FICCI seeks government support for aviation sector amid COVID-19 crisis

Aviation sector will face a massive plunge in cash reserves as fleets remain grounded


Amidst global financial crisis in the aviation industry, the Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the government to waive off interests and delayed charges and accruals to airport operators along with loan guarantees to the airlines to make up for the gap.

In a communication to Aviation Secretary Pradeep Singh Kharola on Friday, the industrial body claimed that the aviation industry is facing a crisis of unimaginable proportion due to the impact of the COVID-19 pandemic and with prolonged travel restrictions in place around the world, aviation sector will face a massive plunge in cash reserves as fleets remain grounded for almost a month now. Many airline companies are on the brink of bankruptcy and almost 30 lakh jobs are at risk in the Indian aviation-dependent sectors.

"In addition to cutting down flights, airlines are putting aircraft in storage, moving forward fleet retirement dates and deferring delivery of new aircraft. What the Indian aviation industry needs to survive is an immediate bailout from the government," said Anand Stanley, Chairman, FICCI, Civil Aviation Committee.

India’s aviation industry is expected to post losses of $3-3.6 billion in the June quarter because of COVID-19, with airlines sharing the bulk of the hit. While making recommendations related for fund manage, the FICCI said that the government may immediately give a direction under Section 7(1) of the Reserve Bank of India Act, 1934 (RBI Act) in order to ensure continued provision of air travel services to passengers (which are recognised as essential services under the Essential Services Maintenance Act, 1968) and to ensure the survival of airline operators who are incurring substantial losses on account of the outbreak.

"Therefore, it is recommended that the Government needs to give appropriate directions to the Reserve Bank of India to ensure that the operation of existing stand-by letters of credit/other foreign guarantees and bank guarantees etc. issued by India airlines operators/their banks are suspended with immediate effect for a period of 90 days," FICCI stated in its recommendations. It also urged the government to not remove the grounding until and unless the states also remove their lockdowns, so that people can actually travel. Demand will not return unless lockdowns are fully removed, it observed.

Industrial chamber also stated that oil marketing companies may be directed to extend unsecured interest-free credit terms to the aviation sector. The liquidity position of all airlines will be benefited, if the interest-free unsecured credit period for payment of fuel charges to Oil Marketing Companies is enhanced to 180 days from the current 21 days, FICCI said in its communication to the ministry.

On the part of tax relief, it recommended that rebates on payroll taxes paid to date in the year 2020 and/or an extension of payment terms for the rest of the year 2020, along with a temporary waiver of ticket taxes and other Government-imposed levies may be considered. It observed that airline cancellations far outstrip any fresh ticketing; airlines thus have negative sales during COVID-19. And this results in airline GST refunds being higher than the GST due. "It is recommended that union government consider deferment of payment of GST for the airline industry."
While talking about Aviation Turbine Fuel (ATF), FICCI said that it may be brought under the ambit of GST as for any airline in India, as the cost of ATF constitutes about 40 per cent of the total operational cost.

"Presently ATF attracts Excise Duty @ 11% and VAT (which varies from state to state) up to 30%. Airline companies may be allowed to take input credit of GST paid on ATF resulting into reduction in the cost of operation," FICCI suggested. Besides, zero custom duty and uniform rate of GST of 5% on all types of aircraft imports, including private category, it added.

It has also recommended financial aid in terms of reduction in airport charges, overflight fees, taxation on passengers on security, temporary reduction of excise duty on ATF etc. Parking and landing fees should be waived off along with royalties to the airports for using the infrastructure for at least six months, as FICCI maintained that it is particularly important as airlines have to ground aircraft to cope with the drying up of air travel demand on several international and domestic sectors. About relief on air navigation service charges, FICCI appealed for a financial aide from the government for the higher expenses incurred to prevent the spread of the disease such as screening of passengers and disinfection.

 "Government may immediately provide direct cash support to Indian carriers, so that airlines can meet their fixed costs, at least for the period where loss of revenues and liquidity is directly attributable to the Government’s directive to cease operation," industry chamber further recommended.

Other measures like deferment of EMI on term loans extended upto six months, soft loan for airlines for 12 months at 0% interest and tax waiver, not deferment, for two years were also suggested to the government for survival of the aviation industry. It has recommended that IRDA be asked to waive the insurance premium of the aircraft and Corporate Insurance Policy premium falling due in the coming months.
FICCI also suggested allowing 100% benefit on aircraft purchase for companies in the first year itself to boost the fleet size resulting in creation of more jobs.

It has asked the government that the aerospace and aerospace-related sector (civil and military) be allowed to maintain a minimum level of industrial activity during the period of restriction and control put in place to combat the spread of COVID-19. Permission may also be granted for operation of private jets to facilitate ferry pilots' return.

Discussing the post lockdown scenario, FICCI observed that all the operators will be experiencing financial stress and may get in a great hurry to generate revenue and make up their losses. And the tendency and temptation to take shortcuts in operations, maintenance and other related areas, compromise in compliance of rules, regulations and SOP's etc can be serious hazards to safety. "Thus, procedures, adequate measures, checks to be maintained after lockdown to ensure safety, and satisfaction of the customers," it said while adding various safety measures needs to be taken in view of the pre-monsoon season which experiences frequent thunderstorm, dust storms, hailstorm, lightening and strong gusty wind conditions.

And, for the airports, FICCI  recommended immediate suspension of outstanding dues and accruals of all aviation specific taxes levied by States at national, regional & local level that do not contribute to the aviation ecosystem until December 31, 2020, including, but not limited to, payroll taxes, fuel related taxes and airport concession fees.