last fortnight, the Narendra Modi Government brought several reforms in the Civil Aviation Policy to make it easier for new airlines to fly overseas, aiming to boost air travel and economic growth.. Under the policy, domestic carriers will no longer have to operate for five years before they can fly abroad, known as the 5/20 rule.
Nevertheless, they must still deploy 20 aircraft or 20 per cent of total capacity in India, whichever is higher.
In an interview with Nageshwar Patnaik, former International Civil Aviation Organisation Director Vivekananda Pattanayak discusses various facets of the country’s burgeoning civil aviation sector.
Indian airlines have piled up cumulative losses of up to $10.6 billion in the seven years running up to 2014. Do you see turnaround of State owned airlineIJ
For the last 40 years or more, according to a study made by IATA the airlines throughout the world have not been able to give adequate return to their investors on their capital in spite of more fuel efficient engines, better capacity utilisation and advanced air navigation system. Main culprit has been the fuel which constitutes almost 40 per cent of cost of operation. The cost has unpredictably fluctuated adversely since 2014. Making operational profit, even net profit and giving dividends to shareholders are different from giving adequate return on capital. India is no exception.
In addition, interest cost of borrowing and depreciation cost on new fleet acquisition have contributed to accumulation of loss. The State owned airlines have operated on many routes which are uneconomical both on domestic or international sectors. This back-breaking loss was carried forward. Although Air India and Indian Airlines merged with each other, for many years, there was no complete integration. In fact, they functioned as two different entities under one management. Both the State owned airlines for years like any other PSUs have been under political and bureaucratic control of the Ministry. The human resource management, including appointment, postings and disciplinary measures, was subject to interference. Rationalisation of the labour force could not be possible due to strong unions.
What about private airlinesIJ In the last couple of years, we have seen private airlines like Kingfisher Airlines, Air Deccan, Deccan360, MDlR, IndusAir and Paramount Airways wrap up their operations. Do you see any future for themIJ
The private airlines also did not escape this political culture. Overt and covert interferences affected even the private airlines. The State owned airline accumulated loss to the astronomical proportion until State support and restructuring of the debt of the nationalized banks were resorted to for bailing out the national carrier. That kind of approach did not take place with regard to private airlines. No wonder, many private airlines folded up. In the recent civil aviation policy, there is regional connectivity scheme which envisages viability gap funding. This is a welcome proposition. Both the State owned airlines and private airlines would take advantage of this policy. Secondly, the demand for air travel has increased with the rising middle class with tangible annual growth of traffic.
Do you think, the civil aviation sector should be totally privatisedIJ As it is, to- day private airlines account for more than 75 per cent of the sector of the domestic aviation market. Why is India still one of the most under-penetrated aviation markets in the worldIJ
Since last ten years, the private sector has produced a number of air carriers particularly after the concept budget airline came about. While the idea of privatisation of Air India has been discussed and even a proposal had emanated from Tata house with Singapore Airline in joint venture but it did not make any headway. In future, perhaps, the shares of Air India should be offered in the stock market in installments to see in what way the market responds. This would be a good way raising money for the national budget and if the profits are coming in the years ahead, the Government can use dividends as a source of income for the budget. Depending upon the situation, in future a decision can be taken whether to privatize fully or partly.
Do you think, the new aviation policy will help rationalization of operating costs and reduce air fares which would enable every middle class family to fly at least once every yearIJ
Whether the policy would fulfil the dreams of the middle class to fly once a year would depend upon how the policy is implemented which in turn would depend upon cooperation and coordination between the Central and State Governments. Intra-state connectivity would help in implementation of industrial projects and mining operations. Commuter service can commence with small aircraft with the entrepreneurship of professional pilots, provided funding is available. Start up India and Stand Up India can be dovetailed to the new ventures of commuter service. The State promotional, financing institutions and banks can take initiative along with angel investors.
High taxes on aviation turbine fuel (ATF) have made its price in India among the highest in the world. Indian carriers today prefer to get their fleet serviced in places like Colombo, Singapore, Malaysia and Dubai due to the prevalent tax structure in the country. What’s the future of the Aviation Maintenance, Repair and Overhaul (MRO) industry which is likely to double its size to clock business of $1-1.5 billion by 2020, if the tax structure is set rightIJ Do you see any bright future of this industryIJ
Under the present policy on civil aviation, MRO has been covered. MRO itself will generate not only local employment directly it will create ancillary industries and downstream industries. The policy on MSME and policy of Ease of Doing Business can be dovetailed with Start Up India and Stand up India to develop cluster of industries around MRO. India has definite infrastructure for MRO. Skill development should be aimed towards providing manpower to MRO. The present policy of civil aviation is not cast in stone. If any tax incentive is required to make MRO a success, the policy can be revisited if there are hurdles.
The controversial 5/20 rule has been dropped but one part of it has been retained. Do you think the policy should have completely done away with the norm itselfIJ
The 5/20 rule has been relaxed but it would have been better if it would have been totally done away with. Operating on foreign routes whether an airline has 20 aircraft and has five years of experience is not material since what it is important is whether it can generate adequate traffic and that too, tourist traffic.
Critics say only a few airlines will benefit from the new policy. Also, that the policy lacks infrastructure framework for long-term growth. How do you view these flaws in the policyIJ
let us try to implement this policy with right earnest. As and when one encounters obstacle, one can review the position.
There is a major focus on growing the regional network, especially among tier II and III cities, in the policy. While it is a laudable move, how “implementable” is the policy at the ground levelIJ
The policy implementation can be done if both State and Central Governments are on the same page. The initiative should be taken by the State Governments to establish task force and interact with the Ministry to augment regional connectivity.
The policy says that the Centre will compensate the airlines if they incur losses on one-hour flights. For this, it will collect a cess of 2 per cent from the airlines. What might have been the rationale behind fixing the fare at Rs 2,500IJ
There is in this policy an element of subsidy for passengers. This would encourage air travel.