Hurdles before new airlines waiting in the wings for long

It was to bring dollars in droves for a beleaguered government and initiate competition in the Indian skies, which would benefit the common man. It had a successful businessman at its helm and a trustworthy Indian conglomerate behind it.

Air Asia India had everything a ‘start-up’ needed but 14 months have gone past after the announcement of the joint venture between Air Asia Bhd, Tata Sons and Telestra, the proposed low cost carrier is yet to hit the runway.

Six months ago in October, it applied for Air Operator Permit (AOP), the last hurdle before the first take-off. The Directorate General of Civil Aviation (DGCA) is yet to take a final call though it had more than month ago found no merit in objections raised against the new venture.

The entry of a new low-cost carrier means a drop in airfare due to competition and increased frequency to B-towns attracting more people from otherwise reluctant fliers’ community. With the government easing norms for foreign direct investment, the country’s bleeding civil aviation sector hoped for rejuvenation.

Tatas did not stop with its venture with Air Asia as it joined hands with Singapore Airlines for full-fledged service Tata-SIA in which the Indian company is the majority stakeholder. Both had set their deadlines – Air Asia India for December 2013 and Tata-SIA by mid-2014 – but it could not meet it as they await AOP. Experts now feel that Air Asia India could start operations by October and Tata-SIA just before setting in of the winter season this year.

With the flamboyant Tony Fernandes’ Malaysia-based airline holding the majority 49 per cent stake and the salt-to-software conglomerate Tatas playing second fiddle with 30 per cent shares, everybody thought all the doors would open easily for the USD 30 million venture and it would touch the skies by December last year.

The joint venture was announced on February 20, 2013 and Foreign Investment Promotion Board (FIPB) cleared the investment within a fortnight. The Civil Aviation Ministry gave its no-objection certificate on September 20, 2013 while in another two weeks, the proposed airline approached DGCA for AOP. While seeking permission, Air Asia India set 2013-end as its deadline but its competitors had other plans.

Objections were to follow. Among the first was the issue of investment. Opponents argued that investment from foreign companies, whose limit was fixed at 49 per cent, was meant only for the existing airlines and not for setting up new ones. Government overruled the objections but a case is now pending in Delhi High Court regarding this.

Why the delay?

As the application for the AOP was being processed, the DGCA sought objections, if any, from public and stakeholders. A group of Indian airlines objected to the joint venture. They appeared to have feared that a new entrant would shrink their business.

Questions were raised about the ownership and effective control. The DGCA panel, however, did not find any fault with the venture and told the aviation regulator to process the application for AOP. By then almost five months had passed by after the airline approached the regulator for the permit. It is for the DGCA to explain why it took so long to issue a public notice.

However, the reasoning given by the three-member committee set up by the DGCA to examine the objections and suggestions on giving AOP to Air Asia India says why ventures like this is necessary for a country like India.

The committee said there is a “strong need” for facilitating air traffic by encouraging existing airlines as well as allowing new entrants so that public has “optimum availability” of services as well as improved global and domestic connectivity at “reasonably affordable” tariffs.

It is “necessary to bring operational efficiency and expertise in the existing airlines so as to ease their financial hardships, which could only be brought by stiff competition and improved work culture, which can only be provided by introduction of new entrants”, it said.

The observations come against the backdrop of instances where the low-cost carriers charging more than the full-fledged services like Air India and Jet Airways to certain not so busy destinations. The entry of new players may check this practice as it tries to tap the otherwise untapped markets. The regular airfare wars in the past couple of months by the existing airlines have been attributed to their efforts to tap fliers who could be targeted by air Asia India once it launches its operations.

The USD 100 million Tata-SIA venture, in which the Indian company holds 51 per cent shares, is now a step away from the final nod after the Civil Aviation Ministry gave its no-objection-certificate. However, the venture is also facing hurdles like Air Asia India.

Though the government has overruled objections related to questions on who can invest under the FDI regime, Air Asia India and Tata-SIA have to wait till the disposal of the case in the high court filed by BJP leader Subramanian Swamy. The next hearing of the case is on April 23.

The Civil Aviation Ministry has recently told the Election Commission that granting airline licences to Air Asia India and Tata-SIA will not violate the model code of conduct that came into force on March 5. Now it is to be seen whether the government takes a decision before the high court order.