Aviation

Civil aviation is one of the fastest-growing sectors in India. India is projected to have more than 500 million domestic and international air travelers by 2030 and has the potential to become the world’s leading aviation market by 2047. During 2022, the number of domestic passengers grew almost 50% while international passenger traffic grew by over 150%. According to the Directorate General of Civil Aviation, over 76 million passengers were carried by domestic airlines during the first half of 2023 (January-June) as compared to 57 million during the same period of the previous year. registering an annual growth of over 32 percent. The number of airports in India has increased to 147 in 2022 from 74 in 2014 and expected to reach 220 by 2025.

India’s Vision 2040 strategy document outlines development needs for the sector, including a five-fold increase in the number of airports needed to handle over a billion passenger trips a year. The Airports Authority of India (AAI), a nodal authority under the Ministry of Civil Aviation, is responsible for creating, upgrading, maintaining, and managing civil aviation infrastructure in India. AAI is one of the largest airport operators in the world, owning 137 airports (24 international, 80 domestic, 23 domestic defense airfields, and 10 customs). Under its asset monetization through public-private partnership model, AAI has an ambitious plan to privatize airports under its purview and bundle profitable airports with loss-making ones in the sales process. 

In 2016, the Ministry of Civil Aviation released the National Civil Aviation Policy (NCAP). It included objectives such as promoting the rapid growth of the sector, improving the ease of doing business, advancing regional connectivity, and opening opportunities for additional players in the market to meet India’s largely untapped and growing demand. To address the supply-demand gap in India, a key component of the NCAP is “Ude Desh ka Aam Naagrik,” an initiative that includes a Regional Connectivity Scheme (RCS) to make air travel more affordable and add routes and flights for unserved and underserved airports. As of August 28, 2023, 481 out of 1000 routes had been operationalized under the RCS scheme, with the goal of 50 additional airports, heliports, and water aerodromes. The NCAP also strives to improve code share agreements, enabling designated air carriers to enter international and domestic codeshares with foreign carriers if the codeshares are in accordance with existing Air Service Agreement provisions.

Partner Agencies

The U.S. Federal Aviation Administration’s (FAA) Aircraft Certification Service and the Indian Directorate General of Civil Aviation maintain a “Bilateral Aviation Safety Agreement with Implementation Procedures for Airworthiness” designed to facilitate the exchange of aviation products between the United States and India. The FAA and India’s civil aviation authorities continue to explore opportunities to expand bilateral cooperation. Following protracted negotiations, the Indian Bureau of Civil Aviation Security (BCAS) granted U.S. carriers the right to perform their own ground handling services in India, in line with the U.S.-India Open Skies agreement. Based on the recent Aviation Safety Assessment, FAA has determined that India is in compliance with the international standards for aviation safety oversight and has demonstrated a commitment to ensuring the effective safety oversight of India’s aviation system.

Established in 2007, the U.S.-India Aviation Cooperation Program (ACP) is a unique bilateral public-private partnership between the U.S. Trade Development Agency (USTDA), FAA, and U.S. aviation companies, providing a forum for unified communication between the Government of India and U.S. public and private sector entities in India.

Transportation Security Administration (TSA) cooperates with the Ministry of Civil Aviation and BCAS through bilateral Aviation Security Working Group meetings. TSA and BCAS share information related to risk assessments, capacity development, air marshal training, and other security issues through a bilateral Sensitive Security Information Memorandum of Agreement that was signed in 2013.

U.S.-India Civil Aviation Trade Data

Data Sources: Ministry of Civil Aviation, Ministry of Commerce & Industry, Directorate General of Civil Aviation, USDOC, Bureau of the Census – Foreign Trade Division. Statistics cited for HS Code: 88

Leading Subsectors

Maintenance, Repair, and Overhaul (MRO): The Indian government has revised its MRO policy to increase the ease of doing business, with the goal of making India a global leader in the MRO sector. Approximately 90 percent of India’s MRO activity occurs outside of India, predominantly in Sri Lanka, Singapore, and Malaysia. Local capabilities are nascent but exhibit growth potential. Efforts are underway to make India a regional hub for MRO services, given its advantageous geographic location between Europe and Southeast Asia and its proximity to the Middle East. India’s growing aircraft fleet of aircraft is likely to translate into an increase in demand for maintenance services and MRO facilities.

