Mumbai: While governments world over have announced economic stimulus packages or put in place measures to help their COVID infected ailing aviation sector, the Indian aviation industry’s high expectations that the government would bailout the sector may be unrealistic, said Centre for Asia Pacific Aviation (CAPA), a global aviation consultancy firm, in its latest report.
"Despite its best intentions, the government has multiple competing calls on its limited resources. There is only so much that it can offer to the aviation sector given that numerous industries across the economy are under severe stress. And the priority will understandably be on providing a basic health and economic safety net for the most vulnerable segments of society," said the CAPA report.
Among the options through which the government could support the Indian aviation industry were direct equity infusions or secondly, loans or getting banks to extend lines of credit with government backing, both of which CAPA said was unlikely. What was also not likely to happen was waivers/moratoriums on airport and en route charges, fuel charges, on interest and principal payment and on tax obligations.
"The Indian government may only be in a position to offer more functional relief consisting of waivers and moratoriums on liabilities. Given the massive structural dislocation faced by the aviation sector, this may not be sufficient to rescue operators, particularly weaker companies," the report said adding that it was still too early to predict the full extent of the impact on the industry. Any government support may be announced incrementally as greater clarity about the state of the industry emerges over time.
The report recommended that Air India and private airlines be treated equally when it comes to emergency relief consisting of wage subsidies to protect employment; survival relief, consisting of waivers and moratoriums on various charges, taxes, and interest obligations; and lastly, a set-up for recovery, which includes bringing aviation turbine fuel under the GST framework with full input tax credit (in the interim, VAT should be reduced to 4%); direct cash injections; arrangement of credit lines with banks; temporary waiver on airport charges.
06/04/20 Manju V/Times of India
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"Despite its best intentions, the government has multiple competing calls on its limited resources. There is only so much that it can offer to the aviation sector given that numerous industries across the economy are under severe stress. And the priority will understandably be on providing a basic health and economic safety net for the most vulnerable segments of society," said the CAPA report.
Among the options through which the government could support the Indian aviation industry were direct equity infusions or secondly, loans or getting banks to extend lines of credit with government backing, both of which CAPA said was unlikely. What was also not likely to happen was waivers/moratoriums on airport and en route charges, fuel charges, on interest and principal payment and on tax obligations.
"The Indian government may only be in a position to offer more functional relief consisting of waivers and moratoriums on liabilities. Given the massive structural dislocation faced by the aviation sector, this may not be sufficient to rescue operators, particularly weaker companies," the report said adding that it was still too early to predict the full extent of the impact on the industry. Any government support may be announced incrementally as greater clarity about the state of the industry emerges over time.
The report recommended that Air India and private airlines be treated equally when it comes to emergency relief consisting of wage subsidies to protect employment; survival relief, consisting of waivers and moratoriums on various charges, taxes, and interest obligations; and lastly, a set-up for recovery, which includes bringing aviation turbine fuel under the GST framework with full input tax credit (in the interim, VAT should be reduced to 4%); direct cash injections; arrangement of credit lines with banks; temporary waiver on airport charges.
06/04/20 Manju V/Times of India
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