How Maharaja lost his sense of Boeing

Sanat Kaul: Jul 11, 2009
While the Budget has not announced any relief for Air India, the civil aviation minister has announced a top-level revamp to cure it of all its ills. He hopes that by bringing in industry icons like Ratan Tata, Narayana Murthy and inventor- strategist Sam Pritoda into the Air India board or by creating an advisory board, it will be resurrected. 

Air India has been grounded because of inaction and thoughtless action in the recent past, like the merger of two loss-making public sector airlines over two years ago without a proper follow-up, and the drowning of it in deep credit crunch by purchasing a huge number of aircraft without looking at the financial capability of the organisation. The legacy airline has also got meshed into a number of complicated and counterproductive union agreements with their seven odd unions over the years from which they have not been able to extricate themselves. 

In 2000, a serious proposal to divest the airline to a strategic partner was considered due to its poor performance, and efforts to achieve it nearly succeeded. The selection of the Tata and Singapore Airlines joint proposal as a strategic partner was also reached but at the last minute, Singapore Airlines backed out and before the Tatas were able to locate another airline as a strategic partner, 9/11 took place and all airlines of the world went into a tailspin. It has been nine years since and the airline has not improved in its performance. 

We are currently in a similar scenario when airlines around the world are in deep distress and, therefore, strategic divestment at this stage may not be possible. Further, due to liberal bilateral agreements given in the recent past, the attractiveness of Air India has further declined. 

A proposal to go in for 10% divestment through an IPO route seems ill-advised as market value of Air India would be extremely low looking at its financials, and would bring in little funds. Besides Air India needs to get out of the restrictive environment of public sector. This is possible only when management is insulated from the government, parliamentary interference and also the shackles of government rules of procurement, personnel, tendering and employment guarantee. This is not to say that all public sector companies in India are inefficient. However, it is true that where the service industry is concerned, like hotels and airlines, there is no doubt that private sector efficiency gets an upper hand. 

The merger of the two airlines over two years ago and its implementation leaves a lot to be desired. A merger sounds good in theory but if it is not implemented properly, it can become a liability. A critical aspect of merger of airlines involves merger of their codes into one. Even after two years, this has not been achieved. The merged entity still carries two separate codes of the erstwhile airlines and as a result, it is not able to operationalise the Star Alliance membership which is very much needed. There has also been no rationalisation of the organisational setup. On the contrary, there are now more executive director level posts now than there were in the pre-merger era. The synergies expected by the merger have not materialised. 

The purchase order of 111 new aircraft, 68 by Air India and 43 by Indian, prior to merger brings in a huge liability. All calculations of revenue and earnings have failed and there is no contingency provision. It is the good luck of the airline that delivery of Boeing 787 Dreamliner has been deferred by the manufacturer. 
However, the delivery schedule of Boeing 777 remains and needs rescheduling. Financial tie-up for the same has been done as late as last month for a nearly $2 billion syndicated loan. The real profit in any legacy carrier is earned from business and first class passengers. In Air India’s case, this has been a declining trend because it has not been able to correct the public perception of the airline in spite of its new fleet. 

What is the way ahead? Besides Air India, the two other airlines of India—Jet and Kingfisher—are also in the red. While government has no liability towards them as they are privately owned,  Air India is a government liability with a baggage of over staffing, unsustainable union agreements and public nostalgia for many Indians. It will, however, not be fair to put the taxpayer’s money into it. But, perhaps, an off-Budget solution could be found by handing over control to a professional group through preference share route or providing special dispensation from rules governing public sector. However, without getting out of 51% government ownership, there will be insurmountable difficulties. 

The author is chairman, International Foundation for Aviation and Development (India chapter).He was formerly India representative to International Civil Aviation Organisation and joint secretary in the ministry of civil aviation

Latent charms of degraded lands


DB Gupta, Sanat Kaul

Posted online: 2011-01-19

Indian environment minister Jairam Ramesh has recently stated: “They (forests) not only face the existential threat from encroachment… but they also face what is becoming perhaps the single biggest threat to Indian forests, which I call the development threat”. He has also stated that 40% of the country’s total 70 million hectares of forests is open degraded forests. None of our government economists or planners has ever made a serious attempt to look into the factors responsible for such a high percentage of degraded forests. Can this possibly be explained by their undue obsession with macro planning and modelling, and little regard for geographical and spatial planning?

None of India’s five-year plans ever gave serious consideration to the need for spatial planning, aside from some lip service. Clearly the rural-urban divide is unsustainable with the kind of development model we have adopted. This is so because 70% of our 1.2 billion populations cannot eke out a living out of a rural economy which largely consists of small, uneconomic and unviable agricultural holdings. This concern is reinforced when we contrast the decline of the share of agriculture in the country’s GDP from nearly two-thirds at independence to a low of around 15% in 2010 with the decline in rural population, which is significantly lower during the corresponding period, going down from about 80-85% in 1947 to only 70% in 2010. The burgeoning rural population is finding it difficult to eke a living out of the limited fertile land, which is becoming increasingly expensive and out of reach. Consequently, this rural population has little option but to drift towards urban areas to look for jobs and eventually settle down often in unauthorised slums, mostly involving encroached but affordable land and housing prices. All those who are unable to emulate such encroachers resort to encroaching land in rural areas. In such a situation, forest land becomes an easy prey. Note that the phenomenon of landlessness and marginal holdings is becoming more and more pronounced.

