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What does aviation industry want from the Union Budget 2022-23?

Industry representatives told Moneycontrol that the government should come out with standards to regulate air traffic movement in the face of a new wave of the virus to give the airlines adequate notice to readjust their operations.

January 07, 2022 / 05:21 PM IST

India’s beleaguered aviation sector has called for a raft of measures including fiscal concessions and industry-friendly policy measures to help it survive the turbulence caused by the still raging Covid19 pandemic.

They have also called for standards on air traffic movement and capacity utilisation during the pandemic as also an end to the current practice of regulating short-term fares.

Industry representatives told Moneycontrol that the government should come out with standards to regulate air traffic movement in the face of a new wave of the virus to give the airlines adequate notice to readjust their operations.

“The biggest uncertainty airlines in India are facing is with regards to the operating capacity allowed in the country and to foreign countries. This is not only hurting airlines’ ability to plan for capacity expansion but is also derailing implementation of their existing plans to increase flights to locations,” a senior executive from a domestic airline said.

He added that the government needs to come out with a system for both domestic and international capacity so that airlines can plan out their capacity utilisation if COVID-19 cases start rising in India.

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On the fare band, airline company executives said that they expected the government to remove a cap on fare prices. A fare band was introduced to prevent airlines from charging exorbitant fares from passengers.

The industry felt that it was about time that the sector government removed the price band and allowed airlines to set ticket prices.

On the fiscal front, the aviation sector is hopeful of some concessions.

The industry has asked the government to consider lowering both import duty and value-added tax (VAT) on air turbine fuel (ATF) and reduce airport, landing, parking and navigation charges, given the deteriorating financial health of the airline companies.

While the Centre can decide on lowering import duties, changes to VAT has to be decided by individual states.

Airport operators have sought a reduction of the goods and services taxes (GST) for services at airports and doubling the limit of duty-free liquor to 4 lters in order to improve their bottom line. Any decision on reducing GST has to be decided by the GST Council and therefore it cannot be addressed in the Union Budget.

There is also an expectation that the government will take measures to remove bottlenecks that were preventing more aircraft lessors from setting up shop in India.

International lessors have till now been apprehensive about setting up shop in GIFT City due to the perceived bureaucratic hindrances in India. The aviation sector is hopeful that the government increase tax incentives for companies that are willing to set up shop at the International Financial Services Centre (IFSC) in GIFT City (Gujarat) in a bid to attract foreign aircraft lessors.

A major issue lessors faced in getting planes to India was the lack of GIFT City-cleared airports that can be used to land the aircraft. Furthermore, lessors have also faced issues in repurposing airlines from India.

“The current challenges faced by leasing companies in India are being closely watched by the world’s largest banks and insurance companies. If these issues are not addressed, the fear may lead to increased cost of credit for Indian airlines, as well as damage India’s reputation in the leasing and financing market,” an executive of one leasing company said.

The government has offered a clutch of sops, including tax holiday for capital gains for aircraft leasing companies and tax exemption for aircraft lease rentals paid to foreign lessors, to attract leasing companies to GIFT City.

The industry has also sought more incentives to attract investments in Maintenance, Repair and Overhaul (MRO) services, in addition to measures announced a few months ago. Last September, the government had come out with a new policy for MRO services that included leasing of land through open tenders and abolishing royalty charged by the Airports Authority of India.

Under that policy, the government had increased the length of the lease period for land allotted to entities setting up MRO facilities in India to a period of 30 years.

Earlier in 2020, the Centre had reduced the GST rate on aircraft repair and maintenance work to 5 percent from 18 percent and announced that it will lease out airports’ land to repair units at discounted rates to attract investment and boost growth.

“Whilst GST calibration for MRO services to 5 percent has provided partial relief to airliners, it is incumbent on the government to incentivize long term investments in Indian MRO set up; this could be in the form of the lower tax rate for MRO facilities set up within 3 to 4 years (similar to new manufacturing unit), allowing accelerated tax amortization for upfront capex and tax loss carryforward without time limitation,” Sumit Singhania, Partner, Deloitte India told Moneycontrol.

He added that the government can also consider coming out with a viability gap funding framework for capex beyond a certain threshold as this will act as a catalyst to get investors /OEMs to commit large investments to the Indian MRO setup.

In the longer term, the industry also said that the government also needs to show urgency for airport capacity expansion across the country.



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Yaruqhullah Khan
first published: Jan 7, 2022 05:21 pm
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