The aviation industry in India has emerged as one of the fastest growing industries in the country and has recovered from the Covid-19 pandemic with passenger numbers exceeding the pre-COVID levels. As per credit rating agency ICRA, the number of domestic air passengers across India in December 2024 was around 15.3 million. This is an 11% growth from December 2023, and over 17% higher than the pre-Covid levels in December 2019.
With disposable income in India growing, the demand for air travel will only keep increasing. To cater to the growing demand, the airlines in India have huge order books and the Government of India has been working towards increasing the number of airports. The success of Indian aviation will depend on infrastructure development to support the growing demand, policy reforms to meet global expectations and availability of skilled labor. Investments in emerging technologies with a focus on sustainability will also be an indispensable consideration for the growth of the industry.
In this article, we examine the key developments that will shape the growth of the Indian aviation industry in 2025.
Bharatiya Vayuyan Vidheyak, 2024
Bharatiya Vayuyan Vidheyak, 2024 ("BVV") replaced the Aircraft Act, 1934 in December 2024. The Aircraft Act had been amended 21 times over the past nine decades. These amendments had led to redundancy and inconsistency in the law. The BVV aims to regulate and control various aspects of aviation such as design, manufacture, operations and sale of aircraft. BVV also introduces a second appeal mechanism. If any person is aggrieved by the order of the First Appellate Officer in relation to disputes/penalties under the BVV, he can file an appeal to the Second Appellate Officer. Under the Aircraft Act, the person could only file a single appeal.
Merger of the TATA group airlines
In a landmark development in November 2024, Air India and Vistara merged to create an integrated airline, partly owned by Singapore Airlines. At the same time, Air India Express and AIX Connect (formerly AirAsia India) also merged. These two mergers have created a full-service carrier and a low-cost carrier of scale for the Tata Group. The two main players now in the Indian skies are Indigo and the Air India group. Presently, Indigo has a market share of around 60%, followed by the Air India with around 26%. Both have aggressive expansion plans and will compete in 2025 as Indigo will look to continue its domination of the domestic market, while looking to expand its international market footprint.
Expansion of airports
The Indian Civil Aviation Minister, Ram Mohan Naidu, has stated that the government will pump over INR 920 billion for the construction of new airports and the expansion of existing ones. India is expected to have 200 airports by the end of this year, while 200 more airports will be developed in the next two decades. The Noida International airport that is set to open in 2025 will be one of Asia's largest airports with a terminal designed to handle 12 million passengers annually in its first phase. Similarly, the Navi Mumbai International Airport completed its first flight validation test with the landing of an Indigo aircraft recently. The airport is expected to start commercial operations from April 2025, with scheduled domestic services to launch from May 2025 and international services from July 2025. The dual runway airport will be able to handle up to 90 million passengers per annum across four terminals upon completion. These new airports will not only enhance connectivity but will also create thousands of jobs, boost tourism, and lead to regional development.
Development of the local MRO Industry
Presently only around 15% of the MRO activity for Indian airlines is conducted in India. With two of the largest aircraft orders ever from Indigo and Air India on Airbus and Boeing, India stands out as a significant aircraft buyer. However, for want of MRO services in the country, a major chunk of this business is lost to MROs overseas. India cannot become an aviation hub unless it reduces its reliance on foreign facilities and enhances its local MRO capabilities. A significant step in this direction has been the uniform 5% tax rate on all imports of aircraft parts and components. Previously, this rate varied from 5% to 28% on aircraft components. The government has also extended the period for exporting goods imported for repairs from six months to one year and custom duty on tools and toolkits is also exempted.
Positioning GIFT City as a Global Leasing Hub
The Government of India has recognized the potential of the aircraft leasing and financing business and wants to develop GIFT City as a global aircraft leasing hub like Dublin and Singapore. The success of GIFT city to a large extent hinges on tax incentives. Recognizing this, the Indian Government provides a range of tax benefits to units established in the GIFT City. These tax benefits include a tax holiday for any 10 consecutive years out of 15 years of operation, exemption from capital gains tax on aircraft sales during the tax holiday period, and similar exemptions for non-residents selling shares in special purpose vehicles (SPVs). Further, the tax perks also include no minimum alternate tax for those opting for the new tax regime, tax exemptions on royalty and interest income for non-resident lessors leasing to GIFT City units, and waivers on customs duties for aircraft imports and stamp duties related to unit setup and property acquisition—subject to specific conditions. In the last year, there has been a surge in activity from GIFT City, with around 30 aircraft lessors already registered and more than 120 aviation assets, including aircraft, helicopters and engines leased from GIFT City. 2025 may see many more leasing transactions routed through the GIFT City.
Cape Town Convention
The recent Go First crisis where lessors were prevented from even inspecting their aircraft, let alone repossessing them, for the longest time raised serious questions on India's credibility as a nation wanting to uphold the Cape Town Convention. Upon facing severe backlash from the global aviation industry, the Government took steps to address the issues faced by lessors when an airline goes bankrupt. A notification was issued stating that the extant provisions of Indian Insolvency and Bankruptcy Code, 2016, with respect to the application of moratorium have been exempted for transactions, arrangements or agreements governed by the Cape Town Convention relating to aircraft, aircraft engines, airframes and helicopters. Accordingly, the lessors would now be able to swiftly repossess their aircraft where an operator files for bankruptcy. Earlier this month, the Union Cabinet has also approved the Cape Town Convention Bill, and it will soon become the law in India.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
