Navigating the Skies of Insolvency: Reshaping India's Aviation Future

[by Sneh Singh- 4th Year Law Student at Babasaheb Bhimrao Ambedkar University]

Introduction

Over the past two decades, India’s aviation sector has soared to become one of the world’s fastest-growing markets. Rising disposable incomes, increased connectivity, and government initiatives like the UDAN scheme have made air travel accessible to millions, fueling rapid expansion. Yet, behind this impressive growth lies a persistent challenge: financial sustainability. High-profile failures, including those of Kingfisher Airlines, Jet Airways, and Go First, have not only led to job losses and passenger disruptions but have also raised serious concerns about the long-term viability of the industry. 

Several factors contribute to the fragile financial health of Indian airlines. The industry is marked by high operational costs, fierce price wars, and razor-thin margins. Airlines grapple with soaring fuel prices, regulatory hurdles, and currency fluctuations, all of which strain financial resources. Unlike global markets where structured bankruptcy protection and government bailouts provide critical support during turbulent times, Indian carriers often find themselves without such safety nets, making recovery from financial distress exceedingly difficult. 

The roots of these challenges extend back to the liberalization of the aviation market in the 1990s. Prior to this period, state-owned giants like Indian Airlines and Air India dominated the skies with little competition. The 1994 Open Sky Policy ushered in a wave of private carriers, including Jet Airways, Sahara Airlines, and Air Deccan, leading to a dynamic yet financially volatile landscape. Early entrants like Modiluft, Damania Airways, and East-West Airlines succumbed to mismanagement and escalating costs, while later developments—such as the emergence of low-cost carriers like IndiGo and SpiceJet—further fragmented the market. The collapse of established players like Kingfisher in 2012 and Jet Airways in 2019, followed by Go First's insolvency in 2023, underscores the systemic issues plaguing the industry. 

To secure a sustainable future for Indian aviation, a multifaceted strategy is essential. Improving financial planning and policy reforms, along with adopting sustainable business models, can help stabilize the sector. Measures such as lowering aircraft turbine fuel tariffs through GST reforms, expanding airport infrastructure, and enhancing air traffic management could significantly reduce operating costs. Additionally, focusing on profitability over aggressive expansion, investing in fuel-efficient technology, and leveraging digital transformation—through AI-driven pricing and predictive maintenance—will be key to building resilience. Strengthening consumer protection and crisis management protocols will further restore passenger confidence and secure the industry’s future. 

In essence, while the growth of India’s aviation sector is undeniable, addressing the recurring financial challenges is crucial for transforming a rapidly expanding market into a robust and sustainable industry. 

Airline Insolvency in India: A Recurring Problem

The Indian aviation industry has witnessed remarkable growth over the years, driven by increasing demand for air travel, economic development, and policy initiatives. However, despite this expansion, financial distress has been a recurring problem for airlines operating in the country. The insolvency of multiple carriers over the last few decades highlights the fragile financial health of the sector. Several airlines, both full-service and low-cost carriers, have collapsed due to unsustainable business models, regulatory hurdles, and market competition. Over the years, India has witnessed several high-profile airline failures that have shaped the industry. In 1996, East-West Airlines, one of the country’s first private carriers post-liberalization, ceased operations due to financial mismanagement and security concerns, while Modiluft, also established in 1996, exited the market following a dispute with its foreign partner, Lufthansa. The challenges continued with Damania Airways in 1997, which shut down after failing to compete with larger carriers. Air Sahara, which eventually merged with Jet Airways in 2007, struggled with financial viability before its acquisition. The sector saw one of its most notable collapses in 2012 when Kingfisher Airlines, burdened by mounting debt, overambitious expansion, and mismanagement, went out of business. Adding to the trend, Jet Airways, once considered India’s premier full-service airline, ceased operations in 2019 due to excessive debt, high operational costs, and stiff competition from low-cost carriers before attempting a revival in 2023. Most recently, Go First entered insolvency proceedings in 2023, citing operational disruptions and engine failures as key factors behind its financial crisis. 

Why is airline insolvency a persistent problem in India? 

The Indian aviation sector faces a confluence of challenges that severely impact its financial viability. High operating costs are a significant burden, as aviation turbine fuel (ATF) is heavily taxed—accounting for roughly 40% of expenses—with state-level VAT ranging between 5% and 30%. Additionally, many airlines lease aircraft rather than purchasing them, and since these lease payments are in US dollars, rupee depreciation only escalates operational expenses further. This financial pressure is compounded by intense market competition, where dominant low-cost carriers such as IndiGo, SpiceJet, and Akasa Air drive full-service airlines to reduce ticket prices, resulting in razor-thin profit margins. Moreover, several carriers have pursued aggressive, debt-driven growth strategies—exemplified by Kingfisher Airlines and Jet Airways—by incurring substantial loans to expand rapidly; however, when operational income fails to match expansion costs, financial distress ensues. Poor financial planning and mismanagement have also played a critical role, with extravagant spending on luxury services and inadequate hedging against currency fluctuations exacerbating losses. Regulatory and policy challenges add another layer of difficulty, as high airport fees, bureaucratic inefficiencies, and restrictive foreign ownership rules limit capital infusion and operational flexibility. Finally, external shocks such as economic slowdowns, rising fuel prices, and global crises like the COVID-19 pandemic have led to dramatic drops in passenger volumes, forcing airlines to deplete cash reserves without the benefit of robust government bailouts. 

