This article has been written by Shraddha Vasanth, pursuing a Diploma in Business Laws for In-House Counsels from LawSikho.

Introduction

Humans have always aspired to fly high; to take off from the grounds and reach the sky! Both literally and metaphorically! And this aspiration came true when Wilber Wright and Orville Wright, the Wright brothers invented the aeroplane on 17 December 1903. The aviation industry has come a long way from there!

In simple terms, airlines business is an entity that operates services for carrying passengers and/ or goods by aircraft. The business includes regional, national and international passenger flights to cargo and private or charter flights as well. The business can also be classified as full- service carriers, low-cost carriers and charter carriers. The industry employs a number of people from pilots, flight attendants, air hostesses to many line personnel, operations, maintenance, sales and marketing personnel and also generates indirect employment to other sectors like manufacturing, testing, food, infrastructure and hospitality. 

Given the tremendous growth of the sector and the need for safety while travelling, governments, the world over, have mandated the following of strict rules and safety standards. International agreements and conventions have further reinstated the need for better regulation and compliance of these standards. India, being a party to these conventions has always strived to adopt the best practices; and the Indian government has framed several legislations to regulate the airlines business.

Aviation sector in India 

• India, today, is the 9th largest aviation market in the world.
• India is the fastest growing domestic market as well as the fastest growing aviation market. It is also projected to cater to about 520 Mn passengers by 2037.
• The demand for Indian aircraft is expected to increase to 1,750 by 2037 .
• India will require nearly 1600 aircraft worth USD 224 Bn in the next 20 years.
• And interestingly, India has the highest proportion of female commercial pilots in the world of about 12%, which is 5% higher than the global average.

What drives the growth of the aviation sector?

• Growing middle class and hence, a growth in leisure travel.
• Better management of obsolescence and life cycle of aircraft.
• Modernisation of infrastructure – growth in MRO Services (Maintenance, Repair and Overhaul).
• National Civil Aviation Policy (NCAP) coupled with the liberalisation of foreign investment in the sector have provided a huge boost.
• Ude Desh Ka Aam Nagrik (UDAN) Scheme which aims to develop regional airports and enhance domestic connectivity. The scheme also intends to make air travel affordable to all citizens. It is also expected that about $ 120 bn is being pumped into the development of airports.
• Key policies to boost the MRO segment like rationalisation of customs duties, simplified clearance procedure for goods, lower taxes like VAT etc.

All these and more have contributed to the progress of the sector, and the growth trajectory is only expected to soar higher. This has necessitated better governance to boost the economy, provide safety to passengers as well as regulate air traffic. 

Key regulatory bodies governing the sector 

Aviation is a heavily regulated sector, with different bodies playing a role ranging from registrations to airport maintenance to prescribing security standards. Here’s a list of the various authorities and the roles they play in governing the sector:

Ministry of Civil Aviation (MoCA)

The Ministry is responsible for the overall formulation of legislations, national policies and programmes for the development and regulation of the aviation sector. The Ministry also exercises control over the other bodies related to civil aviation, mentioned below.

Directorate General of Civil Aviation (DGCA)

The DGCA is a statutory body primarily dealing with regulation of air transport services within/ to or from India. The DGCA is also the authority that grants permits for registrations of civil aircrafts, grants licensing of pilots, aircraft maintenance and other engineers, licenses of air traffic controllers, and prescribes standards of airworthiness. 

Bureau of Civil Aviation Security (BCAS)

The BCAS is the statutory authority responsible for laying down standards and measures for ensuring security of civil flights at both domestic and international levels. The BCAS is also responsible for implementation of security rules and training of security controls’ personnel.

Aircraft Accidents Investigation Bureau (AAIB)

The AAIB is the statutory body to conduct investigations related to aircraft accidents and incidents and to also formulate preventive measures.

Airports Economic Regulatory Authority of India (AERA)

The AERA was set up to regulate tariffs for aeronautical services, determine development fees and other airport charges as well as monitor the performance standards of airports. 

Airports Authority of India (AAI)

The AAI is responsible for the design, operations and development of domestic as well as international airports in India. It is also responsible for passenger facilities, and maintenance of runway, taxiway, aprons etc. at the airports. 

