In our last blog we reviewed the current situation of India’s aviation industry, looking at their problems in capacity against their growing passenger numbers. This time we look at what is planned by the Indian government and investors to combat this.
Although many new airports are planned for India, some delays are experienced and the pressure of growth can not be contained solely by creating new airports. In order to maintain the strong levels of growth we explored in our earlier blog, additional capacity also needs to be created at existing airports.
Airport investment in India
The majority of investments planned for Indian aviation are expected to be at new greenfield sites. However many projects have been delayed due to concerns regarding land acquisition, environmental clearances, and other factors. As a result, not many projects have moved to the execution stage.
The biggest greenfield airport projects planned are the Navi Mumbai, Kannur and the Mopa airports with bidding for Navi Mumbai and Mopa airports beginning. Both these airports are expected to be awarded during 2016. There is pressure on the government to keep to timelines regarding these projects to ensure that there are no more delays that can hamper the growth of the industry.
Other contracts for non-metro airports such as Ahmedabad and Jaipur are yet to be awarded. These issues, as well as the termination of the MoU with Singapore Cooperation Enterprise to operate and maintain the airports have the potential to unsettle investor confidence. The government’s relationship with private investors, the delays and terminations are a negative factor in progress.
India’s new Civil Aviation Policy
With the new civil aviation policy due to be finalised this month (May 2016), there is interest worldwide on how this could impact on the aviation industry. The draft policy which was released in October 2015, aims to improve the country’s aviation sector with tax incentives for airlines, maintenance and repair works of aircraft, increasing FDI limit for foreign airlines, setting up of no-frills airports and providing viability gap funding for carriers to bolster regional air connectivity.
However, the proposed lifting of the 5/20 rule for domestic carriers has delayed finalisation of the policy. Under 5/20 rule, only carriers having five years of operational experience and a fleet of at least 20 planes are allowed to fly internationally. Obviously, legacy carriers oppose any changes to the rule, and start-up airlines are against continuing with the requirement. The latest reports, according to the Airports Development in India Report by India Infrastructure Research, “point to the fact that while the government is considering lifting the five-year restrictions, domestic carriers may still be required to comply with the present fleet norms of having at least twenty planes.”
The report also states that the new hybrid till model proposed under the civil aviation policy will attract private investors to construct new airports in the country, but the lack of profitability of regional airports is a strong issue. It recommends that “the incentives/measures proposed under the policy to make these viable are strictly adhered to.”
So, what next for India’s aviation industry? Will the new Civil Aviation Policy supports India’s journey to become the third biggest aviation market by 2025? We’ll be watching with interest.
Image Source: By Himmat Rathore from New Delhi, India (Air India, Boeing 747-437) [CC0], via Wikimedia Commons