TAKING OFF Again!

The Covid pandemic had almost grounded the global aviation market in the last two years and India was no exception. However, the market is taking off again after the progressive policy steps from the government and some of the mega airport development plans. Invest India explores how the Indian aviation sector is bouncing back.

In December 2018, India's aviation sector completed 52 consecutive months of double-digit growth. Since then, the ongoing Covid crisis has led to a correction in the growth trajectory, but the fundamentals that have underpinned this rapid expansion forecast a strong growth outlook for India's aviation industry. A rising proportion of middle-income households, healthy competition amongst low-cost carriers, infrastructure buildup at leading airports and supportive policy framework will see India overtake Germany, Spain, Japan and the United Kingdom to become the 3rd largest aviation market in the world. With air passenger traffic projected to increase from 187 million (2017-18) to 570 million by 2037, it is clear that the Indian aviation market is on a high-growth path.

To satisfy the current and projected rise in demand for commercial air travel, Indian airlines have placed large orders for aircraft. From 604 aircraft in 2019, India's commercial aircraft fleet is projected to rise to 1,547 aircraft by 2029 with the bulk of the expansion concentrated in the narrow-body jets segment. And with OEMs projecting India's fleet size to quadruple by 2038 to approximately 2,500 jets, it has become imperative to increase the capacity of airport infrastructure and develop a robust eco-system of after-market services to cater to expanded operations.

The development of the Indian aviation sector can have a multiplier effect on the nation's economy in terms of investments, tourism, and employment. The Government of India through supportive policies and augmentation of airport infrastructure has developed an aggressive plan to promote the sector.

Indian airports

India has approximately 464 airports/airstrips, of which 125 airports are owned and controlled by Airports Authority of India (AAI). AAI-managed airports deal with close to 78% of the total domestic passenger traffic and 22% of international passenger traffic. To accelerate the development of airport infrastructure in the country, the government plans to invest US$ 1.83 billion. The Civil Aviation Ministry is also pushing hard to remove inefficiencies in the delivery of services and to improve passenger experience. Plans are afoot to privatize 30-35 airports over the next five years. Currently, six airports have already been awarded to the private sector and concession agreements have been signed. Work is ongoing on the next round of privatisation in which 6-10 airports will be included. These airports will be built on similar lines to the world-class airports at Mumbai, Delhi, Kochi, Hyderabad, and Bengaluru, which together account for over 60 percent of the nation's air traffic.

To expand airport capacity at existing airports, NABH (NextGen Airports for Bharat) Nirman initiative has been introduced by the Ministry of Civil Aviation. Under this initiative, the government plans to work towards a five-fold expansion in airport capacity to handle a billion trips a year, in the next 10-15 years.

Maintenance, repair & overhaul industry

The rise in demand for air travel has necessitated the development of a robust eco-system of after-market services to cater to expanded operations. India's Maintenance, Repair & Overhaul (MRO) industry, valued at approximately US$ 900 million, is expected to grow at 7.7% annually over the next decade, more than thrice the global average. The average age of India's commercial aircraft fleet is also expected to rise from 7.1 to 8.8 years between 2019 and 2024. In order to extend the life-cycle of aircraft so that they can remain in service longer to cater to increased demand, aircraft maintenance programs will become increasingly important. The right combination of policy interventions and demand growth is already reaping dividend as global OEMs and MRO service providers gear up to seize this opportunity.   

Conscious of Indian carriers undertaking MRO services in Sri Lanka, South-East Asia or the Middle-East, in April 2020 the government revised tax structures for MRO services so that they were aligned with leading global jurisdictions. With the reduction in the Goods & Services Tax (GST) rate from 18% to 5% for MRO services rendered locally, India now has a competitive tax structure compared to Singapore and Malaysia (both at 7%).

Similarly, the 'place of supply' for B2B MRO services was changed to the 'location of recipient'. This has enabled Indian MRO facilities to claim zero rating (i.e. export status) under GST laws for MRO services rendered to prime contractor/OEM located outside India. This has been an extremely crucial policy amendment as it will encourage global participation in the sector by allowing foreign MRO operators to subcontract MRO work to Indian entities without any extra tax liability.