Special Laws applicable to aviation sector 

Some specific laws applicable to the operations of the civil aviation sector are:

• The Aircraft Act, 1934 and the Aircraft Rules, 1937
• The Aircraft (Carriage of Dangerous Goods) Rules, 2003
• The Civil Aviation Requirements (CAR)
• The Carriage by Air Act, 1972
• The Anti-Hijacking Act, 1982
• The Suppression of Unlawful Acts against Safety of Civil Aviation Act, 1982
• The Tokyo Convention Act, 1975
• The Airports Economic Regulatory Authority of India Act, 2008 

Types of registrations

Since the sector is strictly regulated, there are a number of registrations required for operations. These registrations range from permits for starting operations to permits for pilots and other personnel as well as for aircrafts. Some important registrations are:

• For commencement of operations – scheduled, non-scheduled and cargo
• For aircraft
• For personnel
• For airworthiness

Types of services

Broadly, services offered by airlines are broadly divided into 3 categories. Each of these have separate regulatory requirements in terms of eligibility, equity capital, airworthiness, staff capacity etc. and require Permits for commencement of operations. The other kinds of registrations pertaining to aircrafts, personnel etc. are explained elsewhere in the article.

The kinds of services and regulatory requirements are briefly explained below:

	Scheduled Air Transport Services	Non-Scheduled Air Transport Services	Cargo Services
Citizenship	Indian citizen Company/ Body corporate registered in India	Indian citizen  Company/ Body corporate registered in India	Indian citizen  Group of Indian nationals Trust/ Society NRI/ OCB Company/ Body corporate registered in India Cent. and State Govt.
Capital	Take-off mass weight of aircraft upto or exceeding 40,000 kgs Upto 5 aircrafts – Rs. 50 crores For every addition of 5 aircraft – additional Rs. 20 crores Take-off mass weight of aircraft exceeding 40,000 kgs Upto 5 aircrafts – Rs. 20 crores For every addition of 5 aircraft – additional Rs. 10 crores	Upto 2 aeroplanes/ helicopters – Rs. 2 crores 3 to 5 aeroplanes/ helicopters – Rs. 5 crores 6 to 10 aeroplanes/ helicopters – Rs. 10 crores More than 10 aeroplanes/ helicopters – Rs. 15 crores	Not less than Rs. 1 crore
FDI permitted	Upto 100% under Automatic Route	Upto 100% under Automatic Route	Upto 100% under Automatic Route

Scheduled Air Transport Services 

Air transport services that are provided/ undertaken between 2 or more places in accordance with a pre-published schedule are called Scheduled Air Transport Services; i.e., they follow a systematic time table and all flights are available to the general public. The regulatory requirements for these services are provided under Rule 134 (Part XIII) of the Aircraft Rules, 1937 read with Schedule XI and the Civil Aviation Requirements (CAR) Section 3, Part III. 

Eligibility criteria for commencing operations 

Citizenship – Permission for providing Scheduled Air Transport Services is given: 

• Indian citizen, or
• Company or a body corporate: 
  • That is registered and has its principal place of business within India;
  • Whose Chairman and at least two-thirds of its Directors are Indian citizens; and
  • Whose substantial ownership and effective control is vested in Indian nationals.
• The sectoral caps and other conditions prescribed Foreign Direct Investment (FDI) policy shall apply for foreign investors (discussed below in the article).

Paid-up capital requirements (to be certified by the Banker or Chartered Accountant) 

• Airlines operating with aircraft of take-off mass upto 40,000 kgs
  • Upto 5 aircrafts – Rs. 50 crores
  • For every addition of 5 aircraft – additional Rs. 20 crores 
• Airlines operating with aircraft of take-off mass exceeding 40,000 kgs
  • Upto 5 aircrafts – Rs. 20 crores
  • For every addition of 5 aircraft – additional Rs. 10 crores 

Non-Scheduled Air Transport Services 

Air Transport Services that do not operate according to a specified schedule are called Non-Scheduled Air Transport Services and they may be in the nature of charter planes. However, they are not available to the general public. The regulatory requirements for these services are provided under Rule 135 (Part XIII) of the Aircraft Rules, 1937 and the Civil Aviation Requirements (CAR) Section 3, Part III.

Eligibility criteria for commencing operations 

Citizenship – Permission for providing Scheduled Air Transport Services is given to 

• Indian citizen, or
• Company or a body corporate: 
  • That is registered and has its principal place of business within India
  • Whose Chairman and at least two-thirds of its Directors are Indian citizens and
  • Whose substantial ownership and effective control is vested in Indian nationals

• The sectoral caps and other conditions prescribed Foreign Direct Investment (FDI) policy shall apply for foreign investors (discussed below in the article).

