Rising Business Aviation

India’s aspirations and potential for sitting on the high table of global economies necessitate a robust civil and business aviation sector.

The role played by the Business and General Aviation industry is finally seeing green shoots as the Government of India accelerates its vision to improve air connectivity and tourism in India. This priority focus holds tremendous promise for the industry and will define the direction in which the industry will steer in times to come. In this context, the role of Business Aircraft Operators Association (BAOA) is of importance, with its role of acting as the coordinator amongst industry stakeholders, regulatory authorities and the Government.

The 4th edition of the BizAVIndia Conference on March 7, 2018 in Hyderabad is aimed at discussing the state of the industry, infrastructure development, emerging trends and addressing the challenges faced by the industry. Over the past two decades, the business aviation segment has witnessed tremendous growth with fleet expansion, which now touches close to 500 aircrafts. The sector comprises aircraft owners, pilots, engineers, technicians, operations staff, and also the regulator, who continue contribute directly and indirectly to the GDP in a significant manner.

All about business aviation

The power of business aviation to boost and develop a robust economy needs to be appreciated. Business aviation traditionally encompasses Commercial non scheduled air transport and General aviation (private and Government) operations, all being on demand in nature. It is pertinent to highlight that in USA many business aviation operators under Part 135 category, have evolved to additionally operate Commuter flights (commercial scheduled-non airline, using small aircraft). Such an evolution might happen in India as well, depending on the success of India’s new civil aviation policy which was released in June 2016.

The new policy allows and incentivises scheduled commuter flights to begin under a new operating category. Therefore, mirroring the USA, it is possible that a few Indian business aviation operators could evolve to additionally operate scheduled Commuter flights. Therefore, a generic and more forward looking definition of Business aviation may be- that part of aviation which focuses on the “business use” of airplanes and helicopters. However, the traditional backbone of business aviation remains on-demand and non-scheduled. The fleet strength for the non-scheduled business aviation segment stands at about 500 aircrafts, including helicopters.

Business aviation contributes to the economy in several ways, which can be grouped under two categories: Direct and Indirect impact. Direct impact is the economic impact directly associated with business aviation activities. This covers operational revenues in terms of fuel, airport usage, insurance, direct employment, MROs, maintenance and testing facilities among others. The Indirect impact refers to economic impact from the spurt in other activities boosted by the presence of business aviation. This contribution has a far larger and significant impact on the economy such as connectivity to remote areas, tourism, disaster management, medical emergencies, survey & exploration, agriculture, sports, internal security and policing among other aspects.

Growth of business aviation

Over the past two decades the business aviation sector has witnessed a steady growth, which was initiated by a spurt in tourism, growth in air transportation and an expanding oil and gas sector, especially ONGC. This was after norms for owning and operating aircraft, for charter business were eased by the Directorate General of Civil Aviation (DGCA). In the next phase of the first five years of the millennium, new fleet additions slipped slightly only to grow rapidly over the next decade.

With the economy growing at a fast pace in the 2000s, a strong business environment and corporate ecosystem saw Indian businesses benefit from business aviation. However, the imposition of high and differential import duties on business aircraft along with the consequent creation of quasi non- scheduled operators (NSOPs) have created an overcrowded charter market. All these developments necessitated the creation of BAOA as an industry body to address the changing needs of the industry.

Time Saving Benefits

When examining the complexity of multiday or international business trips, the commercial option is often not practical from a time saving and cost perspective. From the perception of being a luxury, business aviation today is a necessity and is widely used by corporate houses not just

for the promoters, but also by the top executives. Moreover, flying commercial in India’s chaotic, overcrowded airports means constant delays and frequent cancellations. By using their own aircrafts or chartering one, those in business can now fly efficiently and also better utilise their travel time. They also have access to smaller and no-scheduled destinations, where they have business needs.

Employee time savings is a fundamental benefit of business aviation and there are several case studies that clearly point towards this benefit and enhanced productivity. While travelling to bigger cities and metros may still be done with commercial airlines, when it comes to travelling to the less-connected destinations and special areas such as manufacturing plants in remote areas; the role of business aviation is commendable.

Travelling to remote locations with company airplane is perceived as a business tool and a way to contribute to the economic growth by setting up businesses in far flung areas, which also contribute to the local economy.

Challenges

Despite emerging as one of the world’s fastest growing economies, we have been slow to develop aviation infrastructure. A quick comparison between the three competing BRICS economies reveals the following: Brazil, the world’s second- largest general aviation economy, has 698 airports with paved infrastructure, 88 percent of which are more than 3,000ft in length. In addition, the country has over 3,400 unpaved airstrips perfectly suited for its huge fleet of 9,800+ piston powered aircraft engaged in providing last-mile air connectivity to the country’s remotest corners.

India has over 350 odd airstrips in the country, out of which only about 60 per cent have paved runways. Of these, less than half have any semblance of operational activity going on. Our defence establishment exclusively uses approximately 35 operational airfields and another 30 military airstrips are allowed for limited civil use. These operational limitations and the fixation to commence scheduled connectivity have pushed business aviation to the bottom most rung of the ladder in terms of priority.

The reason for such a state is sadly because airport planning in India revolves around scheduled airlines, as they are perceived to be more rewarding in terms of return on investment. With slots and space at a premium, the available landing and parking slots get prioritized for the scheduled airlines that offer greater revenues per landing slot and also quicker turnarounds than their non- scheduled counterparts.

