Finschool By 5paisa

Indian Aviation Sector Gets a Breakthrough Despite of Challenges

Indian Aviation Sector Gets a Breakthrough Despite of Challenges

The Indian Aviation Sector Rebounds despite of all Critical Challenges which includes the Pandemic, and the Industry gets its breakthrough from the turbulence of Pandemic Covid 19 after the successful Vaccine Roll out and the travel Restrictions are eased globally. Governments WINGS TO FLY Strategy will help India revive its Aviation Industry.

Before we discuss more about the topic its important to know –

What Makes Aviation Sector Important for Indian Economy

  • Aviation Sector is linked with other sectors of the Economy and generates income.
  • A rising proportion of middle-income households, healthy competition among the Low-Cost Carriers, Infrastructure Build up at Leading Airports and Supportive Policy Framework gives a positive push to the economy
  • The rise in demand for Air Travel in India has necessitated the development of a robust ecosystem and supportive Government Policies.
  • With the entry of the private operators in this sector and the huge cut in air prices, air travel in India were popularized
  • The growth in the Indian economy has increased the Gross Domestic Product above 8% and this high growth rate will be sustained for a good number of years
  • Air traffic has grown enormously and expected to have a growth which would be above 25% in the travel segment.
  • The air transport sector in India directly contributes 3,90,000 jobs and indirectly supports over 5,70,000 jobs across different supply chains. Additionally, air transport facilitates tourism and investment into India.
  • Foreign tourists arriving by air in India are estimated to support an additional 6.2 million jobs. Overall, the aviation industry contributes $72 billion annually to India’s GDP.

Lets Understand What Are Challenges For Aviation Industry In India

  • Covid 19 Pandemic

The coronavirus pandemic of 2019 brought with it an avalanche of disasters, not just affecting human lives but negatively impacting the means that sustained them. Amid nationwide lockdowns, lack of necessities, and the immense loss of lives, the economic situation became pathetically dire within the first few months of the pandemic, impacting major industries the world over. One of the discernibly impacted domains among these was the aviation sector.

  • Labour shortage
  1. The lack of airport revenues already brought about considerable layoffs, but with COVID spreading more than ever, the airline industry had been unable to retain most of the important personnel.
  2. Job losses amounted to a considerable percentage of the aviation workforce worldwide, leading to financial ramifications and economic instability.
  3. Reduced capacity and increased travel restrictions led to labour shortfall. Ferrying passengers and managing airport traffic in the middle of a global pandemic, even with all precautions taken, seemed a task almost as risky as frontline personnel, which may have led to airline employees reducing in number.
  4. Lack of workforce also gave rise to flight delays and cancellations – in a nutshell, labour shortage proved itself to be one of the most significant economic impacts of COVID-19 on the airline industry.
  • Low International Air Travel
  1. Reduction in overseas air travel was one of worst impacts of COVID-19 on the airline industry. Indeed, experts surmised that increasing number of travel restrictions in place, coupled with periodic lockdowns, will continue to affect the proportion of international air travel at least until 2023.
  2. Several countries banned flights in and out, to reduce the spread of the virus; prominent airline companies shutdown operations subsequently – an indicator of how COVID-19 disrupted the airline industry.
  • Impact on airport revenues
  1. The fluctuating financial situation during the pandemic was undeniably one of the worst economic impacts of COVID-19 on the airline industry. Without air traffic and passenger-related charges, global airport revenues nearly ceased to exist, as was evident with many airline companies shutting shop.
  2. The year 2020 hardly depicted any flexibility in operating expenditures. That, in tandem with massive capital costs, proved to be one of most unprecedented challenges of the aviation industry in 2020.
  • Rising Oil Prices due to Russia Ukraine War
  1. The Prices of Brent Crude Oil crossed $100 per barrel as Russian President Mr Vladimir Putin declared war against Ukraine.
  2. According to market watchers, higher crude oil prices are major headwinds for a couple of sectors including aviation, paint, tyres and oil marketing companies.
  3. Brent crude oil has jumped over 30 per cent to $101.40 on a year-to-date basis. The commodity was at $77.78 per barrel.
  4. Following the rise in crude oil prices, the cost of aviation turbine fuel (ATF) has advanced 19 per cent to Rs 90,519 per kl from Rs 76,062 per kl.
  5. The rise in ATF prices may hit the balance sheet of airline companies which accounts for more than 35 per cent of the cost of running an airline in India.
  6. Strengthening crude oil prices will impact aviation sector and put pressure on currency also.

 Breakthrough Despite the Turbulence

  • Despite all the challenges in front of Indian Aviation Industry experts believe that the sector will rebound till the mid year 2022.
  • Experts are bullish about the Air Line Market as the air traffic in India has grown by 9% in the last 20 years and will continue to grow.
  • The passenger traffic in India is expected to grow by 6.2 % per annum by 2040, the fastest among the major economies.

Governments WINGS TO FLY initiative to Rebound Aviation Industry

W     -With Modernization of Airports
I        -Incentivization of MRO
N       -New systems such as Unmanned Aircraft Sector-Drone
G       -Growth of Aviation Industry through strategic Disinvestment
S        -Scheme UDAN

T        -To Roll out Vaccination Programme for all
O       -Opportunity of Employment

      – Focus on Green Schemes
      – Leasing out Airports on PPP Model
Y         – Year on Year Analysis

W- With Modernization of Airports

Government aims To Modernize Indian Airports so as to

  • To improve the standard of services and facilities at these Airports.
  • To facilitate infusion of private sector investments as also foreign direct investment in the airport sector.
  • To improve managerial efficiency.
  • To induct state of the art technologies.
  • Delhi and Mumbai being gateway airports to the country and cater to a large number of tourist and other passengers, it is felt imperative to improve these airports to world-class standards and create positive impression of the country.