Safety and Security: Obtaining innovative aviation safety and security systems and equipment is a top priority in India, particularly with respect to India’s efforts to develop greenfield and brownfield airports across the country. Growth in this sector is anticipated to be strong, and along with airport development itself there is a nexus with India’s efforts to develop multi-modal logistics hubs across India.

Navigation and Air Traffic Management Systems: AAI continues to upgrade and modernize air navigation services. With the launch of the GPS-Aided GEO-Augmented Navigation system, India became the fourth country in the world to implement satellite-based navigation systems and began utilizing satellite-based Automatic Surveillance-Broadcast services in 2019. India’s aviation authorities retained FAA Category 1 status after the most recent inspection.

Helicopters: To encourage demand for and usage of helicopters in the civil aviation sector, the Indian government recently issued its “Policy for Promotion of Helicopter Operations,” which invites opportunities to increase fleet size and usage beyond the traditional short-haul travel, tourism, disaster management, and emergency response sectors. India has approximately 90 helicopter operators, including non-scheduled operators, private companies, state governments, and public sector utility companies, comprising a combined fleet of 280 turbine helicopters – a small fraction of the 14,000 helicopters in service in the United States. As this segment grows, there are burgeoning opportunities in fleet sales, MRO, and helicopter pilot training services and facilities.

Unmanned Aircraft Systems (UAS): In February 2022, the Directorate General of Foreign Trade banned the importation of foreign drones. However, an exemption is in place for research and development (R&D), defense, and security purposes. These nonetheless require specific approvals to be imported into the country. The importation of drone components will not require approvals. Imports are also allowed in the form of completely built-up, completely knocked down or semi knocked down units for R&D purposes by entities such as the central or state government, government-recognized R&D institutions, and indigenous manufacturers. In August 2021, the Indian government released its “Drone Rules 2021,” with the goal of making India a global hub for drone R&D, testing, manufacturing, and operations. According to EY, India could have the capacity to manufacture drones worth $4.2 billion by 2025 and $23 billion by 2030.

Human Resource Development: Training, skilling, and human resource development are key priorities for the Indian civil aviation sector. The supply of skilled labor has not kept pace with the industry’s rapid growth in pilots and air crews, ground staff, or airport management personnel. There are opportunities for education and training service providers across the industry, and there is untapped demand for innovative training simulators.

India’s primary educational institution for the industry, the Rajiv Gandhi National Aviation University, is exploring collaboration with foreign and domestic partners. The country’s primary flight training institution, the Indira Gandhi Rashtriya Uran Akademi, continues its efforts to improve flight and ground training of commercial pilots. India’s National Skill Development Council has a separate entity called the Aerospace and Aviation Sector Skill Council to identify needs and explore conducive environments to develop educational curricula. There are only 32 approved Flight Training Organizations in India, which struggle to supply trained pilots to meet the demand for 1,000-1,500 pilots per year.

Space: India is one of only a few countries in the world with an advanced space program and has seen rapid growth in the sector over the last several years. On August 23, 2023, India successfully landed a spacecraft on the Moon, becoming the fourth country in the world achieve this feat, creating history as the first to land near the Moon’s south pole. In May 2020, the Indian government announced that it would allow the Indian private sector to participate in its space programs. This was a major shift in policy, and an effort to speed sectoral development and expand India’s share of the global market. India’s share of the global space market currently stands at less than two percent but is forecasted to reach ten percent within the next five to seven years. India’s space launch operations currently account for less than one percent of the global launch services market. A regulatory framework for space activities in the country was released in April 2023. India’s private sector space ecosystem is developing rapidly, and the Indian government’s steps towards privatization will create opportunities for international space companies as well. In recent years, a small number of Indian start-ups have developed innovative space systems, designed launch vehicles, and manufactured small satellites to be included in future Indian launches. As the Indian private sector gears up to play a greater role in Indian space programs, we are likely to see a commensurate rise in international tie-ups, especially where there are capability gaps.