Lessons from Global Experiences and Recommendations

Globally, different models have emerged to help airlines overcome financial distress and ensure long-term viability. In the United States, the Chapter 11 bankruptcy model allows carriers such as Delta and United Airlines to restructure rather than shut down completely, while European governments have provided crucial bailout mechanisms—illustrated by Lufthansa’s multi-billion-euro rescue during the COVID-19 crisis—to stabilize the industry. Similarly, countries like Canada and Singapore have implemented robust bankruptcy laws that prioritize asset protection and smooth recovery. Drawing on these international practices, a sustainable aviation industry in India must focus on reducing costs, enforcing financial discipline, reforming policies, and embracing technological advancements. For instance, lowering aircraft turbine fuel tariffs by incorporating them under GST could ease financial pressures, while expanding airport infrastructure and improving air traffic management would minimize congestion and reduce operating expenses. Moreover, Indian airlines should prioritize profitability over aggressive expansion by adopting fuel-efficient aircraft and employing risk-management strategies like currency hedging. Encouraging more foreign direct investment and adopting a structured bankruptcy system would further bolster financial stability, and investments in digital transformation—such as AI-driven pricing and predictive maintenance—combined with the promotion of sustainable aviation fuel can help achieve long-term economic and environmental goals. Enhancing passenger trust through stronger consumer protection policies, timely refunds, and improved crisis management is also essential, underscoring that a balanced approach integrating financial restraint, regulatory support, and innovation is key to a robust aviation sector. 

Conclusion

The frequent cases of airline insolvency in India highlight significant structural issues in the country's aviation sector. Despite being one of the world's fastest-growing aviation sectors, many Indian airlines continue to have financial difficulties, resulting in unexpected failures, job losses, and inconveniences for passengers and stakeholders. While demand for air travel remains high, airlines' financial sustainability remains a major challenge. Addressing these difficulties demands a multifaceted approach that includes legislative reforms, financial restraint, operational efficiency, and technological breakthroughs. One of the most significant challenges that Indian airlines face is high operational costs, particularly the exorbitant pricing of aviation turbine fuel (ATF). Because ATF is not subject to the Goods and Services Tax (GST), airlines face hefty state-level taxation, which raises fuel costs dramatically when compared to worldwide peers. Bringing ATF under GST and maintaining consistent taxation can help airlines minimize financial pressures and improve cost structures. Similarly, lowering airport charges, navigation fees, and other regulatory expenditures can assist airlines in maintaining operations without incurring undue financial burdens. Improving financial discipline and implementing long-term company models are also important. Many Indian airlines, including Kingfisher Airlines and Jet Airways, failed as a result of an overly ambitious expansion strategy fuelled by unsustainable debt.

Instead, of emphasizing aggressive fleet development and market supremacy, airlines should prioritize profitability, efficient fleet utilization, and cost management. The utilization of modern, fuel-efficient aircraft, optimal route planning, and smart collaborations can considerably improve long-term financial sustainability. Furthermore, currency hedging and long-term fuel contracts can protect airlines from fluctuating foreign exchange rates and growing fuel expenses. Regulatory and policy improvements are also necessary to provide a more stable aviation industry. The government must streamline bureaucratic processes, expedite clearances, and foster an investment climate for airlines. Increasing foreign direct investment (FDI) limitations on foreign airline ownership in Indian carriers have the potential to attract much-needed financial inflows and save faltering airlines. Furthermore, developing a well-defined bankruptcy resolution system specialized to aviation can allow for gradual restructuring rather than abrupt shutdown, reducing interruptions to passengers, staff, and creditors. 

Technological breakthroughs and innovation can help the aviation industry become more sustainable. Investing in AI-powered pricing tactics, predictive maintenance, and automation can help airlines cut costs, improve efficiency, and improve the customer experience. The use of sustainable aviation fuel (SAF) and eco-friendly procedures can also help to ensure long-term sustainability while aligning with global environmental goals. Furthermore, passenger-centric policies must be strengthened to increase consumer trust. Ensuring prompt refunds, reasonable compensation for flight cancellations, and improved crisis management tactics will help to boost customer trust in the airline business. Because air travel delays directly affect millions of passengers, a strong regulatory framework for consumer protection is required to assure equitable treatment. In conclusion, airline insolvency in India is a reoccurring problem that requires immediate response. The Indian aviation sector may overcome its historical financial fragility by addressing financial, regulatory, and operational difficulties via legislative changes, technological breakthroughs, and sustainable business practices. A well-balanced approach combining cost optimization, strategic expansion, government assistance, and passenger-centric policies will assure the industry's long-term resilience, profitability, and stability. Without these important reforms, the cycle of airline bankruptcies could continue, limiting India's potential as a global aviation superpower.