Costly imports and delays clip private airliners’ business

Two months ago, a local private airline company imported an air-conditioning unit (ACU) for its aircraft at $33,000. It was an emergency import as an aircraft without an air-conditioning system is as good as dead.

The airline was taxed over Tk2 crore in import duty for the Tk28 lakh purchase, as the customs regarded the ACU as a luxury item as it considers residential air-conditioners.

In another case, a multi-function display for an aircraft was imported on an urgent basis because without the display an aircraft cannot be operated.

Although the cost of the kit was Tk6 lakh, the company was charged an import duty three times higher than the actual price.

In many such cases, the airlines are compelled to pay duties to release the essential components from the customs because if an aircraft sits idle it will concede monumental loss in crores every day.

The duties were unusually high because the customs applied regular import duty on the essential parts for the aircraft, treating those as luxury goods.

The airline industry, already under tremendous pressure on its bottom line, finds such taxing going against the import policy, which itself is 'flawed', contradictory and inadequate, as they point out.

The import policy says aircraft spares will enjoy zero tax. However, only eight categories of spares have been mentioned in the policy while an aircraft can have millions of parts.

So, whenever an airline imports spares that do not fit into the eight categories, it has to pay duties at high rates that is hurting the already stretched airline business.

However, industry experts say the international standard is to follow the Illustrated Parts Catalogue (IPC) for categorizing spare parts. For instance, a Boeing 787 aircraft has millions of parts and any of those enlisted with the IPC comes under zero taxation.

But in Bangladesh, the IPC is ignored while importing spares.

The already stretched airline industry has faced more rough weather as this year's budget has imposed a new 5 percent Advance Tax (AT) on imports of spares which was exempted till last year.

The newly-imposed Advance Tax has virtually eroded the zero-duty import facility from the current fiscal year.

Worldwide, import of such high capital-intensive aircraft kits are tax free.

The new five percent import duty will have significant impact on operation cost in aviation sector. A small airline company requires to import parts worth Tk 3-4 crore every month, according to industry insiders.

Currently, four airlines including three private companies are operating in the country. Industry insiders said despite having huge potentials amid rising trade with India and China, country's aviation sector did not grow much due to high tax burden.

All three private airlines are counting losses.

After comprehending the need, National Board of Revenue assured airlines companies to correct the flaws in the import policy, said Mofizur Rahman, secretary general of Aviation Operators Association of Bangladesh (AOAB).

In the pre-budget discussion, they were also assuaged of relief from paying extra tax. 

"It was not reflected in the budget document, rather additional tax was imposed," said Rahman.

He said airlines is a critical business that treads on a thin margin and a company has more chances of profitability if its aircraft spend more time on air than sitting on the ground.

This is why quick delivery of spares is a prerequisite for airline business for which efficient Aircraft on Ground (AOG) desks dedicated for aviation logistics are critical.

The objective of such desk is to supply components or services for aircrafts in AOG situation within the shortest possible time.

"But our customs do not have such desks. Moreover, their server remains down quite often causing delay in releasing spares," he added.

Payment system not up-to-date:  

Besides, payment system for the airline companies during import is also hurting the sector.

In Bangladesh, the companies are required to make LC payment for parts import.

But the international suppliers prefer telegraphic transfer – widely used for parts import where one will pay first for the order.

It is simply not possible to import aircraft spares through LC payment, with deviation penalty imposed at a very high rate. 

"These make our airline operation too costly to make profits," said an owner of a private airline. He did not want to be named. "With more people flying today, operational costs of airlines should be kept to a minimum for which regulatory reforms are needed."