Opportunities

In 2023, Tata-owned Air India and market leader IndiGo orders of 470 airplanes (220 from Boeing and 250 from Airbus) and 500 aircraft (Airbus A320), respectively. Leading aircraft original equipment manufacturers (OEMs), including Boeing and Airbus, see India as an important market for both exports and manufacturing because of the high demand for aircraft, parts and equipment, strategic geographic location, engineering expertise, and competitive labor costs. Foreign OEMs are more and more partnering with Indian suppliers and small- and medium-sized enterprises to fulfill needs for Tier-1 suppliers and to set up an aerospace industry ecosystem within the country. U.S. companies are also likely to see opportunities in airport infrastructure and MRO projects, and in rollout of pilot and staff training facilities, against a backdrop of airports privatization.

To decongest urban airports and create environment friendly sustainable airport infrastructure, the Indian government formulated a Greenfield Airports Policy in 2008 and published guidelines for setting up of greenfield airports in 2016. The government has accorded “In-Principle” approval for 21 new greenfield airports. Out of these, 11 greenfield airports — Durgapur, Shirdi, Kannur, Pakyong, Kalaburagi, Orvakal (Kurnool), Sindhudurg, Kushinagar, Itanagar, Mopa, and Shivamogga — have been operationalized.

To achieve zero-carbon emission goals and mitigate the effects of greenhouse gases, the government has also launched its “Sustainable Green Airports Mission” (SUGAM), focused upon several initiatives such as green buildings, solar power plants, energy efficient heat ventilation and air-conditioning (HVAC) systems, and innovative energy efficient technologies. As India builds out greenfield and brownfield airports, there will be opportunities for U.S. companies in airport planning and development, energy efficient and zero-carbon emissions airport technologies, safety and security products (including cargo and passenger scanners), and innovative technologies like touchless airport and passenger ticketing and baggage management systems.

The MRO sector offers immense opportunities for U.S exporters in engine spare parts and components, workshop tools, testing equipment, inspection equipment, auxiliary power units, and maintenance training services. With the projected increase in fleet size over the next few years, engine maintenance is likely to be a lucrative segment, and demand is projected to grow rapidly. Both engines and airframes constitute 60-70 percent of the MRO sector by value. In recent years, the government has taken many steps to provide greater support to the sector. Among these steps are a reduction in goods and services tax from 18 percent to 5 percent for the MRO sector; a focus on developing high-precision manufacturing capabilities; and creation of employment opportunities for skilled manpower. The Indian government also intends to lease additional land for MRO activities across India. These efforts are targeted at making India a leading global MRO hub.

For more information, please contact U.S. Commercial Service Industry Specialist Sudhir Kesharwani.

Defense Sector Overview 

 India has the third largest armed forces in the world and plans to spend additional billions of dollars on defense articles over the next several years. India’s resolve to drastically reduce its reliance on imports, referred to as “Aatmanirbharta” (self-reliance), is perhaps the biggest strategic development related to the defense sector, with the goal of achieving domestic manufacturing turnover of $25 billion in the next five years. As part of its indigenization drive, India’s Ministry of Defense (MOD) has been notifying the list of strategically important line replacement units/sub-systems/spares & components in phases. In October 2022, Indian Prime Minister Narendra Modi announced India’s fourth positive indigenization list (PIL), adding 101 new items to the previous three PILs. The list now contains a total of 411 items and is likely to grow. The government maintains that the shift is aimed at creating “an environment where public, private, and foreign entities can work together and help India become one of the leading countries in defense manufacturing.” According to the Defense Acquisition Procedure (DAP) 2020, India intends to procure all restricted items from indigenous sources. These import restrictions will likely impact current deals underway between U.S. suppliers and Indian buyers.

The Indian government’s initiative to expand indigenous defense manufacturing demonstrates the country’s determination to become more self-reliant in the sector. However, demand for innovative, next-generation technologies in a wide range of subsectors will remain. It is worth noting that certain types of defense equipment not manufactured in India are exempted from basic customs duties. The Indian government’s approach to the development of indigenous manufacturing is also outlined in the Defense Production and Export Promotion Policy 2020. Two Defense Industrial Corridors in the Indian states of Uttar Pradesh and Tamil Nadu were announced in the 2018-2019 budget, which includes incentives to attract manufacturers and suppliers.

