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Last Updated : Jan 06, 2020 05:48 PM IST | Source: Moneycontrol.com

What the aviation sector needs for the next wave of growth

It's expected that 2020 will be a year of policy consolidation and growth for the Indian aviation sector.


Elias George & Rishi Shah

At a time when the global economy is facing significant challenges, the Indian aviation sector is riding a wave of high growth.

The Indian aviation sector has been consistently growing at a rate of 12.75 per cent these past five years and India looks set to become the world’s third largest aviation market by the year 2024.

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Hence, while the long-term prospects are indeed very robust, the year 2019 has had its share of challenges for Indian aviation. The grounding of the fleet as well as the closure of one of the major Indian airlines, which had around 15 percent market share, were significant challenges.

However, the government has moved swiftly to contain the impact of these two issues, particularly by revisiting the policies around renewed leasing of aircraft as well as utilisation of slots.

Given the growth prospects of the aviation market as well as the need to connect mofussil towns to the rest of the country, expanding airport capacities and opening new greenfield airports is a primary requirement. Air traffic in India is still relatively skewed towards the larger cities, with the top 15 airports contributing around 82 percent of the total national aviation throughput. This skew needs to be dis-aggregated and moreover, most large Indian airports are expected to be saturated over the next 10-15

years.

It is estimated that an investment of $50 billion is required for airport development in the near to medium term, which can be met by a mix of private and public sector funding.

During the year, six brownfield airports have been opened for private participation by the government, while six more airports are under consideration for private participation in the forthcoming year. The

greenfield airport at Jewar in Uttar Pradesh looks set to take off, with Zurich airports emerging as a preferred bidder for its development.

There is also the need to fast track the construction of the proposed greenfield airports at MOPA in Goa, Navi Mumbai and Bhogapuram in Andhra Pradesh, while further proposals for fresh greenfield locations like the proposed second airport at Pune may need to be put on a fast track.

It is expected that the government will provide a level playing field and resolve key regulatory challenges for improving access to capital for airport development.

Initiatives for the New Year

Given the fact that Indians are taking to air travel in a big way, there are certain policy initiatives that the industry is looking forward to in the coming year.

Key among these would be the long-standing demand of the aviation industry for bringing aviation turbine fuel under the ambit of Goods and Services Tax. This measure will reduce the vulnerability of the airlines from exogenous economic turbulence, particularly fluctuations in crude oil prices and exchange rate uncertainties.

The privatisation of national carrier which is a brand that resonates with every Indian, will hopefully be undertaken in the year 2020. Despite its over whelming financial challenges, the airline has untapped assets in terms of fleet, slots, market share network and qualified staff. It is hoped that the government would be able to pull off a clean deal around this centerpiece of Indian aviation without debt overhang and is able to accord operational freedom to the new owner.

Another area where India needs to up the game is in air cargo volumes. Given its geographical location, India has the potential to become a global transshipment hub for which a slew of policy reforms is required, ranging from easing customs procedures simplification to paperless processing, e-freight initiatives and digital innovation.

Likewise, India has great potential to become a global maintenance, repair and operations (MROs) hub but this sector has not been able to take off primarily due to tax anomalies. Currently, Indian airlines find it

beneficial to send their aircraft overseas for maintenance resulting in foreign exchange loss as well as loss of job opportunities within the country. This is a sector which can really blossom if the approach towards the policy with regard to MROs can be re-engineered.

Given the thirst of Indian public for air travel and the robust prospects for the industry it is expected that 2020 will be a year of policy consolidation and growth for the Indian aviation sector. This is the sector which is particularly vulnerable to the impact of government policy, and given the government’s resolve to address some of the key challenges, the Indian aviation industry is looking forward to 2020 as a year of

optimism and growth.

Elias George is Partner and National Head, Infrastructure, Government andHealthcare, KPMG in India; and Rishi Shah is Associate Director,  Infrastructure, Government and Healthcare, KPMG in India

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First Published on Jan 6, 2020 05:48 pm
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