and competitive.
 Develop an ecosystem that caters to the leasing industry’s maintenance and operation’s needs, creating a
self-sufficient and robust industry within India.
 

Steps taken by government to support Aviation sector:
 National Civil Aviation Policy, 2016 - The policy covers 22 areas of the civil aviation sector. NABH nirman scheme and UDAN scheme form part of the policy.
 100% tax exemption has been provided for airport projects for a period of 10 years. Indian aircraft Manufacture, Repair and Overhaul (MRO) service providers are exempted completely from customs and countervailing duties.
 Over 30 airport development projects are under progress across various regions in Northeast India. AAI plans to develop over 20 airports in Tier-II and Tier-III cities in the next 5 years.
 With the opening of the airport sector to private participation, 6 airports across major cities are being developed under PPP. Currently, 60% of airport traffic is handled under PPP, while the remaining 40% is managed by AAI. Participation by the private sector has improved the service levels and enhanced the passenger experience.
Source – Indian Express, Mint, The Hindu