The applicant is required to possess at least 1 aircraft, either owned or leased.

Paid-up capital requirements (to be certified by the Banker or Chartered Accountant) 

1. Upto 2 aeroplanes/ helicopters – Rs. 2 crores
2. 3 to 5 aeroplanes/ helicopters – Rs. 5 crores
3. 6 to 10 aeroplanes/ helicopters – Rs. 10 crores
4. More than 10 aeroplanes/ helicopters – Rs. 15 crores 

Cargo services 

Services are for the transport of cargo and mails fall under Cargo services; passengers are not allowed on these flights. Part IV of the CAR deals with the specific registration and compliance requirements for operation of cargo services both within and outside India.

Eligibility criteria for commencing operations 

• Citizenship – Permission for providing Scheduled Air Transport Services is given to 

1. Indian citizens, or
2. A group of Indian nationals, or 
3. Trust/ Society registered under the Societies Registration Act, 1860, or
4. Non-Resident Indian (NRI)/ Overseas Corporate Bodies (OCB), or
5. Company registered under the Companies Act, 1956/ 2013, having its principal place of business within India and with or without foreign equity participation (excluding NRI equity), or
6. The Central Government or a State Government or an Undertaking owned or controlled by either of the said Governments.

• Paid-up capital requirements (to be certified by the Banker or Chartered Accountant) – not less than Rs. 1 crore. 

Procedural requirements for obtaining Permits 

This procedure is applicable for obtaining Permits for both Scheduled and Non-Scheduled services as well as cargo. However, the documentation, fees payable etc. vary. The details required with respect to each type of service offering are available in the applicable CAR.

1. An Application is to be made for obtaining the No Objection Certificate (NOC) from the DGCA along with the prescribed fees and documents such as the Draft Security Model, Composition of the Board of Directors, Certificate from Chartered Accountant, Feasibility Report, Ownership pattern, Human Resources and maintenance support etc.   
2. The applicant is required to submit necessary information for import of aircraft, comply with all the mandatory Airworthiness Directives and satisfy the DGCA that all the equipment is installed as per the prescribed regulations.
3. The applicant should also ensure that all the operational requirements are complied with and follow the guide routes specified in the Route Dispersal Guidelines.
4. Upon completion of the above requirements (Pre-Application phase), the applicant can submit the Formal Application for availing the Air Operator Certificate/ Permit. The application should contain the following details:

• Particulars of aircraft to be used.
• Certificates of Registration and Airworthiness of the aircraft.
• Details of organisations that will undertake maintenance of aircrafts.
• Details of licences of pilots and engineers, and comprehensive insurance policies. covering passengers and other risks.
• Financing pattern of leasing/ obtaining aircraft etc.

Other registrations 

As mentioned earlier, there are various other items that require registration under the Aircraft Rules and the CAR. Some of these are presented below: 

Registration and marking of aircraft 

The Aircraft Rules mandate registration of all aircrafts used by the company. Some important points are:

(1) Aircraft has to be registered and it has to bear nationality and registration marks and the name and address of the owner, year of manufacture, etc. [Rule 5, 30]

(2) Aircraft may be registered under 2 categories, depending on ownership 

1. Category A – Where the aircraft is wholly owned either by–Indian citizens or
   • Company or corporation registered and having its principal place of business within India; or
   • Central or any State Government or any company/ corporation owned or controlled by either of the said Governments; or
   • Company or corporation registered elsewhere than in India, subject to the condition that such company/ corporation has given the aircrafts on lease to any of the persons mentioned above. 
2. Category B – Where the aircraft is wholly owned either by–
   • Persons who are resident in or carrying on business in India, who are not Indian citizens; or
   • Company or corporation registered outside India and carrying on business in India.

(3) The relevant documents are to be provided along with the prescribed fees.

(4) Any change in ownership is to be notified to the DGCA.

Registration of Aircraft Personnel 

The Rules mandate personnel like engineers, pilots and other staff to have licenses to be appointed as such. These licenses include Student Pilot’s Licence, Private Pilot’s Licence, Commercial Pilot’s Licence, Flight Navigator’s Licence etc. Some important points with regard to licencing of personnel are:

1. Aircraft should only be operated by personnel who are licensed in accordance with Part V of the Aircraft Rules, 1937 [Rule 38]
2. Licenses availed in foreign countries will also be considered as valid subject to such conditions and limitations that the DGCA may consider appropriate. 

