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COVID-19: Does the Indian Aviation Industry Needs a Power Booster?

The pandemic COVID-19 has severely affected the industries of every sector and the aviation sector is one of them. The Indian aviation sector is one of the fastest-growing industry, according to the IATA-commissioned Value of Aviation study conducted in 2015, India's air transport sector has supported 8 million jobs and contributed to $72 billion in GDP. IATA's recent 20-year air passenger forecast estimated that India will overtake the United Kingdom to become the third-largest market with 278 million passengers in 2025. By 2035, India is expected to be a market of 442 million passengers, with the aviation industry supporting 19.1 million jobs and contributing to $172 billion in the GDP of India[1]. 

Since the world has tightened their seat belt to fight against the pandemic COVID-19 and trying to overcome the turbulent situation then the IATA's Director General and CEO Alexandre de Juniac recently in its press release stated that “Major stimulus from governments combined with liquidity injections by central banks will boost the economic recovery once the pandemic is under control. But rebuilding passenger confidence will take longer. And even then, individual and corporate travelers are likely to carefully manage travel spend and stay closer to home.”[2] It shows how this industry is looking with hope towards its government.

Challenges and Legal Issues:
Due to virus outbreak and nationwide lockdown the Indian aviation sector is facing many challenges and crises. As per the instruction of the government, all scheduled flights are canceled excluding cargo from 24th March 2020 and as per the direction of Directorate General of Civil Aviation (DGCA) and a circular issued by the Ministry of Civil Aviation[3] all the airline's companies have to refund airfare during the lockdown period without deducting cancellation charges and suspended domestic and international flight operations.

Some important challenges and legal issues which may be faced by this industry are:
  1. Increase in Consumer Litigation: Due to unprecedented complete nationwide lockdown all the national and international flights are canceled and as per the direction of DGCA the companies had to refund the ticket fares of the customers without deducting any cancellation charges and there might be chances that many of them will not get the refund in their accounts and they can knock the door of Consumer Forums. It will increase the proof of burden and litigation cases on companies.
     
  2. A dispute between Aviation Companies and Online Travel Companies/Agent:  Many customers in India and around the world booking their air tickets through online travel companies and travel agents and the airline's companies are paying commission to agents that have been charged indirectly by the passengers on their tickets. Since during the lockdown all the tickets are canceled then the airline's companies had to return full fare without any deduction of cancellation charges to customers in result the airline's companies may be denied to make payment of commission to agent or travel companies which may create a dispute which results in the travel companies or agents can take legal action.
     
  3. Contractual Disputes & Litigation: As we know, that the aviation industry also deals with various small businesses and service provider companies and contractors who help them to provide world-class service to the passengers and due to unprecedented lockdown there might be the possibility of contractual disputes and payment disputes between the companies and contractors. Apart from that due to lockdown the companies also face the problem of liquidity crunch so there is a possibility that the company may default to make payment to the debtors and it increases the litigation for the companies
     
  4. Employment Issues: Due to the complete stop of services and to distress the financial burden the companies are cutting salary up to 60%, some companies have made part payment to employees and give a leave without pay and also expelling the employees from a job to sustain the business. Since the company is expelling the employees on shorter notice then the employees are opting to file court cases against the companies
     
  5. Aircraft lease charges: During this pandemic these lease charges or rentals put the financial burden on the companies because most of the airline companies take the aircraft on lease and they have to pay the charges to the Lessor as per the terms and condition of lease deed.
     
  6. Cost of Aviation Turbine Fuel (ATF): Its price increases from time to time and covered almost 35% to 40% of the operating cost which includes Central Excise Tax and GST. The Cost of the fuel puts an extra burden on the airline's service and directly hits there profit margin. In a competitive market airline companies cannot increase airfare on every increase or decrease of fuel price.
     
  7. The parking charges, landing charges, and airport charges: The airline companies have also paid parking charges, landing charges, airport charges, and navigation charges as per the direction and tariff plan of Airport Authority of India or Ministry of Civil Aviation.
     
