Will India's FY27 Budget Grant Aircraft Infrastructure Status to Ease Airline Financing?

The Indian government is reportedly considering a major policy shift in the upcoming Union Budget FY27. This proposal involves granting India aircraft infrastructure status under the asset category. The move is designed to boost the rapidly growing Indian aviation sector growth by addressing critical airline financing challenges and making aircraft acquisition loans more accessible.

Industry analysts view this as a transformative step. It could significantly reduce the financial burden on carriers. Currently, airlines rely on standard commercial loans at higher interest rates for new acquisitions.

The Infrastructure Status Mechanism

Granting infrastructure status would fundamentally change how airlines access capital. The key benefit is eligibility under the Priority Sector Lending (PSL) framework. This framework is regulated by the Reserve Bank of India (RBI).

• Banks must allocate a portion of their lending to identified critical sectors.
• Airlines could access loans at lower interest rates and from a wider pool of lenders.
• The classification would help revive bank interest in aviation lending.

This new access to capital is especially important for smaller operators. Start-up airlines often face difficulties acquiring aircraft. High costs and limited domestic financing options are major hurdles. The proposal aims to support the government's goal of improving credit availability. This includes a focus on airlines operating smaller-capacity aircraft.

Precedent and Legal Context

Historically, a major objection to this status was that aircraft are movable assets. This concern was reportedly addressed by a recent precedent. The previous Budget granted infrastructure status to commercial shipping vessels. This established a framework for classifying movable assets as infrastructure.

Furthermore, the infrastructure classification aligns with other legislative efforts. It is seen alongside the Protection and Enforcement of Interests in Aircraft Objects Bill. This Bill, once approved, will lower leasing costs. It also enhances legal certainty for lessors. This is a step toward ratifying the Cape Town Convention. Ratification is crucial for the smooth global movement of aircraft assets.

Impact on Fleet Expansion and Market Growth

India's aviation market is undergoing unprecedented expansion. The International Air Transport Association (IATA) forecasts India will become the world's third-largest aviation market by 2026. This growth is driven by a rising middle class and regional connectivity schemes like UDAN.

• Domestic air passenger traffic is projected to grow by 7–10% in FY26.
• Indian carriers have placed orders for over 1,700 new aircraft.
• The market size is forecast to reach $28.96 billion by 2031.

Despite this strong demand, the industry faces financial strain. High operating costs, including elevated Aviation Turbine Fuel (ATF) prices and increased lease obligations, persist. The infrastructure status could support a shift from expensive operating leases to more cost-effective finance leases. This would aid in fleet expansion financing and reduce long-term costs.

The opportunity is significant for manufacturers like Airbus and Boeing. Easing financing for Indian carriers helps secure the massive order book. The ultimate goal is to translate lower financing costs into more competitive airfares for passengers. This would make air travel more accessible across the country.

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