By - King Stubb & Kasiva on October 11, 2023
The Aviation sector in India has been soaring to new heights in recent years, with a significant increase in the number of passengers, airlines, and destinations. However, the country’s aviation ambitions are accompanied by a complex web of legal challenges that must be addressed to ensure sustainable growth and prosperity.
While the industry is expanding, with more individuals opting for air travel due to its convenience and time-saving advantages, this progress brings along its own set of challenges, as outlined below:
This sector is a powerful driver of economic advancement. It not only facilitates connectivity but also generates employment, promotes tourism, and boosts trade and commerce. India’s growing middle class and increased disposable income have contributed to the rise in air travel demand.
A well-developed aviation sector can significantly contribute to the nation’s development by connecting remote regions, fostering trade, and attracting foreign investment. However, realizing this potential depends on overcoming the legal hurdles that currently hamper growth.
The legal hurdles in the aviation sector impact both domestic and international carriers. Domestic airlines face challenges related to regulatory compliance, taxation, and aircraft financing. International carriers entering the Indian market encounter complexities in terms of regulatory uncertainties and the potential risks associated with defaults by Indian lessees.
For sustainable growth, airlines need clear and predictable legal frameworks that promote investment and ensure compliance with international standards.
Legal reforms that address these challenges will benefit both Indian and international carriers operating in India.
Airports, Airspace, and Connectivity
Legal reforms alone are not sufficient to drive aviation sector growth. They must complement infrastructure enhancements. India needs modern airports, efficient airspace management, and improved connectivity to support the industry’s expansion.
Developing world-class infrastructure, coupled with legal reforms, can enhance the passenger experience, reduce operational costs, and boost the industry's competitiveness on the global stage.
The proposed Airport Economic Regulatory Authority (“AERA”) aims to address these gaps. The GOI has made it mandatory for all new greenfield airports to provide separate cargo facilities: storage, ground handling, and loading. Further, in a bid to bring Indian airports to par with the international ones the GOI has decided to float a separate air cargo policy, AERA, and revamp the entire electronic data interchange system. A commercial centre needs an efficient and well-organized airport.
The Indian government has introduced several initiatives to boost the aviation sector, including:
Nevertheless, there are still hurdles to surmount, such as enhancing regional connectivity, and addressing the high costs associated with aviation fuel.
To fuel the growth of the aviation sector in India, the nation must undertake essential legal reforms. Key areas requiring reform include:
MROs in India need to be a one-stop shop for line maintenance, airframe maintenance, engine maintenance, and component overhaul. The potential lies in capturing the majority of heavy aircraft and engine maintenance, which airlines and aircraft owners usually outsource to foreign MRO facilities. GOI amended the foreign investment policy for the aviation sector to allow 100% FDI through an automatic route in MRO facilities, which will boost aircraft maintenance activities.
Indian carriers spend about $700 million a year on maintaining their fleet. National Aviation Company of India Limited (NACIL) has engine MROs in Delhi and Mumbai. With foreign participation and expertise, this step will help bring the costs down when aviation fuel prices are on the rise. Now with international standards of repair and overhaul facilities in India, the aircraft will not need to visit other places for maintenance and related services, thereby saving costs.
The aviation sector in India has immense potential, but it must overcome legal hurdles to ensure sustainable growth.
Clearing the flight path for India's aviation sector involves legal reforms that balance safety and industry growth. By addressing these obstacles and working in collaboration with industry stakeholders, India can unleash the complete potential of its aviation sector, fostering nationwide connectivity and contributing to economic advancement.
The sky is the limit, and with appropriate legal reforms, India’s aviation sector can soar to unprecedented heights.
The aviation sector in India faces challenges related to complex regulatory frameworks, unpredictability in regulations, taxation on aviation fuel, aircraft repossession processes, and ensuring safety standards while promoting growth.
Legal reforms can simplify regulations, reduce tax burdens, streamline aircraft repossession, and provide a more conducive environment for investment, thereby promoting industry growth.
Infrastructure development, including modern airports and efficient airspace management, complements legal reforms by enhancing the passenger experience, reducing operational costs, and improving the industry's competitiveness globally.