Lighting up the sky

Aviation policy: With 5/20 rule now history and a new regional plan in place, flying could no more be a dream

The New Civil Aviation Policy, 2016, has been finally cleared by the Cabinet. The acrimonious 5/20 rule controversy between airlines has been resolved as the period of five year wait has been done away with while retaining requirement of 20 aircraft by an airline before they fly abroad.

Also the requirement of 20% of total capacity of an airline to be kept for domestic aviation has been introduced to ensure that domestic connectivity is not sacrificed, as was contended by one airline. The fact that the domestic sector is not as profitable as international routes has been accepted and to that extent, there is a need for introspection by the Ministry of Civil Aviation.

Another major aspect of the new policy is laying down a policy for Regional Connectivity Scheme (RCS) for unserved locations, which is excellent. This will become the basis of a much needed aviation infrastructure for the country as the present aviation density is largely between metros. It has been stated that ticket prices under RCS will be only Rs 2,500 for one hour flight for airports under RCS. Subsidy from a new fund yet to be created, along with concessions from the state governments will be needed for a route to qualify under RCS.

Along with this, opening of about 50 remote unserved airports is expected. In order to meet the likely loss due to fixing of ticket price for remote connectivity, it has been proposed to provide Viability Gap Funding by a small levy per departure on all major domestic routes. This will go a long way in making RCS at unserved airports viable. Such a policy will lead to economic development of remote regions through industrial growth and tourism. Many developed countries like the US, Canada, Finland etc, have such schemes, and it is high time that we start such a scheme in India now.

The existing Route Dispersal Guidelines (RDG) has been retained with some tweaking. The RDG is meant to assist Northeast, Jammu & Kashmir and island territories. Uttarakhand and Himachal have also been added to this list.

So we have now two subsidised schemes in the new civil aviation policy–RCS and RDG. While RCS will be subsidised by the government directly, RDG will continue to be subsidised by the airlines. However, eventually, it is the passenger who will pay for both. Nevertheless, I consider this as a positive development as aviation is a catalyst for growth and remote regions will get the incentive they deserve. With over 10% growth in the domestic sector, this is acceptable.

The mechanism for RGD is already well established. For RCS a new mechanism will need to be put in place. Normally, this is done by reverse auction, that is, the airlines are asked to bid for remote routes and the one asking for the lowest subsidy gets it. If it is ensured that the frequency of flights to such remote airports under RCS is maintained throughout the year, the economics of the remote airport also becomes viable. Some enlightened administrations in Madhya Pradesh and Andaman and Nicobar islands have already introduced similar schemes and meet the subsidy out of their own budget.

The other main feature of the new aviation policy is with regard to bilateral rights for international routes in which the concept of open skies has been introduced for South Asian Association for Regional Cooperation (Saarc) countries and countries beyond 5,000 km from Delhi on reciprocal basis. This will ensure that while the open sky policy is introduced internationally, the Gulf countries and Singapore are kept out.

This is necessary as during the UPA-II rule, far too many flying rights were given to the Gulf nations, at the detriment of our airlines, while retaining the 5/20 policy. This scandal is yet to be exposed. This imbalance has been corrected in this policy. With this, one hopes that one or two of our airports would become an international hub like Dubai or Singapore. This is a good policy as it will give a major boost to inbound tourism.

Another major feature of this policy is giving a positive direction towards viability of Maintenance, Repair and Overhaul (MRO) services. The unnecessary negative custom and fiscal policies towards it has become a drain on the country as airlines have been sending their aircraft abroad for maintenance and repair-related works.

Clarity needed

Apart from the above, the creation of an independent corporate entity for Air Navigation Services or modifying the policy on construction of an airport within 150 km of the existing airports has been discussed. The new Ground Handling Policy of three ground handlers with self-handling by airlines needs more clarification.

The policy falls short of replacing the Directorate General of Civil Aviation (DGCA) with an independent authority, but promises to give the DGCA more independence.
The policy has projected that India will have 300 million domestic passengers by 2022, that is in six years. While the basis of this projection has not been given, there is no reason to doubt that India is poised for a major jump in domestic aviation if our current GDP growth continues to remain over 7% annually, along with the policies of RDG and RCS.

However, less than a week after the Cabinet cleared the Civil Aviation Policy came the announcement that there will be 100% FDI in airlines with the rider that foreign airlines will not be permitted over 49% equity. This means the traditional concept of Cabotage (meaning domestic air services will be run by nationally-owned airlines) existing all over the world has been done away with.

This will also impact the internationally accepted concept that an airline registered in a country should be “substantially owned and effectively controlled” by nationals of that country. This may attract FDI but can kill the national airline industry when big international airlines with deep pockets start running on our domestic routes, as any foreigner airline can then set up an airline in India with 49% of its own equity and the balance 51% from a fund of their choice. Are we looking forward to this? We need to introspect on this issue.

(The writer was a joint secretary in the Ministry of Civil Aviation, and is chairman, International Foundation for Aviation, Aerospace and Development -India Chapter)