Cut likely in airlines' hangar fees, airport surcharges

Infographic: TBS

Bangladesh's struggling private airlines are getting a much-needed boost as the government rolls out several financial relief measures. The aim is to revitalise an industry battered by soaring operational costs, including high fuel prices, hangar rents, airport fees, and surcharges.

From VAT exemptions on aircraft leases to fuel price cuts and potential reductions in hangar charges and airport surcharges, these initiatives have ignited hope among the country's few remaining private carriers.

"The reduction of surcharge and hangar charge at the airport is under active consideration, and a formal announcement is expected soon," Civil Aviation Authority of Bangladesh (CAAB) Chairman Air Vice Marshal Mohammad Monjur Kabir Bhuiyan told The Business Standard. A source from the civil aviation ministry confirmed that revised hangar charges have already been forwarded to the Finance Division for final approval.

According to sector insiders, the aviation industry has been reeling from the dual impact of high jet fuel prices and excessive airport fees. Once fully implemented, these measures are expected to lower airfares and help operators stay afloat amid escalating costs.

A troubled past, a hopeful future

Of the 10 private carriers launched in Bangladesh over the past 30 years, at least seven have ceased operations. NovoAir is one of the three still flying, though it too has faced significant financial pressure.

Mofizur Rahman, managing director of NovoAir and secretary general of the Aviation Operators Association of Bangladesh (AOAB), welcomed the government's steps, calling them "timely and essential".

"I'm very positive that the current interim government understands our problems and is sincerely trying to help," he told TBS. "The ministry is also taking further steps that we hope will create a more comfortable operating environment for us."

Rahman emphasised that even a slight easing of the financial burden would make a significant difference. "If our survival burden is even slightly reduced, it means a lot to us. The new measures could reduce our overall operating expenses by around 10%, and that's a major relief," he stated.

He offered a specific example regarding the proposed hangar rent cut: "Let's say our monthly operational cost is Tk18 crore. Of that, hangar rent is Tk22 lakh. If that's reduced to Tk12 lakh, it saves us Tk10 lakh. Compared to total expenses, that's not a huge number, but every bit helps."

Airfares yet to reflect fuel price cuts

Despite a recent cut in jet fuel prices, effective from 14 May, airlines say it has yet to translate into lower airfares as they are still working on cost-adjustment strategies.

For domestic carriers, the price of Jet A-1 fuel was reduced by Tk17.43 per litre – from Tk111 to Tk93.57. For international airlines, the rate dropped by $0.1434 per litre, from $0.7500 to $0.6066.

In the proposed FY26 national budget, Finance Adviser Salehuddin Ahmed suggested slashing customs duties on aviation spirit and jet fuel from 10% to 3%. This move aims to reduce airfare and boost passenger numbers, especially on domestic routes.

Aviation operators highlight that jet fuel accounts for a substantial 40%–50% of total airline operating costs.

Commenting on the impact of the fuel price cut, Imran Asif, CEO of Air Astra, told TBS, "Operational costs will decrease, which means lower losses. But the sustainability of the industry depends on more than just fuel prices — reductions in surcharges, ground handling fees, and dollar rates are also crucial."

NovoAir MD Mofizur Rahman added, "We were already operating at a loss on domestic routes. With the fuel price cut and other recent decisions, the losses will shrink. We're also working on adjusting fares accordingly."

VAT exemption on aircraft lease rent hailed

Private airlines have expressed significant relief following the government's announcement of a VAT exemption on aircraft lease rent in the proposed FY26 budget. Finance Adviser Salehuddin Ahmed stated the exemption is aimed at reducing operational costs for airlines and ultimately lowering airfares.

"Currently, we pay at least half a million dollars per month as lease rent for an aircraft, on which a 15% VAT is applicable. With this exemption, our operational costs will come down, creating room to reduce ticket prices," Captain Lutfor Rahman, former CEO of US-Bangla Airlines, told TBS.

As most leasing agreements are with foreign lessors and settled in foreign currencies, the VAT burden significantly increased overall operational expenses. These added costs were typically passed on to passengers, particularly on international routes.

A large share of the fleets operated by both state-owned and private airlines in Bangladesh are leased. The VAT on these substantial monthly payments has long been a concern for operators, as it drives up ticket prices and affects competitiveness.

High fees and surcharges hamper local airlines' growth

Local airlines reportedly control only about 20% of Bangladesh's aviation market, with the remaining 80% dominated by foreign carriers. According to industry operators, excessive duties and charges are key barriers that have driven many local airlines out of business.

One of the most crippling burdens is the surcharge on unpaid fees, which, according to insiders, can accumulate up to 72% per year.

The Aviation Operators Association of Bangladesh has long urged the government to revise this structure, calling for the scrapping of the current 6% monthly surcharge rate and replacing it with a more reasonable figure.

"Once you fall into the surcharge trap, it becomes nearly impossible to turn things around," Kamrul Islam, spokesperson for US-Bangla Airlines, told The Business Standard.

In recent years, airlines such as GMG Airlines, United Airways, and Regent Airways have ceased operations, largely due to piling surcharges. According to CAAB data, Regent Airways alone owes Tk283 crore in surcharges, United Airways Tk355 crore, and GMG Airlines Tk368 crore.

Comparatively, Bangladesh's surcharge rates are among the highest in the region. For instance, the annual surcharge is 12–18% in India, 2% in Pakistan, 8% in Singapore, and 10% in Oman.

Operators also point to disproportionately high landing and parking fees. Kamrul highlighted that while the landing fee for a Boeing aircraft in Kuala Lumpur is just Tk15,000, the same aircraft is charged Tk2.5 lakh at Dhaka airport.

CAAB Chairman Monjur Kabir responded by saying that fees for local airlines have not been increased in recent years.

Regarding the surcharge, he clarified: "Surcharges apply only when airlines fail to pay their dues. The civil aviation ministry sets the surcharge rate — we simply implement it. As far as I know, they are reviewing the possibility of lowering it. Additionally, we have proposed cuts in several charges, including landing and cargo fees, though the final decision rests with the ministry."

As the debate continues, local airlines are hoping for a policy shift that could help level the playing field and prevent further erosion of domestic carriers' market share.