Modi govt @ 9 |4 ministers, a pandemic and 3 airlines nearly down, Indian aviation still flies

The big promise and the story so far

Let us begin with the basics, that of providing facilities to the burgeoning number of people who can now access a mode of travel that was until a decade ago was limited to the elite.

Aviation infrastructure

In 2018, the government set a goal to have 855 million air by 2030-31. At the same time, it said that it would double the civil aviation infrastructure in the country by 2025 by building 220 airports.

Back in 2014, around 67 million domestic passengers had taken to the skies. By 2022 that figure had nearly doubled to 123.2 million domestic passengers, despite being hit by the COVID-19 pandemic in 2020 and part of 2021.

The number of airports in India has gone up from 74 in 2014 to 147 in 2022, with the government aiming to increase this number to 220 by 2024-25.

The BJP-led government had also said that it was keen to provide an enabling ecosystem for the growth of the aircraft maintenance, repair and operations (MRO) industry in the country.

To encourage such ventures, the government inked a deal with Airbus, the European aircraft manufacturing giant, to procure 56 C-295MW tactical transport aircraft, a deal estimated to be worth Rs 21,935 crore.

French defence and aerospace company Safran, which is part-owned by Airbus, has also opened a test centre outside Thiruvanthapuram in Kerala and announced that it will set up a production facility in Hyderabad for 36 million euros.

That’s not all that the government is doing. It had also proposed to make India a hub of aircraft leasing and financing by creating a world-class business district at the Gujarat International Finance Tec-City (GIFT City), the upcoming smart city and financial centre intended to supplant cities like Singapore and London.

When the government in the 2015 budget announced tax benefits for financial services companies at GIFT City, expectations were that aircraft leasing companies will look at India as an alternative market.

However, eight years down the line not a single commercial airline made a transaction through GIFT City.

UDAN

The Modi government also launched India's first regional connectivity scheme (RCS), Ude Desh ka Aam Naagrik (UDAN), in 2016 with the aim to make air travel affordable and augment economic development.

Since the launch of the scheme, more than 114 million passengers have travelled in more than 216,000 UDAN flights, with the government providing Rs 2,300 crore as a part of the viability gap funding (VGF).

As on November 29, 2022, 453 routes were operational, with 70 airports including two water landing sites for seaplanes and nine heliports.

Sale of Air India and the drone policy

The government had set its sight on completing the sale of Air India as part of its larger plan to divest stakes in public sector undertakings. In January 2022, it completed the divestment of Air India to the Tata Group.

The airline, which was nationalised in 1953, returned to the fold of the Tata Group, which had started the one-time flag carrier, after burning a hole of roughly Rs 1,57,339 crore in the government’s pocket in 10 years.

The Tata Group bid Rs 18,000 crore as the airline’s enterprise value.

The government had also said that it will come out with a policy to boost drone manufacturing in India and make the country a global manufacturing hub for UAVs or unmanned aerial vehicles.

Two years ago, it passed the new Drone Rules 2021, which the industry saw as a major step in promoting the use of drones across various segments. With the introduction of the new rules, the industry said the domestic market had the potential to grow to Rs 50,000 crore ($6.8 billion) or more in five years.

A September 2022 joint report by EY (formerly Ernst & Young) and the Federation of Indian Chambers of Commerce and Industry pegged the manufacturing potential of India’s drone industry at $23 billion by 2030, adding that India can become the world's drone hub.

The unfinished business

While there are pockets of sunshine, the industry has across decades had to map its flight path through some pretty stormy weather.

Airline collapses

Even as Indian aviation, well, took off in the last nine years in terms of passenger traffic, airports and routes, the age-old problem of the health of domestic airlines in India continues to linger.

Back in 2014, CAPA India, the domestic arm of the aviation Asia-focused data analytics company, had said that Indian carriers together were expected to make losses of $1.3-1.4 billion in 2014-15. Fast-forward to 2023-24. CAPA India expects Indian airlines to record a consolidated loss of $1.6-1.8 billion in the next financial year.

