For the aviation stakeholders, the budget was heavy on prose and lacking in numbers. A government that came in with a decisive mandate was expected to deliver on bold reforms. Yet, given that the tax revenues are declining and ambitious social sector schemes continuing, aviation once again saw token allocations and scant consideration.
5 key areas were highlighted:
1. Air India disinvestment
2. Encouraging leasing and financing in India
3. Enabling MRO
4. FDI in aviation
Air India in the current year lost 7635 crores which equates to INR 20 crores per day. No funds have been allocated for the turnaround plan as opposed to last year’s INR 650crore allocation and actuals of 3975 crores. The government seems to be firm on its plan and INR 2600 crores has been allocated towards the Air India special purpose vehicle (SPV). A footnote indicates that this is to service the loans that will be transferred to the SPV. The government seems to be firm on its decision to divest Air India – one way or another.
The finance minister also laid out a vision for India to enter into aircraft financing and leasing activities. But don’t search for details of the plan. They are not available yet. The intent is to copy Ireland’s blueprint given the success of Ireland as a world leader in aviation finance. What this requires is aligning several stakeholders along with rationalization of tax policy. All of which requires time and focus. It is hoped that this will follow.
With regards to MRO, the minister stated that “for providing an enabling ecosystem for growth in India of Maintenance, Repair and Overhaul (MRO) industry, government will adopt suitable policy interventions to create a congenial atmosphere for the development of MRO in the country.” Very nicely worded but again lacks detail. And for an industry that operates on a razor thin margin of 4% – 5% it is not enough to be “close to the tax rate.” Because even a .02% difference means a significant difference to the cash-flow and any airline would want to leverage this difference.
Interestingly, the issue of Foreign Direct Investment in aviation was mentioned. This likely derives from the intent to divest Air India and the experience with no foreign investor coming in during the Jet Airways situation. Yet, this is a sore point with existing airline owners. And here, it was stated that the Government will examine suggestions of further opening up of FDI in aviation.
Finally, the UDAN scheme yet again found mention. Our contention is that the scheme has failed. It is surprising that no-one is questioning the viability of the scheme and the funding mechanism where metro flyers are paying into the scheme which the government is then disbursing to subsidize airlines. UDAN allocation for the year has been budgeted at INR 480 crores.
Overall the budget has once again indicated that aviation is simply not a priority.