  8. Paying salaries to employees from their reserves and surplus: Due to a completely nationwide lockdown and stoppage of business operations it became hard for airline companies to pay off salary and allowances to its employees. Further, these companies are paying salaries from their reserves and surplus which is badly affected their financial condition.
     
  9. Due to various restrictions and fear the passengers would avoid traveling which affects the business in broad level: This is one of the major reason which affects the business badly due to pandemic COVID-19 the passengers are fear and avoid to travel unnecessarily which directly affects the airlines business and hotel & tourism industry as well. Before traveling passengers and airlines companies have to follow various guidelines issued by the concerned government and authority.
     
  10. Companies need to bear some extra costs like sanitization of Planes and airport terminals: After or during this pandemic this is the essential guideline to companies by the Government which is mandatory to follow and also put some extra cost on these companies to sustain business and give a healthy atmosphere to passengers.

Survival Measures:
In the light of the outbreak of COVID – 19 many companies would be bankrupt and to avoid such a situation a proposal to promulgate an ordinance to suspend insolvency proceedings against new defaulters for six months. Once the ordinance comes into force following Presidential assent then sections 7, 9, and 10 of the Code which triggers insolvency proceedings against the defaulters will remain suspended for six months to one year which stops companies from being forced into insolvency proceedings.

But this step is not sufficient for the aviation industry. As per the instruction of central government the aviation companies had to refund the fares of the passengers without deducting the cancellation charges which increases the financial burden on these companies and to overcome these financial crunches some companies offered credit for future travel and in my opinion its a good step taken by the companies. The government should think about it and amend the guidelines which are helpful for the passengers and aviation companies as well.

Based on the challenges and legal issues as discussed above the companies may also take the following measures:
  1. To avoid consumer litigation the companies may share their refund transaction details with customers through email and SMS from which they track their refund amount.
     
  2. To avoid contractual disputes and litigation cases the companies may arrange meetings with parties to discuss the disputes and settle the matter out of court to avoid litigation burden. Further to avoid such conditions the companies with mutual consent can take some time to make payment to debtors as per convenience and requirement to avoid any dispute and make the business smooth.
     
  3. To avoid any labor law cases, the companies may cut the payment up to 30% of wages and salary without expelling the employees of the company to overcome from financial burden. Companies can also opt for the other option regarding the payment to labor which is acceptable by both parties.

Further, the FICCI Aviation Committee has recommended the central government for a bailout package for the domestic aviation industry, including direct cash support from the government, interest-free soft loans, and a two years tax holiday to help the sector overcome the pandemic. FICCI Aviation Committee Chairman and President and Managing Director of Airbus India and South Asia, Anand Stanley said in its recommendation to Civil Aviation Secretary that:
Many airline companies are on the brink of bankruptcy.[4]

The central government can also reduce the taxes on ATF and other excise duties for a certain period. The government should be liberal for other charges paid by aviation companies. The aviation companies can also opt to sell their stake to overcome the financial crisis. Moreover, the Hon'ble Prime Minister of India introduced the economic package of Rupees Twenty Lakh Crore economic package to boost the economy under the scheme of the “Aatmanirbhar Bharat” and Aviation industry is also looking for its revival.

Conclusion:
As of now, the Ministry of Finance has announced some structural reforms in the tranch of economic stimulus package for aviation sector like restrictions on utilization of Indian Air space, Six airports will be auctioned to private companies and the Tax regime for aircraft maintenance, repair, and overhaul. In my opinion the government should consider the recommendation of FICCI for the bailout package and other possible ways to establish this industry to avoid the measure problem like unemployment and economically backward.

End-Notes:
  1. https://www.iata.org/contentassets/5d4c3f78802248378497cc561ca019b0/intervistas-report-aspac-dec2015.pdf
  2. https://www.iata.org/en/pressroom/pr/2020-05-13-03/
  3. https://dgca.gov.in/digigov-portal/Upload?flag=iframeAttachView&attachId=130619295
  4. http://ficci.in/ficci-MediaCoverage.asp#

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