Except equity boost for AI, Budget 2013 does nothing for aviation

No roadmap, not even a mention of reducing taxes on jet fuel in the Budget means nothing much will change for the domestic aviation industry in the new fiscal. Aviation Turbine Fuel (ATF) attracts sales tax across different states raging from 4-25 percent. This is the root cause of high cost operation of our airlines since ATF accounts for roughly half the operational cost of an airline.

For years, the industry has been seeking "declared goods" status for ATF but states are loath to forego revenues and therefore ATF prices continue to remain among the highest anywhere in the world in India. The Budget presented yesterday made no mention of ATF being brought under the declared goods category.

 Except equity boost for AI, Budget 2013 does nothing for aviation

Outside of ATF pricing too, the Budget had little to offer to the aviation industry.Reuters

Outside of ATF pricing too, the Budget had little to offer to the aviation industry. The Finance Minister proposed minor concessions to the MRO - maintenance, repair and overhaul industry by increasing the time period for consumption or installation of parts and testing equipments imported for MRO of aircraft by units engaged in such activities form the existing three months to a year. This means the MROs can now be exempt from import duty of 19 percent for one year.

This may help Indian MROs become somewhat more competitive against existing facilities in Singapore and Dubai but no big ticket changes are likely. Presently, inadequate facilities for repair and aircraft overhaul ensure that our airlines have to take aircraft to nearby countries for maintenance and repairs. Indian companies such as Air Works, Indmar and GMR Infrastructure have opened MROs whereas Air India is the only player which is allowed third party MRO jobs.

A story in the Economic Times quoted industry sources to say that combined annual MRO spends in India are $650-800 million. But indigenous firms get only $200-250 million of that spent, rest is mopped up by foreign MRO firms as they have a competitive market abroad with less taxes.

This story also said that the bigger MRO industry demand of bringing down service tax on spares which is currently 12.5 percent along with import duty including countervailing duty of 18.5 percent on spares was ignored by the FM. The MRO industry was lobbying for a uniform tax rate of 2.5 percent.

Finally, the Budget has also proposed providing Rs 5,000 crore possibly as equity contribution to state owned Air India while the airline will have to generate Rs 1318.60 crore from its own internal resources. The funds from the internal resources will be used for pre-delivery payments of six Boeing 787 aircraft which are to be delivered in 2013-14, the setting up of a GE Engine facility and purchase of spare engines for aircraft.

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Updated Date: Dec 20, 2014 17:16:50 IST