A renewed aviation strategy with a reimagined vision
  • Dr Vasudevan S, Partner |

In part 1 of the article,  we, set out three key elements of the aviation strategy for rebuilding the COVID-19 impacted industry in India and making it a leading global aviation hub. Here is the second part of the article which highlights two more elements for a future strategy that could help turnaround the aviation industry

Making Aviation a priority sector

The stellar success stories of other aviation economies in Singapore and UAE, offer some important lessons on policy and prioritization. According to data from IATA (International Air Transport Association) UAE’s air traffic grew from 16 million passengers in 2000 to over 126 million in 2018, an eight-fold increase in less than two decades.

IATA also states that before COVID-19 pushed the industry off a precipice, aviation and tourism contributed close to USD50 billion (~13.5%) to UAE’s GDP The growth of Singapore as one of the world’s largest logistics hubs is equally impressive, with aviation playing a big part. Our northern neighbour reached a unique milestone in 2020, handling more than 1.3 billion passengers, four times more than India, making it the largest aviation market in the world. The long years of state sponsorship, tax breaks and targeted incentives for local industry promotion have not only made her a civil aviation powerhouse but also a global aerospace manufacturing hub.

While India’s own air traffic growth has been phenomenal, despite policy encumbrances, it sometimes begs the question on what these countries did consistently right. For one, these governments have worked over the years to prioritize the sector’s development with strategic intent and unwavering focus. Of course, their policies were shaped to drive these desired outcomes. According to industry reports a USD 300 Air Hub Development Fund set up by the Singapore government to support carriers operating to the country is one example. The second example is the UAE’s commitment to doing everything necessary to make Dubai, the world’s aviation hub, which in a way has remained uncompromised over two decades.

As evident, tax reliefs, priority lending, state sponsorship, performance linked incentives and concessions were all part of the playbook in each of these countries, backed by strong political commitment towards agreed strategic goals. The industry in return has paid back rich dividends in the form of jobs, incomes and wider economic benefits, making their domestic aviation businesses global brands and justifying the faith reposed by their governments.

Align policy to the vision

In an eye-opening study done by the Airports Council International last year, it was established that tax collections of $90 billion from airline and passenger services resulted in $183 billion of economic value foregone as part of global GDP. In high-growth economies like India, the magnitude of tax/economic value trade-offs could in fact be much higher. The need and importance of cost-benefit analysis to clearly establish the impacts and rationale of fiscal policy decisions in local markets, was also highlighted by the study.

Tax anomalies and regulatory impediments need to be addressed on priority not just to protect our carriers but also set the stage for unimpeded re-growth as we come out of this nadir. The focus has to be on enhancing the scope and pace of reform, not just limited to tax and regulatory fixes but on broader strategic issues of skilling, connectivity, manufacturing, technology, R&D and innovation

The aviation ministry and various government authorities have made some important decisions in the last decade. The new civil aviation policy announced in 2016 included, among other things, landmark provisions on tax concessions for the MRO (Maintenance, Repair and Overhaul) industry, support for the flagship RCS (Regional Connectivity Scheme), expansion of open skies, modification of the awkward 5/20 rule for international operations, privatization of airport assets and incentives for growth of other aviation businesses including manufacturing, skilling, cargo and ground handling. GST reduction on domestic MRO services was another major decision taken to revive the fortunes of the deprived and disadvantaged MRO industry, but was long overdue. The extension of the emergency credit line (ECLGS) to cover the aviation sector is also timely.

Recent announcements on tax benefits for domestic aircraft leasing businesses opens an exciting opportunity for India to emerge as a strong leasing hub. Privatization of the national carrier and disinvestment proposals for airport assets are positive decisions as well, consistent with market expectations, while the structure and timing have cast a cloud on expected outcomes. Release of new UAS (drone) rules is also a forward-looking move considering the benefits it is already delivering for civil and military aviation requirements globally, while there are significant areas for improvement in licensing and regulation within India.

None of these will matter if airlines don’t survive

A renewed aviation strategy with a reimagined vision for the future is imperative, considering the rapidly changing market-place and defining trends in the new normal. The strategy should look at setting out a clear roadmap for achieving global dominance in areas of strength and upcoming opportunities in segments of strategic focus, whether it is on green solutions, manufacturing prowess, open skies , satellite-based navigation, asset monetization or delivering a world-class customer experience. That’s the “what”. The “how” will need enabling policy and legislation to ensure strategic alignment and flawless implementation. It should also focus on attracting global talent, rewarding performance and protecting intellectual property. People and ideas will continue be core drivers of transformation, notwithstanding the rampant use of automation, robotics and artificial intelligence, while they will be potent tools to build competitive advantages, if used well.

Both the strategy and policy should be backed by deep research and analysis of industry growth drivers, market economics, business expectations and cost-benefit studies. It will help prioritize projects and rationalize policy initiatives better. Besides, it will also provide a basis for monitoring progress on key programs and projects, steer them in the right direction and significantly improve the quality of planned outcomes. Data-analytics, technology and e-governance should make this easy and efficient but will need more investment in digital assets and capacity building. That should not be a challenge with private financing and institutional funding chasing known business value and the collective strategic vision.

While we have seem some growth-oriented policy initiatives recently, the important thing is to carry the momentum forward. Leaders also need to be patient with failures and optimistic on long-term successes. That would help avoid knee-jerk changes in policy or regulation and bring in consistency of purpose.

Our vision - to become the second largest aviation market in the world and a global aviation hub - should in essence drive our policies. Getting there would require doing a lot more in lot less time. And keeping that promise with bold and consistent actions, some highlighted here, will be fundamental to our success. As Abraham Lincoln famously averred, the best way to predict the future, is to create it.

(A version of this article appeared in The Economic Times -TravelWorld.com | (Part 2 of the Two Part Article Series) on 2 July 2021)