Day 32 – Q 1.Examine the factors that are causing stress in the civil aviation sector.

1. Examine the factors that are causing stress in the civil aviation sector. 

उन कारकों की जांच करें जो नागरिक उड्डयन क्षेत्र में समस्या पैदा कर रहे हैं।

Introduction:

The Civil Aviation Sector in India is a fast-growing industry and has recorded considerable growth in the last 30 years. India has the third-largest aviation market in terms of domestic passenger traffic. Further, It is projected that India would overtake the UK to become the third-largest air passenger (both Domestic and International) market by 2025. 

Current Situation 

• The civil aviation sector contributed USD 8.9 billion to India’s GDP in 2014 and supported 1.31 million direct, indirect and induced aviation jobs.
• In 2016, the demand for domestic air travel was twice that in China.
• The World Economic Forum’s Global Competitiveness Report, 2018 ranks India as 53rd out of 140 countries worldwide in air transport infrastructure

Factors causing stress in the civil aviation sector

• Rising fuel prices and the depreciating rupee: Oil for the airline industry is an important variable cost. As the price for oil has shot up, it had led to difficulties for airlines as they have not been able to absorb in the short term due to their business model. 
• Taxes on aviation turbine fuel (ATF): Due to high taxes and lack of competition among providers, ATF is relatively expensive in India. Since it remains outside the GST network, there are also regional disparities in its price. The price of aviation fuel in India may be up to 60 per cent higher than prices in ASEAN and the Middle East countries because of high central and state taxes
• Airlines’ inability to balance volume and value: The suffering for the sector is not a new one altogether. Over time, checks and balances should have been built in the system to absorb price shocks. The sector is confused as a whole on whether they want more volume or should they concentrate on a feasible plan that will help them keep their house in order.
• India’s airlines have been trying so hard to capture market share that they’ve lost focus on making money. Indian aviation companies have been unable to value sustainability over volumes.
• Inability to come up with a currency policy: No airlines company has been able to devise a credible currency policy to protect them against sharp currency movements.
• Capacity and infrastructure: Inadequate hangar space and unavailability of land to expand airports at their current sites, particularly in major cities, are two of the major constraints that face the sector
• Aviation safety: Although the number of aviation safety violations in 2017 (337) has declined in comparison to 2016 (442), the absolute number remains high.
• Skilled workers: Shortage and gaps in the availability of industry-recognised skills – from airline pilots and crew to maintenance and ground handling personnel – could constrain the growth of different segments of the sector.

Way Forward 

India needs to

• Enhance aviation infrastructure: Complete the planned airports under the UDAN initiative in a time-bound manner. A revival of 50 un-served and under-served airports/airstrips should be completed.
• Address shortage of skilled manpower: Promote collaboration between original equipment manufacturers (OEMs), industry and educational institutes to teach the latest concepts in the aviation industry including management principles, IT in aviation, etc
• Become a huge exporter of services as well, in terms of maintenance, repairs, and overhauls (MRO) services and other things
• Ease the regulatory environment for airports: Deregulate further and open up the aviation market to help increase passenger and freight traffic in India.
• Usher in amendments to Land Acquisition, Rehabilitation and Restructuring Act, 2013 and adopt “land-pooling” techniques to develop newer airports.
• Levy a lower Goods and Services Tax (GST) reasoning that “taxes add pressure on the airline’s bottom line”, thus aviation turbine fuel (ATF) needs to be brought under GST “at the earliest”.
• Airlines must try to reduce dependence on ATF by adopting biofuels and explore issuing masala bonds to raise funds for themselves.
• Prioritize aviation safety: Shift focus to pre-empting and preventing accidents/incidents. • There should be zero tolerance for safety violations.  
• Aviation Financing: In the wake of falling rupee, airlines may not be able to continue with Sale and Leaseback (SLB) model due to reduced margins (on account of the expensive dollar). Thus, the model will fail to be sustainable in the long run. Therefore, establishing a domestic aircraft finance industry will require a long term vision and significant policy reforms, especially on the taxation front.
• The government may consider establishing a Nabh Nirman Fund (NNF) with a starting corpus of around $2 billion to support low traffic airports in their initial phases.

Conclusion

The industry stakeholders should engage and collaborate with policymakers to implement efficient and rational decisions that would boost India’s civil aviation industry. With the right policies and relentless focus on quality, cost and passenger interest, India would be well placed to achieve its vision of becoming the third-largest aviation market by 2025.