Helping Indian civil aviation take flight once again

The Indian aviation sector finds itself weak in the midst of the COVID-19 crisis; without significant reforms and support, the sector is likely to crumble before resurgence

Air travel, democratised in the contemporary world by technology, has created new opportunities for billions of people. In the wake of COVID-19, China has surpassed the US as the leading civil aviation market in the world. This development comes in the backdrop of major cuts in air travel in the US, and a recovering Chinese aviation market post the loosening of their lockdown. These leading aviation markets are characterised by quality service, high flight punctuality rate, parallel development of Maintenance, Repair and Overhaul (MRO) industry to support domestic industry and tax incentives for airline operators, which give them a comparative edge.

The Indian civil aviation industry, although the third-largest domestic civil aviation market in the world, is plagued with policy and economic issues. Most of the existing operators are barely breaking even. Additionally, the shortage of a skilled aviation workforce results in expat hiring at higher wages, minimising the profit margins. Further, high taxation on the already overpriced aviation turbine fuel (ATF), combined with the price-sensitive Indian market, pushes airlines into deep losses and makes it unsustainable for them to operate in the long run.

Problems galore

The economic havoc brought on by the pandemic and the resultant lockdown has dealt a severe blow to the cash reserves of the Indian aviation industry because of grounded aircrafts, benched staff, ticket liabilities and cash burn, pushing many airlines to the very limits of their liquidity. Multiple private carriers in India have reported salary cuts and fired high paid expat personnel to save cash reserves. Industry experts contemplate large-scale unemployment due to a decline of 70 per cent domestic air traffic globally and around 50 per cent in India’s case. Further, the Indian aviation industry needs an infusion of at least $1 billion in the short term.

Time taken for overall recovery is anticipated to range from six months to two years and domestic air travel will revive earlier than the international segments. IATA impact assessments project airlines to burn $61 billion cash reserves by the end of Q2 of 2020. Therefore, to survive this crisis, operators need significant cash reserves for the next two quarters.

Also, since long-haul flight operations are a function of both customer demand as well as governmental travel restrictions, carriers with efficient domestic operations are more likely to pull through. The current crisis may result in fewer aircrafts because of grounding of fuel-inefficient fleets and the survival of fewer airlines. Further, given that the penetration of Covid-19 cases in per capita terms is comparatively lower in Asian countries, a quicker and V-shaped recovery is projected in intra-Asia aviation operations.

Immediate concerns

The 9/11 terrorist attack led to massive screening drives on airports across the world, which survives to this day. The ongoing global health emergency is sure to cast its spell on passenger throughput. However, if passenger health screenings are made mandatory, the industry will be enormously hit. It would entail formulation of a uniform set of guidelines by international regulators, which travellers must understand as necessary for their well-being and help allay traveller fears in the post lockdown world.

Going forward, a major chunk of funds with the aviation industry, which were set aside to digitise operations, would be unavailable for the foreseeable future. This means that the industry is likely to suffer from ‘innovation hang’ on the customer side from both airlines and airport segments.

It is now imperative for the air operators to strategically define their innovation operations. As COVID-19 has made social distancing the norm, guidelines issued by the central ministry will result in better utilisation of the existing digital infrastructure as passengers are mandated to use e-boarding pass as well as certify their COVID-19 status on the Aarogya Setu app. With the government announcing a cap on airfare, normal profits of private carriers are expected to take another blow.

Case for immediate reforms

The civil aviation sector in India was already distressed and required major reforms for sustainability. The current scenario makes these reforms indispensable. The airline industry has been actively pushing to bring ATF under the GST framework. Though the government is working on provisions for the same, it is high time that this is sped up for low-cost carriers to remain operational. The regulators may also allow for weekly or periodic revision in ATF prices, so that domestic carriers can leverage international price collapse and reduce their operational costs.

A robust aviation sector demands exploration of PPP models in Tier I/II cities, reduction in airport charges and overflight fees, tax relief to airline operators, deferment of GST payment for airlines and development of the MRO industry.

Further, skilling and training of a higher number of aviation personnel is urgently needed to reduce dependency on expat hiring. Besides, for attracting foreign direct investment to the domestic civil aviation sector, the government should evolve an efficient mechanism for leasing out aircrafts to international operators.

Around the world, fiscal measures have been adopted to offset the losses occurring in various sectors of the global economy. India should also support its distressed sectors by providing special aid packages to help them revive sooner than later.

As the aviation sector finds itself in quicksand, this is a crucial moment when the public sector needs to step in to support, heal and restructure the lifeblood of connectivity, which holds promise for long-run economic growth. Overlooking aviation, a business that is the least forgiving of mistakes, is a potentially expensive proposition.

Tanvi Bramhe and Veenu Singh are YP at Development Monitoring and Evaluation Office (DMEO), NITI Aayog. The views expressed are personal.

The views expressed above are the author’s own. They do not necessarily reflect the views of DH.