Much has been written about the economic fallout of the COVID-19 situation, and how it is going to impact the growth of the Indian economy and the job situation in the coming times. One thing is for sure; no one is going to escape the impact of this pandemic! The aviation, hospitality and travel and tourism industries are going to be the most severely affected and will take the longest time to get back on its feet, as per most experts. These sectors are staring at phenomenal job losses, with large scale distress all around. However, as with every adverse situation, there will be opportunities and new ways of doing business, which need to be considered.
The business aviation industry: An overview
In India, business aviation consists of the following:
- All aircraft and helicopters being used by air charter companies operating under a Non-Scheduled Operator’s Permit (NSOP).
- All aircraft and helicopters being used by business houses for the transportation of their own management and employees in the private category.
- Smaller aircraft being used by individuals who are owner-pilots. These are extremely limited in number, hence not discussed here any further.
Effect of COVID-19 pandemic
The charter companies
There are approximately 130 companies operating under this segment, which is also called NSOP, and these have a total of about 350 aircraft and helicopters operating in this category. The aircraft consist of large, medium, and small business jets, and single-engine and twin-engine helicopters. All of these are used for charter operations on a day-to-day basis for international and domestic air charters. Some NSOP operators are pure helicopter companies, which are used for religious pilgrimage, and oil and gas exploration.
For most charter companies, the present situation is grim. The NSOP operations survive on tight cash flows, and since all operations have come to a grinding halt, they have major cash flow issues in continuing to pay salaries to the their employees, including pilots and engineers, who are all highly skilled and high-salaried personnel. The helicopter companies are in dire straits, as the religious tourism has stopped completely. The present season of Shri Kedarnath Yatra, Shri Amarnath Yatra, Mata Vaishno Devi operations, etc. have all ceased, with a high probability that the entire season will be lost. Survival of these companies, especially the small ones looks difficult. Most of them have helicopters that are on lease, and lease rentals must be paid. With their present cash flows, this is a huge challenge.
For fixed-wing charters, the situation seems a bit better. Once the lockdown is lifted, their operation can start again. In fact, there may be a spike in their flying, as some people who used to fly commercially in the pre-COVID era, may prefer to travel by chartering aircraft. Commercial flying is going to become even more painful, with long waiting time at airports, which will be the likely norm, once flying operations resume. If they can survive this period of the lockdown in terms of cash flows, their recovery will be much faster. However, they will need support from the government for some time until things return to normal. These are discussed later.
Most aircraft which are operated by companies in the private category are being used by the senior management and company employees for their transportation needs. Most of these will resume normal operations once the lockdown is lifted. Some companies will find themselves under financial distress and may decide to sell their aircraft, since the company profitability may not allow the use of private aircraft or helicopters. To get the economy back on track, the government needs to address the challenges of this segment. Every private aircraft that is used efficiently creates employment, and adds to the profitability of the company, which in turn adds to the GDP of the county.Reorientation of business
- I think the first lesson that seems clear is that for aviation companies to survive, they need to focus on cash flows and profitability. Gone are the days of reckless competition, where companies competed on unsustainable margins just to get the market share. They will not be able to survive otherwise.
- There may also be an opportunity to set up a new business model, as was done with the advent of Low-Cost Carriers (LCCs), which disrupted the scheduled airline business in the early 2000s. We need to a create a new segment called the Low-Cost Business Aircraft (LCBA). This is the segment that will cater to the new entrants who are moving from commercial to business aviation, and do not want to pay as much as they would for a regular charter. This can be achieved by using smaller aircraft, turboprops, selling of individual seats, and running regular schedules.
- Allow fractional ownership of aircraft. The fractional ownership model is accepted world-wide, which allows individuals to purchase a fraction of an aircraft and file the interest of each owner as an individual entity for all purposes, including taxation and depreciation benefits.
- Allow aircraft management companies to flourish in India. Again, this is a business model used across the world and allows consolidation and efficiency for the companies. Single aircraft owners can utilise the services of aircraft management companies to operate more efficiently, and safely.
- Rationalisation of GST on the import of private aircraft and helicopters. This is a long-pending demand. The present rate of 28 percent is unsustainable and needs to be brought down to 5 percent at par with NSOP.
- DGCA restructuring; Now than ever before, DGCA needs to get on to the e-platform with minimum contact with the operators.
- Waiving off all parking charges and royalties at all airports till December 31, 2020.
- Waive off all taxes on ATF for a period of two years, and thereafter bring it under the GST regime.
- Reduce GST on charters to 5 percent from 18 percent immediately.
- Introduce 100 percent depreciation to companies on the purchase of aircraft in the first year itself. This allows more liquidity in the hands of the companies and encourages them to buy aircraft, which in turn has a domino effect on the economy and employment. This is being done in the US, and a few other countries.
- All bank guarantees given to government agencies by charter operators should be released immediately to improve cash flow situations in companies.
- A moratorium for DGCA requirement to for DGCA officials to visit OEMs/training facilities/MROs for the purpose of audit and clearances, and type certification requirements.
- A rationalising of training requirements for all skilled personnel of the industry. This would include pilots, AMEs, GH staff, etc. Online training for theory, with practical OJT within the country to be encouraged.
- Needless to say that all other interventions that the government plans for MSMEs should also be implemented for the charter industry, as all of them fall in this category.
To conclude, the present situation is unprecedented, and it is unlikely that anyone who is presently active in the business environment has experienced anything like this. The need of the hour is for the government to work with greater empathy and trust towards the industry, and to ensure that the businesses are given an immediate blood transfusion so that they can survive, and then nurtured back to good health, slowly and steadily. It will require a collaborative approach to take this forward, without which the consequences will be bleak for the industry.Rohit Kapur is former President of Business Aircraft Operators Association.