Indian aviation industry: Potential and challenges – Explained, pointwise

Introduction

The Indian aviation industry has experienced significant growth in recent years, emerging as one of the fastest-growing sectors in the global market. With a vast population and increasing disposable incomes, the demand for air travel in India has skyrocketed, creating the immense potential for further expansion. However, the industry also faces numerous challenges, as highlighted by the recent insolvency of Go First Airlines.  

What are the reasons behind Go Air’s insolvency?

Engine Manufacturer Issues: Go Air faced problems with Pratt & Whitney (P&W), the engine manufacturer, which led to an increasing number of failing engines. This resulted in a significant portion of Go Air’s fleet being grounded, causing operational challenges.  

Financial Difficulties: With many aircraft grounded, Go Air’s market share declined, leading to financial stress. 

Dependence on International Suppliers: Go Air’s reliance on a few international suppliers exposed the airline to risks. The difficulties with P&W highlighted the perils of this dependence.  

Insufficient Maintenance and Repair Facilities: India’s lack of large-scale maintenance, repair, and overhaul (MRO) facilities contributed to Go Air’s struggles, as grounded aircraft couldn’t be quickly repaired and put back into service.  

Increasing Competition: Go Air faced fierce competition from other airlines, such as IndiGo and SpiceJet, which captured a larger market share and put additional pressure on Go Air’s financial performance.  

What will be the impact of Go Air’s insolvency on the Indian aviation Industry?

Market Consolidation: Go Air’s failure may lead to a more consolidated market, with fewer players dominating the industry. This could result in a duopolistic market structure, limiting consumer choice.  

Higher Airfares: With less competition, the remaining airlines may increase airfares, negatively impacting consumer welfare and affordability of air travel.  

Opportunity for Competitors: Go Air’s troubles may create opportunities for other carriers to expand their market share and capitalize on available passenger traffic.  

Emphasis on Self-reliance: Go Air’s situation may push the Indian government and aviation industry to focus on enhancing domestic manufacturing, maintenance, and repair facilities, reducing dependence on foreign suppliers.  

Increased Importance of Financial Stability: Go Air’s failure may prompt airlines and investors to prioritize financial stability and risk management, ensuring that companies are better prepared to handle potential challenges in the future.  

What is the potential of the Indian aviation Industry?

Rapid Growth: India’s aviation sector has witnessed significant growth in recent years, with domestic passenger traffic increasing at a Compound Annual Growth Rate (CAGR) of around 14.5% over the past six years.

For example, in the 2023-24 fiscal year, India’s domestic passenger traffic is projected to rise to 16 crores (160 million) from an estimated 13.75 crores (137.5 million) in the previous fiscal year. By 2029-30, it is expected to reach 350 million. (source: CAPA India projections).  

Large Market Size: India is currently the world’s third-largest civil aviation market and is expected to surpass the United States and China in the coming decade, making it a lucrative market for airlines and related businesses.  

Low Penetration: India’s per capita penetration of domestic air travel (0.13 seats deployed per capita) remains significantly lower than countries like China (0.49) and Brazil (0.57), indicating untapped potential.  

Infrastructure Expansion: India is investing heavily in aviation infrastructure, with plans to expand existing airports and build new ones, which will help accommodate the rising demand for air travel. Like, India is working on airport expansion projects in major metropolitan cities like Delhi, Bengaluru, Chennai, and Kolkata.

Additionally, greenfield airports such as Noida International Airport and Navi Mumbai International Airport are under development and expected to be operational by the end of next year.

Demand for Skilled Workforce: The growth of the Indian aviation industry will create a need for skilled professionals, including pilots, cabin crew, and maintenance staff, creating job opportunities and supporting the growth of the overall economy. For instance, Indian scheduled operators are likely to require 10,900 additional pilots by FY30. 

Boost to MRO and Manufacturing: India’s expanding aviation sector offers potential for the growth of maintenance, repair, and overhaul (MRO) facilities, as well as the development of a domestic aerospace manufacturing industry.

What are the government initiatives to boost India’s aviation industry?

What are the challenges associated with the Indian aviation Industry?

Grounded Aircraft:  Airlines like Air India, SpiceJet, GoAir, and IndiGo face issues with grounded aircraft due to maintenance, engine replacements, and supply chain challenges, impacting their financial performance.  

Supply Chain Disruptions: Delays in aircraft deliveries, pilot and cabin crew shortages, and supply chain issues with original equipment manufacturers (OEMs) hinder the industry’s capacity to meet growing demand.  

Financial Losses: Indian airlines are projected to record a consolidated loss of $1.6 to 1.8 billion in FY24, with full-service carriers incurring up to $1.2 billion in losses.  

Insolvency Cases: Go First Airline’s recent insolvency filing due to mounting cashflow woes and grounded aircraft highlights the financial challenges faced by the industry.  

Insufficient Oversight: Regulatory bodies like DGCA have faced criticism for not conducting thorough financial audits and ensuring safety and operational standards in the industry.  

Crew Shortages: A lack of skilled pilots, engineers, and cabin crew members can lead to operational disruptions, affecting airlines’ ability to maintain consistent schedules and services.  

Inflated Projections: Airlines sometimes announce ambitious growth plans without adequate financial security, infrastructure, or personnel, leading to unrealistic expectations and potential failures.  

COVID-19 Impact: The pandemic has severely affected the aviation industry, causing financial challenges, reduced demand for air travel, and disruptions in training and safety investments.  

Environmental Concerns: The aviation industry faces increasing pressure to reduce its carbon footprint and adopt sustainable practices, posing a challenge for growth and expansion

What should be done?

To overcome these challenges and boost the aircraft leasing industry, advisory firm Primus Partners released a report that suggests several reforms. These include,  

Financing aircraft leases indigenously: Encourage domestic financing solutions to reduce dependency on international leasing markets and keep Indian funds within the country.  

Strengthening aircraft repossession: Improve the implementation of regulations to facilitate faster repossession and redeployment of aircraft.  

Streamlining tax regulations: Simplify and streamline tax regulations to make the leasing industry more attractive and competitive.  

The ripple effect on the maintenance, repair, and operations ecosystem in India: Develop an ecosystem that caters to the leasing industry’s maintenance and operations needs, creating a self-sufficient and robust industry within India.  

By addressing these challenges and implementing the suggested reforms, India can pave the way for a thriving aircraft leasing industry, making the country a global leasing hub and bolstering the aviation sector. 

Sources: The Hindu, Indian Express (Article 1 and Article 2), Business Standard (Article 1 and Article 2), Livemint, Financial Express, Economic Times and Outlook

Syllabus: GS 3: Economic development: Infrastructure: Energy, Ports, Roads, Airports, Railways etc.