Budget 2019: Government push to make India aircraft leasing, financing hub

Centre will adopt suitable policy interventions to create a congenial atmosphere for development of MRO.

Budget 2019, Union Budget, Budget, India aviation industry, India aviation sector, Indian airports, aircraft leasing, Nirmala sitharaman, Nirmala sitharaman budget, Budget 2019, explaining budget 2019, india budget 2019, Indian express

The government will tweak policies pertaining to the back-end of India’s aviation industry that is expected to support the growth in the sector by building domestic self-reliance in aspects such as aircraft leasing and financing, and maintenance, repair and overhaul (MRO). In the Union Budget 2019-20, Minister of Finance Nirmala Sitharaman said that the Centre will adopt suitable policy interventions to create a congenial atmosphere for development of MRO in the country, in addition to implementing essential elements of the regulatory roadmap for making India a hub for aircraft leasing and financing.

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India’s domestic aviation industry, while witnessing double-digit passenger traffic growth for 24 consecutive months, has recently shown signs of slowdown following the collapse of Jet Airways that resulted in a capacity crunch. The episode also brought to light several cases aircraft repossession by lessors that were owed by the airline.

“As the world’s third largest domestic aviation market, the time is ripe for India to enter into aircraft financing and leasing activities from Indian shores. This is critical to the development of a self-reliant aviation industry, creating aspirational jobs in aviation finance, besides leveraging the business opportunities available in India’s financial Special Economic Zones (SEZs), namely, International Financial Services Centre (IFSC),” Sitharaman said in her Budget speech.

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Currently, almost all airlines in India operate on leased aircraft and a majority of the lessors are based in countries such as the US and Ireland. “Aircraft financing and leasing is an important step towards making the Indian aviation market more self-reliant. A regulatory ecosystem in this area will help boost India’s role in the segment and also have a positive impact on the air passenger growth which lost momentum this year due to capacity issues,” said Aloke Bajpai, CEO & Co-founder of online travel portal ixigo.

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The Economic Survey for 2018-19 pegged that high airport tariffs, royalty and other charges along with shortage in certain skilled manpower and recourse to overseas suppliers of MRO facilities, particularly for periodic engine, landing gears, propellers, and airframes, besides the intensive and multiple checks at the end of lease tenor of the aircraft, have contributed to engendering cut-throat competition among Indian airlines.

“For providing an enabling ecosystem for growth in India of Maintenance, Repair and Overhaul (MRO) industry, it is proposed to leverage India’s engineering advantage and potential to achieve self-reliance in this vital aviation segment,” the finance minister said.

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It pointed out that currently, annual import of MRO services by Indian airlines is about Rs 9,700 crore and this is set to grow annually to Rs 21,600 crore in the next five years and to Rs 36,000 crore once the fleet size reaches 2,000 aircraft.

Explained

Make in India push for MRO

india has just three MRO facilities, and accounts for just 1 per cent of the total market estimated to be worth $45 billion. In contrast, the country is the third largest aviation market in the world. Given this, it only makes sense to incentivise development of the Maintenance, Repair and Overhaul services within the country. A Make in India push in this critical services space can not only create jobs, but also save costs for the airline industry.

“We welcome the government’s intent to adopt suitable policy interventions to stimulate the MRO industry in India. We look forward to much needed government support that will enable the local MROs to compete with foreign ones which enjoy a more favourable import tax regime. This will not only boost the local MRO industry but also contribute to the government’s tax revenues,” said Palash Roy Chowdhury, chairman, AMCHAM Civil Aviation Committee and MD–India, Pratt & Whitney.

In addition to supporting the back-end aviation infrastructure, the government is also pushing ahead with development of airport infrastructure, and has allotted Rs 480 crore during 2019-20 towards revival of 50 airports under the regional connectivity scheme and viability gap funding for the north-east connectivity.