I -Incentivization of Maintenance, Repair and Overhaul(MRO)

  • Union Civil Aviation Minister Jyotiraditya Scindia has urged Indian airlines to persuade their original equipment manufacturer (OEM) vendors to develop maintenance, repair and overhaul (MRO) facilities in the country.
  • Besides, land allotment for entities setting up MRO facilities will be done for 30 years instead of the current short-term period of 3 to 5 years.
  • Under the new policy, the rate of lease rental would be decided through bidding instead of the current practice of having pre-determined AAI (Airports Authority of India) rates.
  • Also, the rate of escalation for lease rental would be 15 per cent after every 3 years. At present, the escalation rate is 7.5 per cent to 10 per cent per annum.
  • The land will be allotted through open tenders instead of the current practice of allotment based on an entity’s request.
  • According to the minister, there will also be changes in the renewal of the contract of existing leaseholders. On the expiry of existing contracts, the land given to these MROs would be allotted on the basis of a bidding process.

N-New systems such as Unmanned Aircraft Systems-Drone

  • Unmanned Aircraft Systems (UAS), also known as drones, offer tremendous benefits to almost all sectors of the economy and can become an important propeller for growth due to their reach, versatility, and ease of use, especially in India’s remote and inaccessible areas.
  • Thus, government has liberalized drone rules 2021 on August 2021 and released PLI scheme for drones on 15 September 2021.
    G- Growth of Aviation Industry through strategic Disinvestment-Air India
  • The process for disinvestment of Air India and its subsidiaries commenced in June 2017with the ‘in-principle’ approval of Cabinet Committee on Economic Affairs.
  • CCEA also approved creation of an Air India Specific Alternative Mechanism (AISAM) for the disinvestment process.
  • The AISAM decided the strategic disinvestment of 100percent stake of Government of India in Air India along with 100percent stake in Air India Express Ltd and 50percent stake in Air India SATS (joint venture between Air India (AI) and Singapore Airport Terminal Services (SATS).
  • Subsequently, M/s Talace Pvt Ltd, a wholly owned subsidiary of M/s Tata Sons Pvt. Ltd which was the highest bidder was awarded 100percent equity shareholding in Air India along with equity shareholding of Air India in Air India Express Ltd. (AIXL) and AISATS.
    S- Scheme UDAN
  • UDAN is a regional connectivity scheme spearheaded by the Government of India (GoI). The full form of UDAN is ‘Ude Desh ka Aam Nagarik’ and aims to develop smaller regional airports to allow common citizens easier access to aviation services.
  • The Civil Aviation Ministry has set a target of operationalizing as many as 100 unserved and underserved airports and starting at least 1,000 air routes.
  • The GoI has acknowledged the contribution of the scheme and has identified 21st October as UDAN Day, the day on which the scheme document was first released.
  • The Civil Aviation Ministry has approved 78 new routes under the 4th round of Regional Connectivity Scheme UDAN. So far, 766 routes have been sanctioned under the UDAN scheme.

T-To Roll out Vaccination Programme for all

  • The risk of infection spreading on airplanes is lower if Covid-19 protocols, including vaccination, are adhered to be sure that airlines need to ensure that their staff, particularly pilots and cabin crew, are fully vaccinated, for their own protection as well as for the safety of passengers.
  • So Government Of India Rolled Vaccine for all Programme so that increasing coronavirus vaccinations around the globe will allow to lower barriers to entry for visitors and re-entry for residents returning home

O-Opportunity of Employment
The domestic aviation sector is projected to employ nearly four million people in two decades, driven by improved economic activities and labour productivity, says a study instituted by the Civil Aviation Ministry. While emphasising the need for having skill development programmes across various levels in the sector, the study has suggested setting up of the National Civil Aviation Training Entity (NCATE).

F-Focus on Green Schemes

  • Under Union Budget 2021-22, the Indian government expanded the scope for ‘Krishi Udaan’ in convergence with Operation Green Scheme, wherein air freight subsidy of 50% for Agri-perishables would be provided to North East states and 4 Himalayan states/UTs.
  • The expansion of product-coverage will boost the ‘Krishi Udaan’ scheme and improve air cargo transportation from these states.
    L-Leasing out Airports on Public Private Partnership (PPP) Model
    6(six) Select airports – Varanasi, Amritsar, Bhubaneswar, Raipur, lndore and Trichy along with 7 (seven) smaller airports have been recommended by AAI Board for leasing out on PPP model.
  • Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects, such as public transportation networks, parks, and convention centers

Y- Year on Year Analysis –
With Year-on-Year Analysis Government can track the growth of the Aviation Industry also adopt cost control steps which can revive the debt grown sector into profitable one

Conclusion
Thus with Market experts being Bullish on the Indian Aviation Market and the WINGS TO FLY approach of Government we India is expected to overtake UK and become the third largest air passenger market by 2024. The policy reforms will therefore catalyse super-normal growth in the sector. A resurgence of the sector is foreseen as a result of swift measures adopted by the government and industry.

 

 



Related Articles