Tax and duties

There is a perception of Business Aviation being for the rich has led to successive governments both at the Centre and the state ignoring this sector, while continuing to tax and over regulate it. The Government must realise that business aviation is an integral part of air transportation akin to on-demand cars/taxis while scheduled airlines are akin to public buses. Both modes of transportation have their place and need to be encouraged, on roads and in air. More specifically, there is a need to acknowledge the role of the sector in nation building, which should encourage the government to consider giving tax subsidies to the sector.

Import duty tax on aircraft in India is based on their end use. The aircraft imported by scheduled airlines attract zero duty. On the other hand business aviation BA aircraft, both for NSOPs and General Aviation (private corporate), are levied with 2.5% custom import duty. In addition, due to complex calculation method wherein there is additional countervailing duty, further custom duty is levied on general aviation aircraft resulting in 22 percent import duty. This is a big discouragement for businesses, who may otherwise find merit in using business aviation.

Moreover, despite India being an ATF surplus country, we still choose to impose duties on ATF imports. Instead of using the locally produced ATF, the Indian government exports the fuel to earn foreign exchange. Then the imported ATF is taxed further with CVD to increase revenue accruals to the exchequer. Likewise, states too prefer to raise revenue by increasing tax on the sale of ATF. The average sales tax rate hovers between 20-25 percent with only a handful of states lowering it to single digits, such as Andhra Pradesh, Chhattisgarh, Jharkhand, Madhya Pradesh and Odisha.

While the central government is impressing on the states to end taxation on ATF, the state governments want compensation from the Centre in return. The result is a stalemate. The reluctance on either side to part with revenue is why ATF is not fully included in the ‘Declared Goods’ list. Declared goods status for ATF will ensure that the VAT levy on it will be at the uniform rate of four percent nationwide. Without this reform, fuel continues to be between 40-60 per cent of aviation companies’ expenditure in India. Globally, this ratio is much lower at 18-20 per cent.

Addressing concerns

At present a lot of emphasis and focus is given to scheduled airlines, right from the planning stage until the implementation of aviation policies and programmes. With the growth of business aviation, it is time for the policy makers to consider the role of this sector in contributing to the economy and its specific needs, which are far different from that of the commercial airlines. Likewise, Aerial Navigation Procedures are written with fixed wing aircraft in mind. They have little relevance to helicopter operations. Despite having different operating parameters, helicopters have to follow the movement of a fixed wing aircraft during approach, taxing or while flying out from an airfield Moreover, the business aviation sector consists of many small-sized operators, leading to high establishment and operating costs. There also exists a general lack of available options for achieving economies of scale. Further, with too many non-scheduled operators (NSOP), regulatory oversight is not seamless and effective. The recommendation to the government to encourage consolidation of NSOP industry through ‘fractional ownership’ and ‘aircraft management’ concepts could benefit the business aviation sector, if the government facilitates such a move.

Most airports in the country, whether under military or civilian ownership, suffer from inadequate ‘watch hours’ on account of shortage of manpower and lack of air traffic movement. Due to the long closures of airspace or airfield and limited watch hours, movements of business aviation aircraft is hindered to a great extent, thereby causing economic losses and missed opportunities. Likewise, a major bane for operators is the sheer amount of paperwork and follow up they need to undertake to meet up with the regulatory requirements of the DGCA. Too much time and manpower is lost in doing correspondence and personal interactions to sort out issues. In addition, there is need to recognize procedural transformation that can be carried out as a result of technology and adapt our regulations, as done world over.

Bright future

The National Civil Aviation policy of 2016 states that India has the potential to be among the global top three nations in terms of domestic and international passenger traffic. The reasons attributed to the potential are the presence of an ideal geographical location between the eastern and western hemisphere, a strong middle class and a rapidly growing economy. There is also the thought to boost airlines flying to hitherto underserved/uneconomical/hinterland routes and capping of airfares on the routes.

There are also encouraging words from the Shipping and Waterways ministry to allow operation of Seaplanes to provide cab-like services in India. And, in December 2017, the Prime Minister travelled from the Sabarmati River in Ahmedabad to the Dharoi Dam via seaplane, which was the first-ever flight by such a craft in the country. There is a lot going in the aviation sector, which will have its rub-off on business aviation as well because of the ongoing development of airport infrastructure and reforms in order to create a favourable operating, which is in the pipeline.

India is a vibrant and emerging economic power, which has consistently outperformed other world economies and the future is likely to be no different. The anticipated success of the ‘Make- in-India’ programme has the potential to inspire India’s corporate and businesses to grow fast. Increased use of business aviation by these people will only further fuel their growth. A business jet today is not a luxury; instead it is a necessity and a tool associated with enhancement in productivity, efficiency and ease of doing business.

Air travel at one time was only affordable by the affluent and influential, but that has changed, and today the need of the hour is to support and enable the business aviation sector to grow and contribute its role in Make in India programme and also towards Skill Development which could further contribute towards Nation building.

If some of the hurdles that exist are removed and evened out, the sector will surge and rise like a phoenix, lifting all who are associated with it. The government has shown the propensity to understand the need for developing the aviation sector and should work at a faster pace to help the business aviation segment to grow. The role of BAOA and the 4th BizAVIndia conference will augment ideas, knowledge and thoughts to provide opportunities in the Business and General Aviation in India.

(A marketing initiative by Open Avenues)

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