Sunday, May 6, 2012

India’s Nascent Bizav Industry Awaits New Government Regulation

Aviation International News » May 2012
May 5, 2012, 5:50 AM
After years of frustration, India’s business aviation community is hoping that a new report due to be published in April will trigger a sea change in government policy toward the industry. A team of representatives from the International Civil Aviation Organization (ICAO) and India’s Ministry of Civil Aviation is preparing for business and general aviation in India a blueprint that is expected to form the foundation for a more transparent and consistent approach to both regulating and stimulating the industry.

The country remains one of the world’s biggest prospective markets for this mode of air transport, with projections of new aircraft sales worth around $12 billion there between now and 2020.

The new report should outline a future strategy for the sector taking into account its current infrastructure and regulatory constraints, an ICAO official told AIN at the third Indian Business Aviation Expo, held in late February in New Delhi. The recommendations are expected to take their place in India’s new civil aviation policy.

“It is essential that a senior official in the ministry of civil aviation be made the point guard for general and business aviation,” asserted Kapil Kaul, CEO for India and the Middle East with the Center for Asia Pacific Aviation (Capa). “The Directorate General of Civil Aviation [DGCA] requires an organizational structure to oversee the interests of non-scheduled operators. The Airports Authority of India and India’s Business Aircraft Operators Association [BAOA] should also be involved in major decisions being taken on policy. I believe procedural bottlenecks will be addressed. Structural issues will take time.”

Airports pose one challenge. Mumbai, the commercial capital of India, is potentially the largest business aviation market in the country. Business activity in the fastest growing nearby state of Gujarat is also closely tied to Mumbai.

“But the airport [Mumbai] is slot constrained and is actively discouraging business aviation movements with the imposition of peak-hour curfews,” said Kaul. “General aviation parking bays are exhausted and the situation is unlikely to improve for five years until the second airport opens.” In his opinion, the restrictions and congestion at Mumbai will continue to suppress overall business aviation growth in India.

Capa’s recent report highlighted a lack of recognition of the business aviation sector in Indian government policy, compounded by a shortage of skills and training capacity that is even more acute than it is for the country’s airline industry. In addition, argued the group, India’s financial institutions, which already stand accused of having failed to back the country’s commercial aviation sector, have shown limited interest in stimulating business aviation.

In fact, the general belief among India’s private and corporate owners is that resale values of foreign-owned aircraft will hold up better than for those registered at home. One reason is that the DGCA does not allow cross-utilization of pilots from one Indian-registered aircraft to another, so if a pilot falls sick it is easier to replace him if the aircraft is registered overseas. In addition, it is difficult to obtain clearances for heavy maintenance and pilot training on Indian-registered aircraft.

Maintenance, repair and overhaul (MRO) is another blind spot for business aviation in India. “MROs in general aviation face the same problem as airline MROs, where third-party MROs are required to deal with the high tax regime in India,” Bharat Malkani, chairman of Indian MRO provider Max Aerospace & Aviation, told AIN. “In addition to VAT, service tax and customs duty they have the issue of paying royalties to the airports [through which parts are imported].”

In fact, the Indian government budget announcement on March 16 brought some relief for the industry, with general aviation MROs getting a full exemption from the 18-percent customs duty on aircraft spares, tires and test equipment. However, this progress was offset by an increase in service tax to 12 percent from 10 percent, meaning that Indian MROs will still struggle to compete with rivals in Sri Lanka, the Middle East and Southeast Asia.

“This [customs duty waiver] will now allow MRO providers to import directly on behalf of customers and maintain a spares inventory,” said Dhiraj Chhabra, associate vice president of marketing with Indian MRO provider Air Works. “Though it will cut down documentation procedures, we would like to have seen exemption of the 18-percent customs duty on aircraft [with Indian owners] parked abroad [to avoid taxes and attention]. This would result in a boost to charter services, more business for MROs and more job creation in the country.”

Importation taxes create another big financial headache for business aircraft operators in India. For commercial operators such as executive charter group Invision Air (see box) the tax is levied at a rate of 2.5 percent; it is 25 percent for private owners. “This is causing a major roadblock for the progress of general aviation in India and it is something the government needs to examine seriously,” commented Vinit Phatak, founder of Invision Air. “There are no business jet manufacturers in India to protect. The reason that the Indian government seems to have introduced the tax is that it presumes a business jet is a luxury item and does not see it as a practical tool that can actually add to the economic growth of the country.”

India levies no customs duty on foreign-registered aircraft as long as they fly out of the country within 15 days of arrival. As a result, many Indian companies with subsidiaries in foreign countries that have the same chairman register their aircraft in the U.S. or other foreign country to avoid tax and other regulatory hurdles.

Infrastructure Improvements
By 2020, India will need a lot more infrastructure to cope with the hoped-for growth in the business aviation industry. According to BAOA president Rohit Kapur, the cities of Delhi, Mumbai, Pune, Hyderabad, Bangalore, Agra and Goa will all need alternative airports for business aviation traffic.

Overall, BAOA says that over the next eight years India needs to develop as many as 100 additional airfields with at least the following infrastructure to accommodate growing general aviation activity: a 5,000-foot (1,524 m) runway able to accept aircraft with an mtow of up to 100,000 pounds (45,360 kg), with basic landing aids and a 5,000-sq-ft (465 sq m) terminal building. The association estimates that India needs at least 20 new FBOs to serve the existing main airports and that there is also a case for establishing as many as 700 heliports around the country.

Phatak makes the case for more FBOs. “The market is so immature that we take what is given to us,” he told AIN. “It is also monopolistic. Take Mumbai: if we demonstrate the aircraft to a potential client, we have to pay the FBO $2,000.” On the other hand, parking charges there for the light jets his company operates remain modest for the time being–about 50 cents per hour.

Finally, India’s Business Aircraft Operators Association expects that approximately five major new MRO facilities geographically spread out across the country will be required to maintain the growing business aviation fleet of airplanes and helicopters. This will require an investment of some $3.15 billion, BAOA president Rohit Kapur estimates.

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