India Struggles to Fulfill its Vast Business Aviation Potential

 - March 28, 2012, 1:00 AM
Nanded Airport, the western Indian state of Maharashtra is a prime example of the sort of airport that could be more easily accessed by business aircraft.

With 154 aircraft, India may still have the Asia Pacific region’s second largest business jet fleet (China has an estimated 215 jets), but the industry’s growth continues to be stunted by a lack of a policy framework that applies to it, as well as by inadequate infrastructure and regulatory barriers. The Indian Business Aviation Operators Association (BAOA) is trying to change the government’s attitude, but the business aviation sector received only a passing mention in the latest draft civil aviation plan on which the anticipated new policy is expected to be founded.

However, with new business aircraft sales of around $12 billion expected in India by 2020, the government appears to recognize the need to be transparent and to provide clarity in its policy. A team of nine members, including representatives from International Civil Aviation Organization (ICAO) and India’s Ministry of Civil Aviation, is currently preparing a blueprint on business and general aviation in India to cover helicopters, fixed-wing operations and amphibious aircraft.

This report is due to be published next month and should outline a future strategy for the sector taking into account its current constraints infrastructure and regulations, an ICAO official told AIN at the third Indian Business Aviation Expo (IBAE) held last month in New Delhi. The recommendations should be incorporated into 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,” said 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 nonscheduled operators. The Airports Authority of India and BAOA should also be involved in major decisions being taken on policy. I believe procedural bottlenecks will be achieved. Structural issues will take time.”

On the matter of airports, for example, he said, Mumbai, the commercial capital of India accounts for almost half the country’s total corporate revenues and is potentially the largest business aviation market in the country. In addition, 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.” Kaul added that he believes the restrictions and congestion at Mumbai will continue to suppress overall business aviation growth in India.

CAPA’s recent report highlighted a complete lack of recognition for 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 commercial airline industry. On top of this, the report said, 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.

Clearances a Problem

The issues do not confine themselves to Indian companies, as many obstacles block the paths of foreign firms wanting to fly privately into the country and to invest in it. “Pain points [in India] start with getting clearances in a timely manner,” said Lex den Herder, vice president for government and industry affairs with flight support group Universal Weather and Aviation. He recommended that India introduce a more streamlined permit system that would reduce requirements for landing and overflight approvals, improve the processing of formalities for customs and immigration, and introduce a favorable fiscal and regulatory climate for purchasing and operating business aircraft.

No customs duty is levied by India on foreign-registered aircraft as long as they fly out of the country within 15 days of arrival. This rule prompts many Indian companies with subsidiaries in foreign countries that have the same chairman to have a U.S. or other foreign registration for their aircraft to avoid tax and other regulatory hurdles.

For instance, DGCA does not allow pilots to cross over from one Indian-registered aircraft to another, so should a pilot fall sick, it is easier to replace him or her if the aircraft is registered overseas. Clearances for heavy maintenance and pilot training can also prove to be impediments. All of these factors seem to bolster the general belief among India’s private and corporate owners that resale values of foreign-owned aircraft will hold up better than those for aircraft registered at home.

Customs Duty and Taxes

India’s Directorate of Revenue Intelligence is currently scrutinizing eight Indian companies that it believes are basing their foreign-registered corporate aircraft overseas to evade customs duty and taxes. The agency is said to be looking at the status of a Boeing 727 owned by the UB Group, Punj Lloyd’s Gulfstream, Essar’s Boeing 737 and Bharat Hotel’s Embraer Legacy 600. Several other corporate jets are also understood to be under the scanner.

The customs duty for an aircraft imported for commercial operation is 2.5 percent of the purchase price. But this rises to 25 percent for aircraft coming into India purely for private use.

“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 Vivit Phatak, cofounder and managing director of new Indian executive charter operator Invision (see box). “Nowhere else in the world are there customs duties on aircraft and there are no business jet manufacturers in India to protect. The reason that the Indian government seems to have introduced the tax is that they presume a business jet is a luxury good and do not see it as a practical tool that can actually add to the economic growth of the country.”

 “The overall sense I get is bureaucracy is clogging things up,” commented den Herder. “My dispatchers and crew tell me that the flight-plan filing process is very cumbersome, with several government hoops that do not exist elsewhere. From what I gather in the industry, the leadership of many [aircraft] manufacturers say it is actually easier to ship something from outside India to India than within. That has actually held up some companies from placing a parts depot there.”

MRO Problems

Bharat Malkanichairman of Indian maintenance, repair and overhaul provider Max Aerospace & Aviation agrees. “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,” he explained to AIN. “In addition to VAT, service tax and customs duty, they have the issue of paying royalties to the airports [to import spare parts].”

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

Overall, BAOA says that during 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 of up to 100,000 pounds (45,360 kg) maximum takeoff weight, 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 cover the existing main airports and that there is also a case for establishing as many as 700 heliports around the country.

Invision’s Phatak backed the case for more FBOs. “The market is so immature that we take what is given to us,” he told AIN. “It is also a monopolistic scenario. Take Mumbai, for example. If we take a client just to show him an aircraft, we need to pay $2,000.” On the other hand, parking charges for the light jets his company operates remain very modest for the time being–about 50 cents per hour.

In addition, BAOA said about five major new MRO facilities spread out across the country geographically will be required to maintain the growing business aviation fleet of aircraft and helicopters. This will require an investment of some $3.15 billion, Kapur estimated.

Despite all these challenges, India’s business aviation potential can hardly be ignored with an economy expected to maintain strong and sustained growth. As Asia Pacific markets mature up to 2021, the region will have between 1,363 and 1,690 business aircraft worth $40 billion to $48 billion, according to the most recent forecast from Embraer. Of this total, India’s share will be between 390 and 485 aircraft valued collectively at between $10 billion and $12 billion, while that of China will be between 522 and 635 aircraft worth between $17.4 billion and $21 billion.

“India’s GDP growth shall outperform world and Asian rates as well as [those of] emerging countries like Brazil and China by 2016,” predicted Jose Eduardo Costas, Asia Pacific sales and marketing vice president with Embraer Executive Jets. “Its economy shall surpass Germany’s by 2025. There is $1 trillion in the hands of 332 billionaires in Asia Pacific.”