The Telegraph
Monday , July 7 , 2014
CIMA Gallary

Beleaguered carriers call for sops

New Delhi, July 6: The aviation sector is hoping the new government will give sops in the upcoming budget to revive the industry that has suffered heavy losses last year.

According to industry body Capa Centre for Aviation, the Indian carriers have turned financially weak, so much so that their cash-on-hand is equivalent to just three weeks’ revenue.

The sector hopes the BJP government will slash taxes on jet fuel, exempt aircraft engines from customs duty and rationalise the taxation of maintenance, repairs and overhaul (MRO) services.

“The new government certainly needs to address some of these fundamental challenges immediately. The sector needs to overcome the brunt of rising costs of aviation fuel, high interest payments, insufficient infrastructure and shortage of skilled and trained manpower,” said Ankur Bhatia, executive director of Bird Group and member of the CII national committee on civil aviation.

Senior airlines and MRO officials recently presented their demands at a pre-budget meeting with civil aviation secretary Ashok Lavasa.

“One of the demands was to include aviation turbine fuel (ATF) in the declared goods category so that sales tax on it comes down to about four per cent from the prevailing rates that range from 28 to 35 per cent across the country. Some states such as Chhattisgarh and Jharkhand, however, impose only four per cent,” a ministry official said.

ATF supplied to small aircraft such as Bombardier Q-400s or turboprop ATRs is considered a “declared good” and charged around five per cent sales tax. However, fuel in larger aircraft, weighing over 40,000 kg, are levied up to 35 per cent sales tax. Jet fuel constitutes about 40-45 per cent of the total cost of an airline.

Airlines also sought exemption of aircraft engines from customs duty, the officials said. The exemption was withdrawn in 2012.

“The government should either put ATF in the declared goods category or reduce excise duty on it from 8-10 per cent to zero,” Debashish Saha, council member of the Aeronautical Society of India, said.

High taxes have also marred the growth of the MRO industry in India, making services 20-30 per cent costlier than those abroad. This has lead to airlines sending aircraft to foreign countries such as Sri Lanka and Singapore for repair.

“Service tax at the rate of 12.36 per cent is charged from Indian MROs,” ministry officials said.

Industry observers said high taxes, custom duties and value added tax raise the cost of an airline check by 43 per cent in India.

According to aviation experts, Indian carriers will spend around $1.5 billion on MRO services by 2020. At present, the country’s national carrier Air India and the largest private airline Jet Airways have personal checking facilities.

Air India is setting up a new MRO unit in collaboration with Boeing at the Mihan SEZ in Nagpur. The $100-million unit is likely to become operational by the second quarter of 2014. The facility will service aircraft such as B-737s, B-777s and B-787 Dreamliners of both domestic and international carriers.

“The Nagpur facility will be on a par with other major international counterparts. We hope to bag major contracts once it starts,” said a senior AI official.