We do not need more regulations. The Indian civil aviation industry is probably the most regulated industry in the world. We need modification of the rules to conform to global standards, better oversight and more professional handling of business aviation, both from the authorities and the operators.

Business aviation in India can trace its roots to the early 2000s. Though a few large Indian companies such as Reliance, Tata and Birla groups had been utilising business aircraft even earlier, it was in the early 2000s that business aviation really started to be viewed as a tool for business growth by large- and mid-size Indian companies, which were enjoying the first flush of the benefits of liberalisation unleashed a decade earlier. Confident Indian business leaders were suddenly coming on their own, with their new found chutzpah for being global players. The traditional “Hindu growth rate” was a thing of the past, and the new Indian economy was growing and creeping towards double digit growth numbers.

2003-08: The Golden Years

With only about 25-30 business jets, about 150 helicopters and 60-70 turboprops in 2002-03, the growth of business aviation exploded exponentially to a 15-20 per cent compounded annual growth rate (CAGR) from 2003 onwards, even surpassing the growth numbers being shown by scheduled airlines. These were exciting times, with civil aviation being the cynosure of all eyes. Aviation start-ups such as Air Deccan, SpiceJet, Kingfisher and IndiGo were rewriting the way India travelled. The dodgy ways of the “Maharaja” was history.

The years 2003-08 were the golden years in India for the growth of civil aviation in general and business aviation in particular. Aircraft and helicopters were being added at a fast pace. Pilots and engineers, who had been out of jobs for years, were suddenly being sought after with a vengeance and salaries were touching a new high. Airline pilots, who had always viewed business aviation with disdain, suddenly discovered the advantages of switching jobs from airlines to the more exciting and rewarding world of business aviation. In fact, the Directorate General of Civil Aviation (DGCA) had to come out with a new rule to check the rampant poaching of pilots amongst airlines by insisting on a six months’ notice period. Helicopters were everywhere, whether for election flying, religious pilgrimages, geological surveys, offshore flying or plain carriage of passengers.

And then of course the Government of India (GoI) decided to step in and spoil the party. In 2007, the Ministry of Finance (MoF) introduced a new custom duty on import of aircraft and spares, 25 per cent (including 12.5 per cent CVD) on private aircraft and nothing on non-scheduled operators permit (NSOP). This was totally unprecedented anywhere else in the world, and came with an obvious mindset of taxing the “luxury” which was being used by business leaders in the country. It totally failed to understand the economic value which business aviation adds to the economy of a country. If one had to give one comparison, then the introduction of import duty on private aircraft import did as much damage to the growth of business aviation in India as the introduction of retroactive taxation did to the flow of foreign direct investment (FDI) to Indian economy in the Vodafone case in 2012.

To make matters worse, the law was bad in its structure. It provided a loophole for Indian companies to import aircraft under NSOP, and use it privately and get away from paying duty. This was naturally exploited by companies, who thought that they could get away from it. There was also an ambiguous DGCA order which clearly stated that company aircraft could be used by the company Directors for their own flights, a view not clearly shared by the custom authorities, which stated that every flight on an NSOP aircraft needed to be a flight for re-numeration. The custom authorities clamped down on the operators and a series of aircraft were impounded and released only after payment of bank guarantees. A witch-hunt started where even the law-abiding operators were harassed and made to feel like defaulters. Suddenly, owning an aircraft was not so great after all. In 2010, the MoF amended its earlier order and included the NSOPs to pay 2.5 per cent import duty as against 19 per cent by private aircraft. It was still a bad law and without any rationale.

