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Why the aviation sector needs more than just policies

September 09, 2013 16:41 IST

Mere policy initiatives such as foreign direct investment in airlines and privatising airports will not help the aviation sector come out of the airpocket, according to a survey.

The aviation sector requires proper implementation of policies, coupled with reasonable taxes and improved basic infrastructure, says a survey by global consultancy EY and industry lobby Ficci.

"While the government has been broadly successful towards making the aviation climate positive and favourable through a series of policy initiatives, seamless implementation of the policies is what will really matter in the medium-to-long run," it says.

"Taxations issues constitute the largest impediment to growth of the aviation industry. Coupled with this is the poor infrastructure which is responsible for congestion at airports, leading to increase in airline operating cost.

The proposed Civil Aviation Authority is a crucial step for developing the aviation sector," says the survey.

In the past 18 months or so, the government has introduced several supportive regulatory and policy measures like 49 per cent FDI into domestic airlines, direct import of ATF by airlines, flexible use of airspace by civil and military users, abolishing the aircraft acquisition committee and emphasis on development of airports in tier-2 and 3 cities to boost regional connectivity, it says.

"Though, these developments have given a positive impetus to the sector, the growth of the industry is still constrained due to multiple factors, according to the survey.

The survey was conducted to capture the views of the industry on various policy announcements and how these developments are going to define the future of aviation landscape in the country.

While 59 per cent of the respondents recognise government's recent efforts as positive measures. But at the same time they feel that implementation of these policies is more important. Around 57 per cent of have opined that "high taxation" and arbitrary "policy regime" are the major deterrents to growth.

“Lack of access to finance, shortage of trained manpower, rising fuel costs, infrastructure bottlenecks, high operating costs and lack of incentives are other issues stalling the growth of the aviation industry," says the survey.

Over 90 per cent of respondents said that relaxing FDI norms will help bring in the required capital and expertise, achieve economies of scale and drive competition.

Respondents also feel that terms of agreement of the joint ventures, such as Jet-Etihad and AirAsia-Tata, will be a deciding factor in determining whether strategically located
Indian airports can be positioned as hubs.

They also believe that the government has a crucial role to play in providing a level playing field to domestic carriers in bilateral agreements and negotiations, in order to ensure that unduly large share of traffic is not taken away by foreign carriers.

Further, more than 90 per cent of respondents stated that delays involved in land acquisition and environmental clearances are key issues impeding greenfield airports.

Over 64 per cent are of the view that air cargo and ground handling offer significant opportunities in future. However, poor infrastructure, lack of adequate warehousing facilities, delayed policy implementation, slow export-import procedures, restricted custom working hours and lack of a clear and forward-looking policy are severely affecting the air cargo and ground handling industry outlook.

On the nascent MRO market, over 72 per cent of the respondents feel that even though the country is strategically located, MRO industry is not geared up to deal with the rapidly growing diverse fleet of airlines and non-scheduled operators.

As per the survey, the main challenge in developing an MRO hub comes from an extremely disadvantageous tax regime, specifically in terms of customs duties, VAT and service tax as aircraft servicing is about 40-50 per cent more expensive in the country than competing destinations like Singapore, Dubai and Colombo.

"High taxes more than offset any advantages that India gains in terms of labour costs, which are roughly 30 per cent lower than competing MRO hubs. Also, there is shortage of institutions which can produce skilled technical manpower required to handle MRO operations," the survey says.

The aviation industry has enormous potential and is heading towards growth given the current policy reforms being undertaken by the government. But a number of policy and regulatory issues and other roadblocks are still required to be addressed to achieve sustainable growth, it adds.

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