Will the Indian government bail out the aviation industry?

With governments around the globe including those of the United States and the United Kingdom indicating that they will bailout their aviation industries, the focus is now shifting on what the Indian government can do to bail out Indian carriers.

A number of airlines and industry persons approached by the BusinessLine declined to speak on the record pointing out that at the Hyderabad air show, which concluded last week, government officials had made it clear during closed-door meetings that the industry should not expect help from the state and should look at the aviation eco-system for any help that it needed.

Ponting out that the key fiscal challenges for the Indian aviation industry can be broken into five major areas -- aviation, fuel, aircraft lease, payrolls, taxes and surcharges, and financing costs, Sanjay Viswanathan, Founder and Chairman of AdiGroup, the parent company of AdiGro Aviation, is of the view that the government can pass on benefits of the reduced cost of Aviation Turbine Fuel to the airlines immediately, refund and waive all government levies and excise duties for the past six months and the next 12 months, while ensuring that the airlines pass on this benefit to passengers immediately.

With regard to financing costs that the domestic airlines have to bear,  Viswanathan suggests that the government should look at providing short-term zero interest loans to refinance working capital and related financing and waive the interest on working capital borrowings for the past six months.

An industry watcher with knowledge of aviation financing added that the government can announce a special window for external commercial borrowings in dollars to meet airlines’ working capital requirements, especially since the US Fed has reduced interest rates. But he cautions that airlines might still have to bear the foreign exchange fluctuation risks.

“The government can also look at providing relief in landing and parking and navigational charges at airports and waive the Goods and Services Tax on import and movement of aircraft spares and parts,” he said, adding that inter-company transactions should be exempt from GST for the next six months.

An airline executive felt that another way the government could help the industry is by encouraging leasing of aircraft in India, doing away with the existing route dispersal guidelines and allowing market forces to decide where an airline should fly.

Strongly advocating a government bailout package, Viswanathan points out that the payback to the government could be in two years or by 2022 when the industry returns to normal and starts generating $25 billion in overall revenue.

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