Aviation

A. Foreign Direct Investment in the Indian Aviation Sector

The aviation industry of India has had a strong growth story with the industry receiving more than USD 3 billion in Foreign Direct Investment (FDI) in the last 20 years according to data released by the Department of Promotion of Industry and Internal Trade (DPIIT). In all, FDI inflows mainly occurs in three major sectors: airport infrastructure, air transport services and ancillary related services in aviation.

Key Developments in FDI and Aviation

• Several aircraft leasing companies are setting up aviation leasing business in GIFT City, Ahmedabad such as SpiceJet, HAL, Acumen Aviation, VMan Aero, Investec, JetSetGo.

• The airport expansion project by Hyderabad has been successful in raising funds of more than USD 300 million through foreign investments.

• Airbus signed a deal with Indian airlines to purchase 57 aircrafts, in spite of the pandemic impacting the global aviation industry, and Indian airlines as a group are one of the major examples that confirm Airbus to be a major FDI contributor in the Indian aviation ecosystem.

• An air services agreement between India and the Philippines was signed between the two countries that is likely to increase trade and investment in the aviation sector.

• Zurich Airport International AG signed a shareholder agreement with Noida International Airport Ltd., a state owned entity to set up Noida International Airport.

• Boeing has partnered with the Indian Aviation Academy in order to train stakeholders and improve technical skills within the aviation industry of the country.

• An investor group with its principal based in United Kingdom is about to invest INR 1,000 crores in a new Indian airline operating venture, TruStar, which is run by TruAviation.

Top Foreign Investors in Aviation

Though global major players have put a substantial amount of money in the Indian aviation space. These consistent attendees include prominent aircraft manufacturers, airport developers and leasing companies of airlines who have ties of long-standing partnerships with Indian Regulatory bodies.

B. Market Leaders in the Indian Aviation Industry

Indian aviation market consists of a combination of both domestic heavyweights and foreign carriers currently working in the country. These players in the industry control large shares of passengers flow, fleet size, and network coverage of the airlines.

Estimated Market Share of Leading Airlines

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C. Government Regulations and Oversight

1. Key Legislations and Policies

• Aircraft (Amendment) Act, 2020

• FEMA (Foreign Exchange Management Act) Rules, 2020

• Revised FDI Guidelines for Civil Aviation, 2019

• Airports Authority of India Startup Policy, 2018

• UDAN (Ude Desh ka Aam Nagrik) – Regional Connectivity Scheme, 2018

2. Regulatory and Administrative Authorities

• Directorate General of Civil Aviation (DGCA)

• Bureau of Civil Aviation Security (BCAS)

• Airports Economic Regulatory Authority (AERA)

• Airports Authority of India (AAI)

• Air India Ltd. (until privatization)

3. Recent Government Initiatives

• Under UDAN 4.1 bidding round, 392 new air routes were proposed which was floated during Azadi Ka Amrit Mahotsav.

• In order to develop self-sustainability in aviation, the government has launched incentives on MRO based facilities by waiving royalties and providing discounts on leasing.

• Considerations are in place to put 14 new water aerodromes into operation after successful operation of seaplane services.

D. Industry Challenges and Controversies

1. Pandemic-Induced Downturn

The COVID-19 epidemic caused the airport industry to die as planes were grounded. The airlines incurred the highest losses in the history of aviation and most of them were unable to pay wages, leaving their companies with leadership-less situations and confusion of operations. Although the majority of the carriers have already resumed the services, the issues of debt burdens and activities recovery are strongly topical.

2. Privatization of Air India

In January 2020, after years of operating at a loss, the government began strategically disinvesting Air India which was worsened by its merger with Indian Airlines in 2007. The sale procedure has reached the part of the financial bidding and Tata Group has become a prime contender to own the national carrier and the move signals a crucial paradigm shift in the sector structure.

E. Future Opportunities in Aviation

• India occupies the third position in the world in aviation market size and growth potential. The industry is expected to have attained a market size of USD 2.8 billion by 2028.

• Maintenance contributes 14 -15 per cent of the total aviation revenue. With the world gradually returning to normal after the pandemic, the percentage of investment in safety, maintenance, and compliance is likely to increase in the first place due to flight companies.

• The airport development business is certainly set to experience further FDI, specifically the airports where foreign international airlines are to join Indian infrastructure development.

• The NABH Nirman scheme of the government seeks to invest around USD 56 billion in increasing the airport capacity in the nation.

Way Forward

The aviation industry of India is exploring new grounds after the pandemic. Even though the traditional leaders are facing losses, IndiGo has penetrated in effectively taking the dominant market share of more than 50 percent. India has a young, aspiring population, therefore, it is an ideal ground to make investments in aviation, innovation, and development. Now should be on long-term expansion, deregulation, and modernization of its infrastructure to entrench India on the aviation map across the globe.