Supportive government policies

In recent years, strong policy support from the Government of India has significantly contributed to the growth of the aviation sector in India. In 2016, the Ministry of Civil Aviation launched the first integrated National Civil Aviation Policy (NCAP). The policy covers all stakeholders of the aviation industry, including airline operators, airport operators, air freighters, MRO players, and ground handling service providers, among others. NCAP promotes ease of doing business, deregulation, simplified procedures, and e-governance. The policy also takes a hard relook at Route Dispersal Guidelines, bilateral traffic rights, and code share agreement to simplify procedural issues for key stakeholders.

The Regional Connectivity Scheme or UDAN (Ude Desh ka Aam Nagrik) has been a vital component of NCAP 2016. The scheme plans to enhance connectivity to India's unserved and under-served airports and envisages making air travel affordable and widespread. Under the scheme, airfare for a one-hour journey of 500 km has been capped at Rs 2,500, as an all‑inclusive charge. Over 325 routes and 56 airports including 5 heliports and 2 water aerodromes have been operationalised under the UDAN scheme. Presently, air traffic is concentrated in the top 15 airports of the country. With an objective to disperse the air traffic to Tier 2 and Tier 3 cities and to provide connectivity to remote regions of India, MoCA has an ambitious plan to develop at least 100 airports/waterdromes/heliports by 2024 under the UDAN Scheme.

In February 2020, Finance Minister Nirmala Sitharaman announced the Krishi Udan Scheme in her budget speech. Aimed at facilitating air transport of agricultural and farm produce, the scheme is designed to benefit local farmers in NE states. The enhanced version of the scheme 'Krishi Udan 2.0' was formulated with support from AAICLAS and Invest India and was launched by the Ministry of Civil Aviation in October 2021. Major highlights of Krishi Udan 2.0 include strengthening of cargo related infrastructure at airports (air transit and transhipment infrastructure etc), financial incentives (waiver of landing, parking, TNLC and RNFC charges etc) and development of an E-Kaushal portal. The updated scheme also covers additional number of districts and airports. 

Greening aviation

The aviation industry is one of the fastest-growing sources of greenhouse gas emissions globally. In India, CO2 emissions of Indian airlines rose 63% between 2012 and 2019. To mitigate the environmental impacts of the aviation sector in India and to develop a strategic framework to counter these environmental challenges, the Ministry of Civil Aviation released a White Paper on the National Green Aviation Policy in 2019. The policy is aligned with the relevant national and international frameworks like the UN's Sustainable Development Goals (SDG) 2030 and ICAO's Vision Towards Environment Protection.

The policy has identified some key focus areas including Environmental Management Systems, Green Infrastructure, Airport Master Planning, Intelligent Air-traffic Management and Greenhouse Gas Emissions; and we are already seeing its impact on the sector. Green airports with environmentally friendly infrastructure and renewable sources of energy are increasingly becoming the norm and are following in the footsteps of Cochin International Airport which was awarded the Champion of Earth Prize, UN's highest environmental honour, after becoming the first airport in the world to be fully powered by solar panels.

Going forward, airline carriers need to increasingly substitute conventional ATF with sustainable aviation fuels to reduce emissions. Airlines and airports can also save fuel and reduce flight times by embracing new technologies like artificial intelligence and automation, and pursuing smarter data analytics, to using space-based surveillance to generate intelligent flight planning.

Future remains bright

The pandemic interrupted the growth momentum of India's aviation sector just at a time when policy interventions were bearing dividends. Furthermore, it is projected that the return to pre-pandemic levels of demand and industry growth will not be linear and could be frequented by further disruptions. However, India remains a bright spot in the global aviation landscape due to its sound structural fundamentals and conducive policy landscape.

– Jayant Singh

Aerospace & Defence Lead, Invest India