In the meantime, the fleet of business aviation had grown even in the absence of infrastructure and modernisation of rules. Year 2008 saw the highest growth of business aviation in the country, close to 26 per cent, which implied that almost 70 aircraft and helicopters where imported into India that year. Even though the fleet of business aviation was now clearly larger than the scheduled airlines in India, the rules were still made for commercial airlines and business aviation was expected to conform to certain rules which made no sense. The Government of India (GoI) had also started the process of privatisation of Delhi, Mumbai, Bengaluru and Hyderabad airports. Their lack of planning for business aviation made them sign voluminous agreements with the private airport developers, without catering to the growth and legitimate requirements of business aviation at these airports. As a result, the private airport developers’ genuinely felt that these airports are meant only for scheduled airlines, and business aviation was an unwanted irritant. This manifests in orders such as curfew timings at Mumbai for business aviation aircraft and penal parking charges. To make matters worse, the agreements did not allow any new airports to be developed within 150 km of the international airports, thereby closing the doors for dedicated business aviation airports in Delhi and Mumbai, as on the lines of Teterboro in New York, Seletar in Singapore, Luton in London and Le Bourget in Paris. So it left business aviation at the mercy of the airport developers, who had no use of it, thereby increasing hostility between the users and the owners. Neither did the Ministry of Civil Aviation (MoCA) make any plans for development of fixed base operators (FBOs), heliports, business aviation maintenance repair and overhaul (MROs), etc. Business aviation facilities remained concentrated between the metros of Delhi and Mumbai, even though the need was being felt in the growing Tier-II cities of India.

2009-12: The Slowdown Years

The years 2008-12 saw a steady decline in the growth of business aviation due to the taxation, regulatory and infrastructure issues. Even though the Indian economy continued to progress till the time it started slowing down in 2012, the gloom in the aviation circles started earlier. The scheduled airlines were not doing well having shot themselves in the foot, with poor cost control and ridiculous price wars. Air Deccan, having never made profits, was sold to Kingfisher, which itself was tottering on the verge of bankruptcy. SpiceJet, having started well, seemed to be stuttering, and Jet Airways, having bought out Sahara, seemed to have lost its way. The Indian Airlines and Air India merger was a disaster, having shown the world on how not to carry out a merger without proper planning. Suddenly, the pilots and engineers were laid off and thousands of young men and women who had done expensive training overseas to become pilots found themselves without jobs. The civil aviation industry was clearly in distress, but still the Government of India waffled on taking decisive steps, such as increasing FDI (it happened only in 2013) and lower taxes on aviation turbine fuel (ATF), which was priced at the highest rates globally.

There was still a huge requirement for business aviation in India, but suddenly owning an aircraft was so difficult, that it did not make sense any more. The helicopter industry remained stuck in the predetermined roles, and the government did not do anything to open up new areas such as electronic news gathering (ENG), medical evacuation, police and traffic control, cleaning and maintenance of power lines and construction of roads, etc. in accessible areas of the North and Eastern India. The rules made it cost prohibitive to carry out these tasks. Besides this, the MRO industry was mired with taxation issues, which still remain, thus missing the opportunity to make India a true MRO hub in South Asia. China and other Asian countries like Indonesia and Malaysia suddenly became the preferred destinations for international OEMS who had believed in the Indian story and stood by for years for things to change. Unfortunately, the change never came, while other countries were quick to seize the opportunity to embrace business aviation, by investing in infrastructure and opening up their skies.

2013: The Way Forward

So frequently the question is asked: Have we reached the bottom of the pit yet? As per the market indications, we have. Year 2013 has seen some positives. Even though Kingfisher declared bankruptcy, IndiGo proved to the country that only good business models will work. FDI in civil aviation was increased to 49 per cent, a move which allowed Jet-Etihad and AirAsia enter the Indian aviation industry. Tatas has also recently announced the launch of an airlines in partnership with Singapore Airlines, hopefully proving third time lucky. The new leadership in the MoCA and DGCA seem to recognise the needs of the business aviation industry, and have slowly been working towards carrying out some reforms in the regulatory environment. However, still a lot needs to be achieved.

To ensure that the next decade is also not lost as the previous one has, I would propose a 10-point initiative by the government, to help the ailing industry. Besides MoCA, this will also need inputs from the MoF and Ministry of Home Affairs (MHA), and therefore it needs to be an initiative at the Cabinet level, and not left to MoCA alone. The 10 points which need to be addressed are:

