mARCH 2012 www.lawyer-monthly.com

Aviation Law India

Aviation is a major global industry, carrying millions of passengers every year. However, as environmental concerns grow, airlines are subjected to increasing amounts of legislation designed to cut the negative impact of the industry. The Emissions Trading Scheme (ETS) was implemented this year, looking to tax airlines for carbon emissions. To find out more about this and other legal issued within the Aviation industry, Lawyer Monthly speaks to Mr. Ravi Kini, Managing Attorney at Indian law firm, M.V. Kini & Co.

Q

On 1st January 2012, Airlines were brought under the ETS. what legal implications will this bring?

In India, the Aviation Turbine Fuel (ATF) constitutes over 40% of the operating cost for running the airlines. Apart from the other taxes, airlines are also charged 10.3% as service tax on maintenance repair and overhaul (MRO) facilities. With the existing rates and the additional levy of the EU carbon tax, the Indian airline industry will face an additional burden which shall increase the existing fare, the brunt of which shall ultimately be borne by the airline passengers.

Apart from the additional duty, the airlines

shall have to comply with the EU Regulations on the Emissions Trading Scheme, and any default or non-compliance may lead to litigation or arbitration within the European Union. This also would create a sense of uncertainly in an industry which is already in severe stress.

Q

what are the common challenges faced by your clients when involved in Aviation Law? Are they national or international issues?

The Indian aviation industry has been going through tough financial times and has suffered from steep losses. Despite these challenges, it has not received any concessions from the Government. Unlike the manufacturing or the service industry, there are no facilitating provisions for carrying forward tax losses of airline companies upon amalgamations or a demerger, etc. Apart from the increasing financial losses, the industry has also suffered from labour unrests

(mass strikes by pilots), plain crashes and charges of predatory pricing. Also, in India recently the Competition Commission and the Airport Regulatory Authority has been constituted, these are new arenas for the Aviation industry. The Aviation industry has to additionally been busy understanding the implication of these bodies and has grappled with changing their mode of functioning in view of these new legislative changes.

Q

Do you foresee the need for further legislative change in the next 12-24 months, if so why?

The Indian aviation sector is a major economic driver for prosperity, development and employment. Massive investments in airport infrastructure have led to world class airports which have become the symbol of India's growth story. However, to keep up the pace, there are various legislative/ reformative changes required to revive the debt ridden industry:

1. Government should provide subsidy to control ATF prices. At present while the airlines have to pay almost 40% of their costs for buying fuel, in other countries the ATF fuel constitutes only 20% of the fuel costs.

2. Foreign investment in aviation sector: At present the Foreign Direct investment in civil aviation sector is limited to 49%, and foreign airlines are not allowed to participate directly or indirectly in the equity of a domestic airline. However, with the government’s interest in opening the aviation sector for foreign investment by foreign airlines, this move will enable capital infusion into cash-strapped, heavily leveraged domestic carriers, and boost connectivity in the bargain.

3. Easy financing structures and low interest rates: With the increasing losses being

suffered by the Indian aviation industry, the banks and the financial institutions need to ease the interest rates for financing the working capital requirement and other operational expanses of the airlines.

4. Airlines to be brought under the definition of infrastructure: With the increasing numbers of flight commuters, the government must include airlines within the definition of “infrastructure” to entitle the airlines from availing the various discounts and incentives available to the infrastructure sector. LM

Legal Focus 57

Contact Details:

Mr. Ravi Kini M.V. Kini & Co. Advocates & Solicitors

Bilquees Mansion, 1st Floor, 261/263, Opp. Standard Chartered Bank D. N. Road, Above Loop Gallery, Fort, Mumbai – 400 001

Tel: (+91) 22612527 / 28 / 29 Fax: (+91) 2261 2530