Aircraft Management, Fractional Ownership and the Potential of Business Aviation in India

Of course, the responsibilities, obligations, and complications of owning an aircraft are all too familiar as well. In the Americas and Europe, aircraft owners have no shortage of options for mitigating these hindrances, the two most obvious being outsourcing to an aircraft management company or entering into a fractional ownership programme.

But in India, neither of these services exist. In spite of years of independence and economic growth, and the multitude of employment and economic benefits a robust business aircraft services industry would bring with it, India remains a notoriously uninviting environment for such companies.

“Both fractional ownership and aircraft management programmes require several business, regulatory, and financial conditions that India currently fails to provide,” says Vinit Phatak, President of ACASS India, a leading provider of aircraft management services.

“If we ever want to take advantage of the tremendous untapped potential this industry has to offer India and our business and industrial leaders, we have to address the missing elements that are holding us back.”

According to Phatak, these missing elements include:

1. Streamlining ownership and operator regulatory issues: A positive policy statement from MoCA is needed to encourage these business models to take root in India. And policy must be followed up downstream by adjusting regulatory frameworks in every government department that impacts functioning, be it MOF, customs, taxation, DGCA, banking, etc. Such action will also send a positive signal to foreign investors, lenders, finance/leasing companies, and international aviation services companies to enter India.

   As things stand, international players are not in India and adverse taxation and import duties create potential risks when aircraft are given to third parties for management. Even within DGCA, while awareness exits about these services, it is sketchy at best.

2. No disincentives to private category import of aircraft: First, the mindset must change that private category aircraft must be taxed excessively. If some higher taxation level must remain for these aircraft, conditionalies should be introduced to give them the same taxation and import duty requirements as commercial aircraft when enrolled in a third-party aircraft management or fractional ownership programme. This flexibility is imperative to allow the market to innovate and thrive.

Many European countries apply this model successfully (with different taxation and duties between private and commercial), but with conditions that require some mandatory period of participation in a third-party programme for tax and duty concessions.

The big-picture objective is to create jobs, growth, and economic benefits across sectors, rather than just taxing private aircraft use. It is similar to the way growth in new car sales spurs associated downstream work in everything associated with automobile ownership. In the case of private aircraft, tremendous growth would be seen in airport services, MRO work, paint shops, fuel sales etc.

3. Tax incentives for the sector: Taxation for the sector needs to be rationalised at various levels. The combination of high customs duties and GST/IGST for import and sale transactions and the inability to take input credit for GST paid is holding back many transaction decisions in this sector. If not permanently, a short-term (severalyear) tax incentive can be provided to boost the sector.
4. Allowing depreciation claims by multiple fractional owners of an asset: Currently, provisions don’t exist for shared depreciation of a single asset owned by multiple companies. This is the fundamental reason why the fractional ownership model which has proven so successful globally does not work in India. We need to adopt the same measures in place in the United States and elsewhere to trigger the growth of this model in India. In fact, the same model could also be used in other industries where assets can be used more efficiently by sharing them among several users.
5. Transactional ease for frequent sale and purchase of fraction shares: The success of any aircraft fractional ownership programme depends on transactional ease and smoothness for those who want to enter or upgrade or sell their fractional shares. A participant in a fractional ownership program cannot sell in the open market to an unknown entity. The program provider must be involved to guarantee compliances and smooth buyback transactions. The Government needs to make such transactions easy.

By extension, the whole aircraft transaction needs to be made easier. The current 28 per cent GST chargeable level is a big disincentive for the programme as no customer likes to lose money and will devise transactions that are legally carried out in a jurisdiction with the lowest cash leakages. To counter this, the GST chargeable must be reduced to 5 per cent or even zero.

The resulting taxation gains to the country would come not just from these buy/sell transactions but also from taxation revenues from allied services: airport usage charges, fuel offtake, MRO work, and so on. It is vital that potential aircraft owners do not view the buy/sell transaction process as a major hurdle to cross if India wants to compete with the U.S., which has over 10,000 registered business aircraft.

“We have been doing business in India for more than 10 years, and there is so much unrealised potential there,” says Andre Khury, President of global support services leader ACASS. “If the Indian Government would take the steps necessary to open up the market to aircraft management and fractional ownership companies, it could easily become one of, if not the, top growth sectors in international business aviation.”

This view is not just held by business owners like Khury. According to a senior executive in large global bank, “The absence of professional aircraft management companies, which have been embraced across the globe, has been a major roadblock for many financial institutions who would like to offer business aircraft financing in India.”

If the Government were to set up a joint task force with international specialists on board to explore how to make business aviation services take off in India, there is little doubt the solutions and steps arrived at would be transformative. Aircraft management and fractional ownership programme companies would benefit as a result, but the real winner would be the Indian business environment and economy.