Aviation Sector on the Roll but Policy Revamp needed

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Aayush Sharma, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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Global oil supply glut has pushed jet fuel prices to a new low1 internationally. This, along with growing domestic demand, has propelled India to have the fastest2 growing aviation sector in 2015. While global aircraft manufacturing giants Boeing and Airbus aim to capitalize on this opportunity by selling3 their aircrafts, the government seems to be sending mixed signals about its stand on aviation policy.

Firstly, the government has increased excise duty on Aviation Turbine Fuel (ATF) from 8% to 14%. This is definitely a negative blow to the industry’s possible recovery from a decade of losses and mounting debts.

Secondly, its intention to focus on regional connectivity to reach remote areas is a positive one. It has, however, sought the way of 2% Regional Connectivity levy to fund this proposal. This would be further increase the ticket fares of the common man.

Thirdly, the National Civil Aviation Policy (NCAP) is yet to clear the air on the arbitrary 5/20 rule which requires airlines companies to have flown for at least 5 years and have at least 20 aircrafts in its fleet before being eligible to fly abroad. While new entrants like AirAsia India and Vistara want this abolished, the established players want this policy to not be repealed.

Fourthly, while the $40 million pilot and maintenance centre announced by Airbus is a step in the right direction, a joint report by FICCI-KPMG4 suggests allowing 100% FDI in aviation especially when we already have it in aviation sub-sectors like airports, cargo, Maintenance, Repair and Overhaul (MRO).

There is hence a growing need of getting our priorities right.

References:

  1. Detailed global Jet Fuel price trends (IATA – International Air Transport Association)

http://www.iata.org/publications/economics/fuel-monitor/Pages/price-development.aspx

  1. The Telegraph’s report (Jan 01, 2016)

http://www.telegraph.co.uk/finance/economics/12077311/India-crowned-worlds-fastest-growing-aviation-market-in-2015-as-economy-takes-off.html

  1. Detailed sales forecast can be found on the websites:

Airbus: http://www.airbus.com/company/market/forecast/

Boeing: http://www.boeing.com/commercial/market/long-term-market/world-regions/

  1. Economic Times (Mar 17, 2016)

http://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/allow-100-fdi-in-airlines-resolve-5/20-issue-fast-study/articleshow/51438632.cms

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