Since 2014, SpiceJet went bankrupt and had to find a new owner, Jet Airways, a high-flier at one time, went into insolvency and has been awaiting resurrection for four years now, and no-frills carrier Go First (earlier GoAir) has filed for voluntary insolvency.

CAPA India has said that India needs a new civil aviation policy that should deliver airline viability and growth by design. According to the aviation specialist, airlines must be provided a level playing field by dismantling the negative fiscal regime and providing infrastructure ahead of time.

Make in India

Despite doubling in terms of the market size in the last nine years, the government has failed to attract the biggest aircraft original equipment manufacturers or OEMs to set up shop in India or create an infrastructure for commercial aircraft leasing.

The lack of manufacturing facilities in India poses a massive problem for airlines in the country which till date suffer due to the unavailability of spare parts and engine manufacturing in the country.

In fact, Go First had blamed engine manufacturer Pratt & Whitney’s inability to supply spare parts and engines for its Airbus aircraft for grounding its fleet in May. The two companies are currently in a legal fight.

As of that month, around 70 planes of Go First, IndiGo (the country’s largest airline by passengers carried) and SpiceJet were grounded across multiple airports in India due to the unavailability of spare parts and lack of MRO infrastructure in India.

Show me the money

Most international aircraft lessors blame the failure of GIFT City as a viable alternative on the government's lack of incentives for airlines to set up bases in the special economic zone.

"Shift the focus to airlines and give them tax benefits for leasing out of GIFT City," said Simran Singh Tiwana, chief executive officer of Star Air.

The lack of a proper financing framework has also proved to be a dampener for aircraft leasing. Suthesh Selvaratnam, vice-president leasing Asia Pacific, AerCap, the Ireland-based aviation lessor, said that GIFT City is focused more on the mitigation of downside risks while lessors are more interested in the return on investment.

Simply fly

The idea of getting ordinary Indians onto aircraft was the stated aim of GR Gopinath, whose now long-defunct airline Air Deccan (which was taken over by Kingfisher Airlines before it too went bust) had the tagline Simplifly.

The UDAN scheme was meant to replicate this ideal. But while it should be considered a success in establishing regional routes and airports across the country, the scheme has struggled to find success.

More than half the awarded routes under the UDAN scheme are yet to start service and many among those operationalised are falling off the air map as they have become unfeasible after the government-provided VGF ended in three years.

"Private airlines have taken a massive hit to their finances due to the pandemic (the Covid-19 outbreak) and are not in a position to operate any loss-making routes. Back in 2019, airlines were making profits and operating UDAN flights was necessary for the growth of overall passenger traffic in India," said an IndiGo official.

A report submitted to parliament by the Standing Committee on Civil Aviation said that only one out of four routes under the scheme was operational at the end of the government’s subsidy period of three years.

Of the 94 RCS-UDAN routes that had completed three years till November 30, 2021, only 22 routes were in operation, the report said.

Talking heads

Jyotiraditya M Scindia, Minister of Civil Aviation, while speaking at the CII annual session on May 24:

"Indian aviation has moved away from the days of planes sitting on the ground with no passengers to today not having enough planes to cater to the growing demand."

Salil Gupte, president, Boeing India:

"We already manufacture the 737 Max vertical fin in Hyderabad, and we also manufacture a large amount of defence equipment in India with our suppliers. Then there are the inlet and outlet barrels, as well as the fan cowls for engines that are being sourced from India. In addition, structural floor beams are being sourced from India.

Aviation industry veteran and analyst Mohan Ranganathan:

"What is urgently required in Indian aviation is transparency and accountability. This includes not just the airline owners and promoters but also the Ministry of Civil Aviation, the DGCA (Directorate General of Civil Aviation) and the officials concerned. The day is not far off when another favoured and the propped-up airline is going to lose its wings. Go First is just the beginning. And it is not going to be the last. A complete revamp of India’s civil aviation policy is required."