Notwithstanding these efforts to develop India’s indigenous defense sector are moving forward, the country’s defense manufacturing still remains significantly underdeveloped, making India an attractive market for foreign technological collaboration. Over the past ten years, U.S. companies have had increasing success in the Indian defense market, and India has procured over $18 billion worth of defense equipment from the United States. India also sources subsystems, components, and OEM parts from U.S. suppliers. Major U.S. defense companies, many of which have expanded manufacturing operations in India, are on the lookout for second- and third-tier suppliers.

India’s total 2023 defense budget is $72 billion, of which $20 billion is earmarked for procurement of domestically manufactured weapons and military platforms with the goal of strengthening the indigenous arms industry. India recorded a 15 percent increase in its total defense production, from $11.8 billion in 2021 to $13.6 billion in 2022. The Indian defense sector has traditionally been dominated by state-owned enterprises, known as Defense Public Sector Undertakings (DPSUs) and ordnance factories that report to the Ordnance Factory Board. These DPSUs and ordnance factories comprise roughly 90 percent of total domestic defense manufacturing output, according to industry sources. In 2021, the government restructured the Ordnance Factory Board to create seven new DPSUs to manufacture according to the specific needs of the Indian armed forces. These new entities may potentially collaborate with the private sector for the supply of advanced military technologies.

The new DPSUs include Munition India Limited, Pune (ammunition and explosives); Armored Vehicles Nigam Limited, Chennai (vehicles); Advanced Weapons and Equipment India Limited, Kanpur (weapons and equipment); Troop Comforts Limited, Kanpur (clothing); Yantra India Limited, Mumbai (ancillary); India Optel Limited, Dehradun (opto-electronics); and Gliders India Limited, Kanpur (parachute group). While the Indian DPSUs and private sector OEMs produce combat aircraft, naval vessels, heavy trucks, and other military equipment, they invest little in R&D. As a result, India’s defense industrial base and technologies remain underdeveloped, and Indian industry has had difficulty meeting the demand for next-generation equipment. Consequently, opportunities remain for international suppliers to provide innovative technology solutions and platforms.

In 2016-2017, the Ministry of Defense began efforts to institutionalize, streamline, and simplify procurement procedures. These procedures were revised in the DAP 2020, an attempt by the Ministry to refine procurement procedures with a focus on self-reliance. To attract FDI from foreign OEMs, DAP 2020 increased the FDI limit to 74 percent and encourages foreign manufacturers to establish operations in the Defense Industrial Corridors in Uttar Pradesh and Tamil Nadu. DAP 2020 includes five procurement categories: (1) Buy; (2) Buy and Make; (3) Make; (4) Leasing; (5) Design and Development/Innovation. These categories include subcategories listing details on indigenous content requirements. The Strategic Partnership Model can be pursued separately, in sequence, or in tandem, with any of these five categories. This model aims to create a vibrant defense manufacturing ecosystem in the country through joint ventures between Indian corporates and global defense majors. Candidates in this category are selected early in the planning process and are given priority over candidates from other categories.

The U.S.-India defense trade relationship has been on a positive trajectory following the U.S. designation of India as a Major Defense Partner in 2016. In 2018, the U.S. Department of Commerce announced Tier 1 Strategic Trade Authorization status for India, enabling a license exception for many U.S. exports to India subject to the Export Administration Regulations. The 2018 Communication Compatibility and Security Agreement between the United States and India facilitates interoperability and enhanced information and intelligence sharing between the countries. The Indian and U.S. armed forces continue to expand their schedule of bilateral and joint military exercises, further strengthening the bilateral partnership.

