To boost the aviation sector, the Centre is considering granting infrastructure status to aircraft as an asset, sources told businessline.

The proposed move, if implemented, has the potential to ease the financing needs of airlines’ for aircraft acquisition.

Besides, the infra tag will enable airlines to seek loans (for aircraft acquisition) at cheaper rates under the ‘Priority Sector Lending’ (PSL) scheme.

The PSL scheme is regulated by the Reserve Bank of India (RBI). It mandates banks to allocate a portion of their lending to specific sectors of the economy.

Rise in demand for aircraft

Speaking to businessline, sources cited that the move has been proposed by the Ministry of Civil Aviation (MoCA), which foresees tremendous demand for aircraft by domestic airlines.

Presently, over 1,500 aircraft have been ordered by India-based airlines. Currently, India has more than 800 commercial aircraft.

As per Boeing’s 2024 Commercial Market Outlook for South Asia, over 2,700 new airplane deliveries are expected in India by 2042. India will dominate the South Asian market, representing more than 90 per cent of total deliveries.

Sources pointed out that a committee has been formed by the Ministry of Finance to look into the proposal.

Fillip to aviation industry

The Centre, sources said is keen on giving a fillip to the aviation industry by the way of easier access to credit.

Notably, by granting infrastructure status to aircraft loans, the Centre hopes to enable airlines in accessing financing from a wide spectrum of lenders at lower interest rates.

The move, sources said, is extremely beneficial for start-up airlines; furthermore, the status is expected to encourage banks to lend more to the sector, which has traditionally found it difficult to access credit.

However, the move might face headwinds, especially the opposition in granting of infra status to a moveable asset such as an aircraft.

On the other hand, industry insiders feel that the status should come with a set guideline that mandates Indian-owned aircraft to be on the regulator’s registry and governed by domestic laws, thereby giving comfort to bankers over jurisdiction matters and the ability to repossess the asset in the event of defaults.

“The move is expected to ease the ability to finance the acquisition of the aircraft and help airlines in India move from expensive operational leases to far more efficient finance leases,” Goa-based regional airline Fly91’s MD and CEO, Manoj Chacko, said .

“On the whole, the domestic banking industry has been hesitant in entering this area. Besides, the domestic interest rates are too high in comparison to foreign-backed lending arrangements. However, the infra status that allows for PSL norms should resolve these problems.”

According to Chacko, the loans denominated in Indian rupees will save the precious outflow of forex, given the fact that more aircraft are expected to join the fleets of India-based airlines.

“If aircraft purchases are granted infrastructure status, it will unlock new funding sources for buyers, including insurance companies,” Jagannarayan Padmanabhan, Senior Director & Global Head (transport, mobility, and logistics) at Crisil Market Intelligence and Analytics.

“Additionally, banks can classify these loans under priority sector lending, reducing financing costs and potentially extending repayment tenures.”

In addition, Mark D. Martin, Chief Executive of Martin Consulting termed the proposal to bring in aircraft asset under the nation infrastructure status as a “bold move”.

“The infrastructure designation should also be extended to twin engine helicopters, used for off shore oil and gas, mining and oil exploration, and business and corporate jets, operated by core infrastructure and national asset companies, such as SAIL, Tata, Reliance, Aditya Birla Group, and Mittal steel and several others,” Martin said.

“Besides, aircraft and helicopter financing should be a universal proposal and not only promoted through government SPVs such as Gift City.”

Published on January 30, 2025