As Finance Minister Nirmala Sitharaman took the centre stage on May 16 and uttered the word “aviation”, a few heartbeats skipped. A day earlier, the FM made announcements about agriculture – which was dubbed as the 1991 moment for the sector. Would aviation get a similar treatment?
While aviation and agriculture are at opposing ends of the spectrum, both have some similarities. Some of them are customers complaining about the trifling price increases, a farmer or an airline taking home little profit and operating on thin margins and long-term debt. While farmers get a waiver or two occasionally, airlines do not. That is because successive governments have seen aviation as luxury and not on priority to move the economy in a country as large as India.
Aviation was liberalised in the early 1990s leading to a spate of private carriers. None of them are in operation today. While it remained amply clear that cash sops will not be forthcoming, the industry and the wider aviation community hoped for a little respite in other ways — especially after governments in the US, Germany, Italy, France and the Netherlands, among others, announced measures to help the airlines directly and indirectly. The finance minister doled out all but three sops for aviation and they were old wine in a new bottle. Airlines have been left high and dry.
The aviation ecosystem comprises airlines, airports, MRO, ground handling agencies, sky kitchens, travel agencies and other tertiary sectors that are suppliers to these main ones. All the three sops are hardly new.
Opening of airspace for civil aviation
On May 1, Prime Minister Narendra Modi held a meeting. The outcome outlined that Indian Air Space should effectively be used in a manner that flying time is reduced, benefitting travellers through shorter flight times and subsequent cost benefits. This formed part of the first sop for aviation with resultant saving estimated at Rs 1,000 crore annually.
From calculation of the savings to the percentage of flights that will benefit from the change, there are more open questions than answers. Aviation Turbine Fuel (ATF) prices have dropped over 65 percent YoY, and the government has not given any clarity about the basis of calculation.
Indian aviation is unique not only because of the airspace but also for the airports being controlled by the armed forces – including those in the top 10 by traffic, putting restrictions on civil air traffic. However, nearly 40 percent of the traffic is between the top six airports in the country and almost at all times – the routes are free of restrictions. For places where there are restrictions, it has been a common practice for pilots to ask for direct routing and the air traffic management system allowing such flights when military flying is not active.
The MRO sector was in focus in the budget and the press conference on Saturday was merely a re-iteration of what has been already announced. While the government had said that the aircraft component repairs and airframe maintenance market will grow in size to Rs 2,000 crore from Rs 800 crore in three years, the pitfalls do not seem to be considered.
There will be a sizable reduction in the fleet of airlines in India as demand plummets and this will also lead to lower spend on repair and maintenance. The expectation that major engine manufacturers in the world would set up engine repair facilities in India in the coming year actually comes after Pratt & Whitney has already announced such a venture.
The MRO industry is limited in the country and has been going through tough times. There were sops given out earlier with a reduction in GST on MRO services to 5 percent from 12 percent. Yet, globally MROs try to woo carriers including those from India with offers like taking a tab of fuel charges to and from the visit to MRO amongst others to attract carriers and give competition to local MROs.
The government should come up with measures to help MROs in India offer lower prices than competition in the region instead of getting them at-par.
Privatisation of six airports
Six more airports have been identified for the second round of bidding for Operation and Maintenance on PPP basis, which will fetch the government-owned Airports Authority of India (AAI) in excess of rs 2,000 crore in down payment from revenue sharing.
The most ironic of the three announcements was the privatisation. In a press conference to dole out sops for the sector, the finance minister spoke about increase in revenue for a state owned enterprise – which has been clocking profits after tax of over Rs 100 crore each month for the last one year.
While the privatisation of airports has been an ongoing process, the May 16 press conference only adds that this would be expedited. In an economic scenario where private enterprises have been struggling to re-start, most economic activity has come to a grinding halt and the economic outlook for the aviation industry in near to medium term is not positive, who would be willing to put in the money to bag airports in the country?
On May 13, the finance minister announced sops for MSMEs and that included tweaking the definition of who qualifies as an MSME. The sector now considers the service industry as part of MSME. Smaller travel agents who have been hit hard due to total dependence on the travel and tourism industry will be eligible for these sops which revolve around loans at concessional rate of interest without guarantee.
While this could give some relief, the tough outlook for the industry could make it difficult in the medium term and possible job losses cannot be ruled out, despite the sops.
Nothing for airlines and airports?
The most surprising part has been the lack of sops for Airlines and Airports. If there is anything that the airline and airport ecosystem has to learn from this is to be Atma Nirbhar (Self Reliant). But in an industry which works on wafer thin margins and has seen a collapse of a player at periodic intervals, self reliance will be restricted to few players.
One has to understand the problems in detail to offer solutions to an industry which has been perennially in losses, barring a few airlines or occasions. We seem to have lost an opportunity like no other for a major shakeup for the airline.