The U.S. Embassy’s Office of Defense Cooperation (ODC), in close cooperation with the U.S. Foreign & Commercial Service (USFCS), assists with defense advocacy cases on behalf of U.S. suppliers bidding on Indian defense procurements and that meet the requisite 51 percent U.S. export content requirement. ODC is the lead agency for Foreign Military Sales support while USFCS leads on Direct Commercial Sales. Both ODC and USFCS coordinate with the U.S. Department of Commerce’s Advocacy Center in Washington, D.C. on these efforts. It is worth noting that the Indian government tendering process offers little flexibility in terms and conditions and product specifications. 

Leading Subsectors

Land Systems: The Ministry of Defense under its Light Tank Program plans to procure 354 light tanks and strengthen India’s defense capabilities. India continues to develop indigenous armored vehicles, land mobility solutions, mining and bridging solutions, artillery systems, landing gears, armament and ammunitions, land missiles, and other defense equipment.

Air Systems and Air Defense: To safeguard its forces and the assets, the Indian military is looking for solutions for intrusion and tunnel detection using technologies such as heat imaging, radars, high resolution cameras, and artificial intelligence integration. For soldier wellbeing and protection, the army is interested in advanced protective equipment, weight reduction of body armor, helmets, and modular materials.

Maritime Systems: With a coastline of more than 7,800 km, the Indian Navy faces a significant challenge securing the country’s maritime interests. The Indian Navy is looking to acquire robust and advanced tech solutions such as Sea Lines of Communication, underwater harbor defense, surveillance systems, mine countermeasure measures, unmanned underwater vehicles, torpedo launchers, decoy launchers, winches, missile, munition loaders, and anti-torpedo defense systems.

MRO: Given the Indian armed forces’ aging platforms and equipment, as well as planned procurements of new advanced systems and platforms, the demand for robust MRO capabilities located in India is projected to increase. The leading Indian MRO companies and DPSUs are exploring opportunities to collaborate with international companies to acquire state-of-the-art technologies to maintain the latest platforms.

Opportunities

India enjoys a unique status as a Major Defense Partner of the United States, opening opportunities for India to procure sensitive defense technologies. As bilateral ties between the United States and India strengthen, defense cooperation is expected to increase in parallel. Defense is one of the most promising sectors for U.S. exports to India thanks to the United States’ technological edge and India’s security needs. There is also a shared U.S.-India interest in issues such as counter-terrorism cooperation, maritime security, and weapons proliferation monitoring, making India an important partner in the Indo-Pacific region.

The United States and India have established a wide-ranging, strategic partnership in which defense and security cooperation have evolved to become a vital pillar of engagement. The vision for bilateral defense cooperation was established in the September 2013 Joint U.S. – India Declaration on Defense Cooperation and the 2015 Framework for the U.S. – India Defense Relationship, wherein the United States and India signaled their continued commitment to defense cooperation to promote regional and global security and stability. In May 2022, U.S. President Biden and Indian Prime Minister Modi announced the U.S.-India initiative on Critical and Emerging Technology (iCET) to elevate and expand strategic technology partnership and defense industrial cooperation between the governments, businesses, and academic institutions of two countries.

The United States is in support of India’s efforts to become a logistics hub in the region for repair and maintenance infrastructure for aircraft and ships while integrating Indian defense industry into global supply chain of U.S. defense and aerospace companies. The United States and India have identified below projects on priority for cooperation:

• Intelligence, Surveillance, and Reconnaissance
• Undersea Domain Awareness
• Air Combat and Support, including Aero Engines
• Munitions systems
• Mobility

Both countries will present concepts for cooperative projects through government channels, as well as by facilitating business-to-business connections that will advance private innovation and opportunities for cooperation (including through the launch of a new “Innovation Bridge” to connect U.S. and Indian defense startups).

While the Indian defense market offers substantial potential, it is a challenging market that requires patience and persistence. The Indian authorities and local partners alike are price sensitive and likely to negotiate stridently. Defense procurement is tightly regulated, timelines are often long, and transparency is limited. Substantial payment delays are common. It is strongly advised that U.S. companies find reliable partners in India to assist with mitigating these issues and facilitating deals, particularly in the case of government procurements.

For more information, please contact U.S. & Foreign Commercial Service Industry Specialist Sudhir Kesharwani.