Certificate of Airworthiness 

Airworthiness is the measure of suitability of an aircraft for a safe flight. Rule 49 of the Aircraft Rules read with Part VI prescribe the requirements in this regard.

1. The applicant is required to furnish relevant documents i.e., the Inspection and Test Certificates to assure the DGCA that the aircraft, aircraft component or equipment are suitable for aviation purposes.
2. These provisions apply in case of modification and repair of aircrafts as well.

Fees payable 

The fees payable for obtaining the various registrations/ licences and permits under the Act/ Rules range anywhere between Rs. 10,000/- upto Rs. 20,00,000/- depending on the categories of permits. 

Foreign Direct Investment (FDI) policy 

The extant FDI Policy permits upto 100% FDI for the following activities falling within the civil aviation sector. This is however, applicable only for new companies looking to start operations in India.

Activity	% of Equity/ FDI cap	Entry Route
Scheduled Air Transport Services/ Domestic Passenger Airline and Regional Air Transport Services	100%	Upto 49% – Automatic Route Beyond 49% – Government Route (100% – Automatic Route for NRIs)
Non-Scheduled Air Transport Services	100%	Automatic
Helicopter services/ seaplane	100%	Automatic
Ground handling services	100%	Automatic
Maintenance and repair organisations, flying and technical training institutes	100%	Automatic

Existing foreign airlines looking to invest in India can do so by investing in the equity capital of companies operating Scheduled and Non-Scheduled Air Transport Services upto 49% (including FDI and Foreign Portfolio Investments) under the Govt. route.  

General Laws applicable 

1. Incorporation under the Companies Act, 2013 – E-Form SPICe+ is to be submitted along with the Memorandum and Articles of Association (MOA and AOA) of the Company along with Directors details, details of subscribers and Registered Office address.
2. Income Tax Permanent Account Number (PAN) and Tax Deduction/ Collection Account Number (TAN) Registrations
3. Registration under Goods and Services Tax (GST)
4. Registration under labour laws like Employees Provident Fund (EPF), Professional Tax (PT), Shops and Establishments etc.
5. Registrations/ intimations to the Pollution Control Boards (PCBs) as required under applicable Environmental laws and Aircraft Rules/ CAR.

Impact of COVID-19

Aviation sector has been one of the worst hit sectors by the Covid-19 pandemic. Travel restrictions, lockdowns and the resultant economic slowdown have all resulted in a remarkable drop in air travel across the world. According to a research by the Organization for Economic Co-operation and Development (OECD), the demand for air travel dropped by 75% in August 2020. Airlines are still incurring heavy costs of health and sanitation on account of Covid protocols and the operation of commercial flights at pre-covid levels still seems bleak.

The Airports Authority of India (AAI) has reported a 92% fall in revenues during April to June 2020. Apart from carriers, all other wings have also taken a huge hit in revenues, with revenue figures dropping by approx. 84%. Moreover, the near-complete closure of the tourism industry has aggravated the losses of aviation. Millions have lost jobs and were forced to go on vacation until things return to normal. 

Conclusion

However, not all is bleak with the sector. With the governments taking massive vaccination drives across India as well as other parts of the globe, one can hope life to return to normal soon. The government has also been monitoring the situation constantly to make policy changes to revive the sector. With the government contemplating on disinvesting the sector, there is a lot of scope for private players to enter the field. With these measures in place, one does hope that the airplanes soar high once again!

References

[1] https://science.howstuffworks.com/transport/flight/modern/airline.htm 

[2] https://www.gaebler.com/Starting-an-Airline-Business.htm

[3] http://www.oecd.org/coronavirus/policy-responses/covid-19-and-the-aviation-industry-   impact-and-policy-responses-26d521c1/#section-d1e168

[4] https://www.civilaviation.gov.in/en/ministry-documents/acts

[5] https://www.investindia.gov.in/sector/aviation 

[6] https://www.civilaviation.gov.in/sites/default/files/moca_000754.pdf 

[7]https://www.dgca.gov.in/digigov-portal/?dynamicPage=civilAviationRequirements/6/0/viewDynamicRulesReq 

[8] http://nishithdesai.com/information/areas-of-service/industry/aviation.html

[9] https://www.lexology.com/library/detail.aspx?g=c1856642-5358-432a-a956-b6bcffda941f

[10] https://iclg.com/practice-areas/aviation-laws-and-regulations/india

[11]https://www.moneycontrol.com/news/business/economy/heres-how-covid-19-has-hurt-the-indian-aviation-industry-5965511.html   

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