The Indian civil aviation sector is currently going through an unprecedented and serious paradox. On one hand, the country is boasting of rapid expansion of new airports, while on the other hand, major airlines are burdened with deep financial crisis, grounding of aircraft and huge infrastructural deficiencies. According to the estimates of leading rating agency ICRA, the Indian aviation industry is expected to suffer a huge net loss of Rs 17,000 to 18,000 crore during the financial year 2026. Claiming to be the world’s third largest aviation market India Let us understand in detail why this deep crisis is looming over the skies of India and where the entire mathematics of the airlines is going wrong.
What is the reality of the hidden decline in government figures telling?
The latest figures for the second quarter (Q2FY27) of the financial year 2026-27 are clearly proving to be an alarm bell for the aviation industry. The total number of domestic air passengers has declined to 3.67 crore during this quarter. If this is compared with the 4.35 crore passengers carried in the previous quarter (Q1FY27), it is a straight up whopping quarterly decline of 16%. At the same time, compared to 3.89 crore passengers in the same period last year (Q2FY26), it has registered an annual decline of 6%.
Due to which main reasons are airlines drowning in deep financial losses?
According to government reports, the number of operational airports in the country is expected to increase from 74 in 2014 to around 163 by 2025 and the total passenger traffic was to cross the figure of 37.6 crore (376 million) in the financial year 2023-24. But despite this, the current ground reality remains very worrying. Firstly, there is a huge shortage of professional aviation companies in the country and only two-three big players are left in the market, who themselves are facing a serious struggle at the moment. Recently, there were reports of the government issuing licenses to some new aviation companies, but these companies still do not seem to be in a position to start their commercial operations on a large scale.
Drastic decline in capacity: According to data for September 2026 from aviation data analytics firm OAG, India The total seat capacity of the airline has declined by 4.5% on year-on-year basis to just 2.27 crore seats. There has been a decline of 5.6% in domestic capacity and 2.1% decline in international capacity.
Closure of regional flights: More than 100 important flight routes have been closed permanently due to loss of commercial viability and government subsidies under the UDAN scheme.
How did the problem of fleet grounding shake the country’s leading airlines?
The reason behind this slowness and poor condition of the Indian aviation sector are the failures of the global supply chain and Pratt & Whitney (P&W) Engine problems have emerged as the main causes:
Indigo status: When even the biggest market leader struggles, the health of the entire industry can be easily gauged. Global brokerage firms such as Jefferies and Goldman Sachs estimate that in the second quarter, even before adding forex losses, indigo may incur a net loss of approximately Rs 695 crore. On top of this, an additional forex loss of about Rs 1,000 crore (due to rupee weakness and higher crude oil costs) is expected to be incurred separately. Due to lack of passengers, seats in planes are flying empty, while there has been no reduction in the fixed costs of airlines (such as lease fares and huge salaries of employees). Having about 50% market share indigo Of P&W Technical glitches in the engines led to serious cracks, resulting in 60 to 70 aircraft in its fleet being completely grounded by January 2025.
Air India and SpiceJet crisis: This crisis is only indigo Is not limited to. tata group Despite being owned by air india Still struggling to modernize its aircraft fleet and overcome chronic operational problems. There itself, spicejet The situation is not hidden from anyone; Many of its aircraft are also grounded due to severe financial crisis, unresolved legal disputes and severe shortage of funds. air india lack of skilled crew amid its aggressive expansion and Mumbai Due to redevelopment works of the airport’s Terminal T1, its flights have to be cut. On the contrary, spicejet Its market share has dropped to just 1.2% by August 2026 and its operational efficiency has declined drastically by 45.2%, due to which the airline is under the strict surveillance of the Directorate General of Civil Aviation (DGCA).
Bankruptcy of Go First: go first Major airlines like P&W Due to failure of engines and non-receipt of backup claims in time, it eventually became bankrupt and completely shut down.
How did expensive ATF and heavy VAT spoil the entire mathematics of airlines?
About 30% to 40% of the total operating expenses of any airline are spent on aviation turbine fuel (ATF) and aircraft lease payments alone:
ATF outside the scope of GST: Due to non-implementation of Goods and Services Tax (GST) on aviation fuel (ATF), airlines have to pay excise duty of the Central Government as well as heavy VAT of various state governments. For example, Telangana VAT rate in India is 35.20%, Andhra Pradesh 31% in and Madhya Pradesh up to 29% in the U.S., although Delhi And Maharashtra Has definitely reduced it to 7%.
Excessive burden of taxes: Indian airlines have paid a total of about Rs 1.62 lakh crore in fuel taxes during the period 2014 to 2026, on which they do not get any benefit of Input Tax Credit (ITC).
Impact of geopolitical tension: west asia Due to the ongoing war and tension in India, planes have to fly on long routes, due to which fuel consumption has increased significantly. Additionally, the weakening of the Indian rupee against the US dollar is making foreign currency liabilities burdensome for airlines.
To what extent did policy shortcomings and lack of infrastructure exacerbate the crisis?
Some serious regulatory and structural deficiencies are also directly responsible for the poor condition of the Indian aviation industry:
Excessive dependence on foreign countries: India There is a severe shortage of world class MRO (Maintenance, Repair and Overhaul) facilities in India, due to which about 85% of the maintenance work Singapore And poland Like they have to be outsourced to foreign countries. Sometimes it takes a long time, up to four months, for the damaged engines to get repaired and return back to the country.
Acute shortage of skilled pilots: The industry required a total of 7,000 new pilots between 2024 and 2026, while only 5,700 Commercial Pilot Licenses (CPL) were issued by the DGCA during 2020 to 2024.
The battle of security versus business profits: DGCA’s subordination to the Ministry of Civil Aviation often gives rise to a situation of ‘regulatory capture’, where important safety rules such as pilot rest and duty hours (FDTL) are flexed rather than strictly enforced.
How did the crisis in West Asia add fuel to the fire?
Amidst this nationwide internal crisis west asia The ongoing geopolitical tension is adding fuel to the fire. israel And iran Due to the ever increasing conflict between India and Pakistan, a huge surge in the prices of crude oil is being seen in the international market. As it is clear that about 40% to 50% of the total expenditure of any airline is spent only on ATF, and India The tax burden on ATF in the U.S. is already the highest in the world. Crude oil becoming expensive in the international market will have a direct and negative impact on the operating margins of airlines, making it almost impossible for them to earn profits.
Will new legal reforms change the picture of Indian aviation sector?
To reform the aviation sector, the government has completely repealed the 90-year-old colonial era ‘Aircraft Act, 1934’ and introduced a new and modern one. ‘Indian Aircraft Act, 2024’ Has been applied. Under this new Act, there is a provision to impose heavy fine of up to Rs 1 crore for violation of safety rules, single-window clearance and setting up a transparent appellate system.
Overall, if taxes in the Indian aviation sector are not rationalized in time, ATF is not immediately included in the ambit of GST, indigenous MRO (maintenance) framework is not strengthened and attention is not given to making DGCA a completely autonomous body, then the country’s airlines will never be able to come out of this dangerous maze of financial ruin. India There is no dearth of development and opportunities in the aviation sector of India, but the current situation clearly testifies that success will not be achieved merely by building new airports or placing huge orders for aircraft on paper. Unless the government makes its tax policies realistic and airlines keep tight control on their operating expenses, ‘profitability’ will remain a distant dream for companies flying in the Indian skies.