• Recognise business aviation as a tool for economic growth: Unless the perception changes, no worthwhile reforms can happen. A scheduled aircraft, full of 200-300 passengers, provides revenue to the airport in terms of passenger fee, landing charges, refuelling charges and air traffic control charges. A private aircraft with two to three business leaders which lands at an airport, provides an opportunity for multimillion-dollar worth of investments in the country, and facilitates the growth of industry in remotely connected interiors of India. It is for the GoI to understand what adds more value to the economy.
• Remove the import duties on import of aircraft: It is a retrograde tax and only creates barriers for the growth on business aviation in India. While the collection in terms of tax is minimal (by our calculations, approximately about Rs. 100 crore in five years), the losses in terms of opportunity are massive. Till date no one in the MoF has been able to explain the levy of CVD (12.5 per cent) on import of aircraft, when there is no worthwhile civil aircraft manufacturing industry in India to protect. This duty needs to go or to be reduced to a marginal two-three per cent on import of all aircraft, private or NSOP.
• Encourage growth of the MRO industry: Remove duties on import of spares, allow free zones and provide tax holidays on MRO activity. Tier-II hubs for MROs need to be encouraged. MROs need to be taken out of the international airports and given incentives to be established in Tier-II airports.
• Revisit the agreements with private airport developers: The rightful development of business aviation infrastructure needs to be part of all future agreements, and the present agreements must be revisited to include this. Private airport developers must plan for business aviation parking, hangars, FBOs and MROs. Similarly, the agreements must be revisited to allow dedicated business aviation airports around major cities. This is in the national interest and any oversight in previous agreements needs to be rectified.
• Allow ease of money flow for aircraft purchase: RBI circular allows up to $50 million as advance for purchase of aircraft for scheduled airlines without reference to RBI. In case of NSOP and private aircraft, it allows only $1,00,000 as advance to be paid. The balance needs to be processed through RBI, which is a long and cumbersome process and invariably causes buyers to lose deals and pay penalties for delayed payments. RBI needs to change its rules to allow buyers to pay up to 10 per cent of aircraft value as advance payment without RBI permissions, subject to a maximum of $10 million. This will go a long way in easing the aircraft purchase for business aviation.
• Revamp the Bureau of Civil Aviation Security (BCAS) and replace it with a modern agency which is more in tune with the present needs of civil aviation in India. The current BCAS is totally out of sync with present day aviation security requirements and needs to be replaced by a more up to date organisation, run by professionally trained personnel, more in line with global organisations.
• Simplify the process of aircraft purchase for business aviation: The present process is still overregulated, even though the Aircraft Acquisition Committee has been disbanded. Too many steps and too many agencies are involved.
• Align business aviation operations with best practices and procedures followed by FAA and EASA certification rather than coming out with knee-jerk and irrational orders. Some of the recent orders regarding fitting of FDRs in aircraft below 5,700 kg and issue of visas to foreign crew of business aviation aircraft are totally out of sync with international practices and have no rationale behind them. DGCA needs to have a separate division working under a JDG to deal exclusively with business aviaton.
• Plan the next level of infrastructure for helicopter industry: Heliports at district level, ease of helicopter operations in the metropolitan cities, easing up helicopter roles for special tasks, need to be taken up on priority.
• Consolidate the business aviation industry: At present there are 149 NSOPs and a number of private aircraft operators. It is impossible for DGCA to monitor so many different NSOPs. MoCA needs to encourage consolidation so that the number of NSOPs reduces, and best practices are followed. If the custom duty on import of private aircraft is rationalised, it will reduce the number of NSOPs, as the balance has tilted in favour of NSOPs after private aircraft are asked to pay higher duties. Another method suggested is to encourage aircraft management, a concept which is practised worldwide. Small aircraft operators should be encouraged to outsource aircraft operations to larger companies for operations, just as aircraft maintenance is being outsourced at the moment. In fact, it is suggested that any operator who has less than two aircraft, should not be allowed to have its own operations, but must outsource to a professional aircraft management company, recognised by the DGCA. This will allow the best practices to be followed for operations and will make the job of DGCA oversight much easier.

The establishment of the Civil Aviation Authority (CAA) has been on the cards for some time, but is moving too slowly. It would be of great benefit to the civil aviation industry to have an independent CAA, which has the authority and powers to implement the civil aviation policy in the country. We do not need more regulations. The Indian civil aviation industry is probably the most regulated industry in the world. We need modification of the rules to conform to global standards, better oversight and more professional handling of business aviation, both from the authorities and the operators. This will only happen when business aviation is given its due importance by the authorities. All is still not lost; we have the next decade to make sure that business aviation is allowed to grow to its true potential.