Mar 1, 2012

Clearing the turbulence – Need for a contemporary civil aviation policy


The last two decades of economic growth have also lead to exponential growth in air traffic in India. In the financial year ending 2001 India counted 30 million passengers per annum (mppa) on domestic routes, which went up to 106 mppa in year ended 2011. Total passenger traffic (international and domestic traffic put together) grew from 42.5 mppa to 106 mppa during the same period. The two large aircraft manufacturers, Airbus and Boeing have both projected a demand of around 1,000 aircraft for India in a twenty year period ending 2028. Indigo, India’s largest low cost airline created history by ordering 100 Airbus A320 aircraft and recreated history by adding another 180 recently. On top of the growth in aviation, the sector creates jobs directly and in related sectors like airports, ground handling, airport retail, public transport, cargo and warehousing, etc. According to International Air Transport Association (IATA) aviation in Singapore contributes 5.4% to the national GDP and supports over 100,000 jobs. In India the figure is 0.5%. What is wrong with Indian aviation?

There is more than one leak in the tub, the biggest being absence of a comprehensive and relevant civil aviation policy. The delayed civil aviation policy along with rules like a “minimum of five years” experience of continuous operation of domestic scheduled air transport services; and at least a twenty aircraft fleet” are suffocating the growth potential of Indian carriers. Such restrictions not only stifle the competitiveness of the industry, but also give an unfair advantage to foreign carriers. A case in point is the Middle Eastern carriers. From full service carriers like Emirates to low cost carriers like FlyDubai, all started as small companies with a handful of aircraft and took their maiden flights to Indian subcontinent. Indian carriers on the other hand have to wait for a period of five years.

Second area is ground infrastructure. Barring the five private airports (Delhi, Mumbai, Bangalore, Hyderabad and Cochin) most Indian airports are struggling for better management and expansion. The government started the process of privatising thirty five non metro airports in 2008, but the process was cancelled without any explanation. The most likely reason was immense pressure from labour unions that rightly feared for job losses. A handful of Greenfield projects were awarded but progress has been slow due to land acquisition issues. The latest approach of the Airports Economic Regulatory Authority (AERA) to shift towards a single till model (where airfield operations are subsidised by commercial revenues) has made airport investments unattractive. Such arrangement will deter investors from putting their money in airports.  

The third area where the civil aviation policy can help is Maintenance Repair and Overhaul (MRO) business. The large fleet orders placed by Air India, Indigo, Jet Airways and others will need MRO facilities to service their fleets. At present Air India is the only airline to have its own MRO centre in India. All other airlines send their aircraft to neighbouring countries like UAE, Singapore and Sri Lanka for the maintenance works. This results in major loss of revenue, which could have been added to the GDP. A major reason for lack of MRO facilities in India is high tax and import duties on original equipments. The low labour cost advantage in India is offset by the high taxes and duties. This is true for both scheduled airlines like Air India, Jet Airways, Indigo and business aviation companies.

Fourth, aviation as such is not considered as a priority sector. Long standing demands like allowing Foreign Direct Investment in airline by foreign airlines, standardising aviation fuel taxes and a liberalised air service agreement regime (which allows airlines to operate flights between two countries) have not been addressed. Troubled airlines like Kingfisher can benefit from FDI and other airlines too can gain expertise and know how.

Fifth, painfully slow procedures for air freight clearance. Singapore and Hong Kong process air freight shipments within hours; In India it takes a couple of days. Countries which have a thriving aviation sector like that of Dubai or Singapore have given a priority status to aviation and accordingly framed policies. India needs to think of aviation as a sunrise sector and lay down policies to facilitate the business. The policy framework should provide a level playing field to all stakeholders and should not discriminate.  

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