India’s aviation boom faces big challenges, demands smarter planning

India’s aviation story is no longer merely about growth in passenger numbers or airport construction. It is now a strategic national transformation story—about connectivity, manufacturing ambition, global credibility, energy economics, and technological resilience. As India steadily positions itself as the world’s third-largest aviation market, the sector is at a defining moment where policy, geopolitics and industrial strategy must move in sync.

And how do policymakers look at policies to further excite this opportunity for Indian aviation?

In an interaction with the author, Samir Sinha, Secretary, Ministry of Civil Aviation, outlined the elements of an aviation ecosystem that seeks not just to transport people, but to reshape India’s economic geography.

But that is not without many critical challenges, from fuel to aircraft and infrastructure to safety.

Passenger traffic has surged dramatically. India accounted for nearly 4.2 per cent of global air traffic last year, behind only the United States and China. That statistic alone reflects a structural shift. Air travel in India is becoming mass mobility. The rise of tier-2 and tier-3 city aviation, the expansion of regional connectivity under UDAN, and new airport infrastructure have fundamentally altered the sector’s trajectory.

Yet the skies are not free from turbulence. What is needed?

Oil volatility and the cost challenge

One of the most immediate concerns confronting Indian carriers is the volatility in crude oil prices amid geopolitical tensions in West Asia. Aviation turbine fuel (ATF), already among the most heavily taxed aviation fuels globally, remains the single largest cost component (~50%) for airlines.

The Federation of Indian Airlines (FIA) has now sought intervention, which it describes as excessive “crack spreads”—the refining margins charged by oil marketing companies—which recently crossed $130 per barrel. The industry’s argument is straightforward: airlines cannot sustainably absorb extreme fuel cost distortions while simultaneously maintaining affordable fares and fleet expansion plans.

The government’s response appears calibrated rather than interventionist. Policymakers recognise that fuel pricing pressures directly affect ticket pricing, route viability and profitability. However, there is also caution against excessive market distortion. The broader strategy is increasingly focused on structural mitigation—higher fuel efficiency, sustainable aviation fuel (SAF), fleet modernisation and rationalisation of state taxes on ATF.

So, while the government has given relief to domestic routes, international operations are left to the market mechanism. Secretary tells me that policy works better that way.

However, International ATF prices are raised by $76.55/kl, reaching upto $1,511.86/kl. Certainly, a tough situation for airlines maintaining international operations.

India’s aviation growth story cannot be hostage to imported energy shocks forever. The next phase of competitiveness will depend on reducing operational inefficiencies rather than relying solely on fare increases.

Aircraft for India: Delays and the supply chain crisis

If demand is India’s biggest strength, aircraft availability may become its biggest bottleneck.

Global supply chain disruptions affecting both Boeing and Airbus have significantly delayed deliveries. Industry estimates suggest that fulfilling existing aircraft orders globally could take close to 10–15 years under current manufacturing constraints. Indian airlines, despite placing some of the world’s largest aircraft orders, may therefore face prolonged fleet shortages.

More aircraft are foundational, a full circle. Fleet delays affect connectivity, airport planning, pilot training, route expansion and fare stability. A fast-growing market without adequate aircraft capacity risks overheating.

It is here that an alternative conversation is emerging—regional aircraft diversification. Embraer of Brazil is increasingly seen as a serious opportunity for India, particularly in regional connectivity and mid-capacity operations. Embraer’s aircraft are better suited for many Indian regional routes where deploying large narrow-body aircraft is economically inefficient.

The government is prioritising domestic aircraft manufacturing through joint ventures with companies like Embraer and Hindustan Aeronautics Limited (HAL) to address the shortage.
The talk on domestic manufacturing of aircraft through joint ventures begins, like Adani Defence & Aerospace, with Embraer for E175 supporting the RTA.

“We have tied up with Embraer to make aircraft in India. A joint venture has also been done with HAL to produce the Sukhoi Superjet 100 in the country,” Minister Naidu said. In October last year, India and Russia signed an initial agreement to start manufacturing SJ-100 passenger planes in India by 2029.

India’s aviation strategy must therefore evolve from dependence on a Boeing-Airbus duopoly toward a more diversified fleet ecosystem. That shift could also create opportunities for local partnerships, component manufacturing and maintenance ecosystems.

The SPV for regional aircraft: Strategic industrial bet

The government is working on a Special Purpose Vehicle (SPV) for manufacturing RTA, with participation from state governments.

This could become one of the most consequential industrial initiatives in India’s aviation history.

The logic is compelling. India has one of the world’s fastest-growing regional aviation markets but lacks indigenous aircraft manufacturing capability. The SPV model aims to bridge precisely that gap by combining public-sector, private manufacturing expertise, state-level industrial participation, and long-term procurement visibility.

However, the idea of domestic manufacturing has been there but has reached nowhere. While the Hansa-3(NG) trainer aircraft is a significant step up, the progress of the Saras Mk2, a 19-seater Light Transport Aircraft under development by CSIR-NAL with HAL, is slow. Saras MK2 does aim for advanced composite wings, avionics, and light materials for the airframe.

The initiative aligns that India should not remain only a buyer of aircraft—it must become part of the global aviation manufacturing value chain.

The SPV could potentially focus on: RTA for short-haul Indian routes, component manufacturing, aerospace R&D and design capabilities, Supply-chain localisation and export-oriented aviation manufacturing clusters.

The challenge, however, will be execution. Aircraft manufacturing is capital-intensive, technologically complex and globally “competitive”. Success will require sustained policy continuity over decades, not years.

Case for an “Aviation PLI”

Industry stakeholders are increasingly demanding a Production Linked Incentive (PLI) framework for aviation, similar to what transformed India’s electronics manufacturing ecosystem.

The comparison is not misplaced.

India successfully leveraged PLI schemes to attract global manufacturing investments in mobile phones and electronics, creating scale, jobs and exports. Aviation could theoretically replicate that success across aircraft components, avionics, MRO, engines and aerospace systems.

However, the government’s policy direction appears cautiously supportive. Instead of a broad subsidy model, policymakers should evaluate targeted incentives linked to: Component manufacturing, aerospace materials, drone and advanced air mobility technologies and aviation electronics and systems integration.

India’s aspiration should be clear: to evolve from an aviation consumption market into an aviation production economy.

Institutional credibility after the Air India crash investigation

Perhaps the most sensitive issue confronting the sector has been the investigation into the fatal Air India Express Flight IX-1344 crash and the broader emphasis on aviation safety oversight in India.

The secretary tells me very clearly: “No interference in the investigation, we want an independent investigation that we [MOCA] will not have any say.”

Officials have repeatedly emphasised that investigations must remain impartial, data-driven and institutionally independent. The message is significant. As India aspires to become a global aviation hub, regulatory credibility matters as much as airport infrastructure.

Global investors, aircraft lessors, international regulators and passengers alike judge aviation ecosystems by the integrity of their institutions.

India’s aviation rise will ultimately depend on whether it can create trusted systems of governance, transparent investigations and globally respected regulatory standards.

That institutional maturity will lead to a true aviation power.

Next flight path

India’s aviation sector today sits at the intersection of aspiration and disruption. Passenger demand is booming, airports are expanding, regional aviation is deepening, and industrial ambitions are rising. Yet fuel volatility, tax, supply-chain constraints and safety expectations are simultaneously testing the sector’s resilience.

The next decade will determine whether India remains primarily a fast-growing aviation market—or emerges as a comprehensive aviation ecosystem spanning manufacturing, maintenance, technology and governance.

The challenge now is ensuring that policy ambition keeps pace with the scale of India’s skies.

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