EXCLUSIVE: Aero India Jet Exhibitors Flustered, Stumped By New Customs Barrier

All’s not well on the road to Aero India 2019, India’s flagship aviation show. With a month to go for the event in Bengaluru, aircraft manufacturers who’ve firmed up plans to bring aircraft for the static of flight display were stumped by the Indian government this past week. The last minute surprise is a new customs requirement that all exhibitors at the show had been exempted from in at least the last four editions of the show.

Unlike in previous Aero India shows, where aircraft exhibitors were granted ‘special case’ customs exemptions — in line with all major air shows around the world — for 2019, the Customs Department in Bengaluru has declared that vendors need to execute a bond equal to the value of the goods along with a bank guarantee or cash deposit amounting to 110% of the duty that would be payable on the goods.

In other words, the vendors now need to deposit more money than they have been provided an exemption from, effectively negating the purpose of the exemption in the first place. Needless to say, such cash guarantees or bonds would run into many millions of dollars or euros.

While some vendors that Livefist spoke to suggested that it was the local government in Karnataka that held sway over such a decision, the department itself is under the central government. The department didn’t respond to queries for a clarification.

The purpose of a customs exemption for defence exhibitions is obvious. A norm at air and defence exhibitions the world over, such exemptions are routine to ease passage, cut red tape and simply attract more exhibitors. This is especially the case since the value of goods being temporarily imported for such exhibitions is high, and vendors usually have fixed budgets for the many shows they participate in each year. To be sure, the bank guarantees/bonds being demanded by Indian Customs this year are fully refundable when aircraft leave the country, but effectively reintroduce a practice from decades ago that had been done away with precisely as a global best practice.

Here’s the notification that went out last week from the officer of the Principal Commissioner of Customs in Bengaluru:

Here’s the same letter that went out during the last edition of the show in 2017 (similar letters went out as far back as 2011, documents that Livefist has had a chance to review):

Livefist can confirm that the embassies of Russia and France have raised the alarm on the new customs notification, wondering why such a barrier has been introduced at the last minute. It’s true that aircraft and defence manufacturers are some of the world’s largest companies, and stumping up financial bonds shouldn’t be too much of a problem. But it actually is, given that vendors have narrowly planned and predicted budgets set aside months in advance for the calendar of international exhibitions. Coming up with last minute financial bonds or bank guarantees running into millions is not an easy ask, and would in many cases have served to dissuade exhibitors from appearing, especially since this year’s Aero India clashes with the Abu Dhabi defence show, already a source of some heartburn among exhibitors. 2019’s Aero India has had a shaky birthing. From firm plans of a venue switch to a last minute revert to original plans, exhibitors have been on tenterhooks for months.

With a political storm over the Rafale deal raging, France will still be the largest exhibitor at the upcoming show, with 43 companies set to participate, including the Rafale’s maker, Dassault Aviation. The company will be bringing 3 Rafale jets and two Falcon business jets. Aircraft from Russia and the U.S. will also likely be on display at the show next month. Another big exhibitor this year will be Airbus, which plans to field an A400M Atlas and C295. It is not clear which other vendors have raised the new customs issue and in what manner.

Vendors that Livefist spoke to said the new stipulation from customs flew in the face of attempts by the Ministry of Defence to streamline the event, digitize access to facilities for exhibitors and create a much more predictable and cohesive experience for businesses attending the show.