What went wrong? While our investment in agriculture has generally remained relatively small, it is also true that we did not plan for a smooth transfer of rural populations to urban areas by creating suitable urban agglomerates with transit accommodation for a smooth movement from rural to urban areas. While part of the problem of relocation may largely be related to the democratic path that the country has justifiably adopted, it should also be admitted that smoother relocation could have been achieved through a concerted spatial plan, with focus on employment combined with the availability of a minimal, affordable transit accommodation. There is an urgent need for government to locate lands which are neither fit nor required for agriculture and forests, and which are at the same time not difficult to acquire. India has nearly 64 million hectares of degraded, saline, arid and desert lands. While land is a state subject, migration of population is not. The government of India should help set up industrial parks and EPZs in such lands in consultation with the concerned state governments. This will also involve minimum housing and welfare provision. In this case, we could seek lessons from China which created such zones and allowed a massive transfer of populations from rural to urban areas, and that too in a short span of time, to become the factory of the world. Admittedly such a course is not easy to emulate for a country like India, but what can however be done is to try the China model on a pilot basis.

Modern economies have a large component of employment in industry and service sectors, and modern agriculture can sustain perhaps no more than 10-12% of the population. This percentage is indeed much lower in countries like the US, France, the UK, Germany or Japan. For India to emerge as a modern economy and also to retain its forest cover, there is a dire and emergent need to initiate vigorous measures in spatial planning, focussed on massive but controlled urbanisation. The instruments for such an exercise would have to be used with care, so that the sensibilities of civil society are not hurt. This could perhaps be achieved through incentives and clearly not through force and coercion. This may also contribute to the revival of our forests, which are so essential for the country’s ecological health.

The SEZ policy adopted by the government does not have any special characteristics and, therefore, does not meet the criteria of spatial planning. NREGA is yet another scheme that has hardly any significant economic rationale except for providing a dole to the rural poor, that too against ill-conceived rural developmental schemes which may not have any lasting impact on society. In fact, there is hardly any evidence to demonstrate that NREGA has succeeded in creating assets commensurate with the expenditure on the programme. Indeed, the annual expenditure on NREGA at about Rs 60,000 crore could easily have built up urban infrastructure to sustain the living of many millions of migrant rural people.

Sanat Kaul is a commentator and DB Gupta is with the National Council of Applied Economic Research

FOREIGN DIRECT INVESTMENT IN AIRLINES

Airline Industry is not treated at par with rest of the Industries for two reasons 1) The Public International Law provides for nationality of airline and provides for the concept of substantial ownership and effective control vested in the nationals of the state where the airline is registered. This prevents an international airline from 100% FDI ownership. 2) The second reason is the feeling of nationalism as countries consider airlines as a matter of national security and use of civil aircrafts during any emergency. The issue of allowing foreign ownership in India in Airline Sector has been a matter of debate. 

Historically worldwide except for the U.S., airlines were always in the public sector the world over. But as slowly and slowly de-regulation started taking hold the airlines were also allowed to go private and thereafter take in foreign private equity including airline equity. However, it remains a matter of concern that the airline industry should go the way shipping industry has gone by the using the concept of flag of convenience. 

India also started with concept of private airlines registered in India. In fact at the time of nationalization of Air India and Indian Airlines in the 1950’s there were number of airlines including Air India. It may also be recalled that in November 1947 when airlifting of troops to Srinagar was required after Maharaja of Kashmir signed the Accession Treaty, the Indian Air Force has expressed its inability and recourse to private airlines have to be undertaken. A massive effort was organized after requisitioning all available civil aircrafts. During the Kuwait war in 19___, the two public sector airlines Air India and Indian Airlines were used to evacuate Indians in a major operation which found its way to Guinness Book of Records. 
The present issue of allowing foreign direct investment in the Airline Sector and of foreign airlines has been engaging the attention of the government. The government is still not sure whether to allow foreign direct investment in the Indian airlines sector and in specific of investment buyer foreign airlines. If more than 49% of equity is held by foreign nationals then we come in clash with the traditional meaning of a national airline under the international conventions where substantial ownerships and effective control goes to foreign parties within your country. In simple words a foreign party can hold 100% a car manufacturing unit but it cannot own an airline. The US also prohibits more than 49% equity and has permitted non voting equity beyond 49%. In countries like China, Japan ownership of airlines remains within the nationals of the country. Today, there are worldwide alliances of airlines and also cross investment between international airlines. Virgin Airlines of UK has 49% ownership of Singapore Airlines.


Should India allow foreign ownership of airlines in India and also by foreign airlines? This is a moot question because we must prepare ourselves for screening from security angle of the ownership and thereafter change in share holding.  In the recent case of Jet Airways, being cash strapped, they have a plan to raise US$ 400 million QIP. The Foreign Investment Promotion Board has  stipulated that Jet Airways should ensure that the control of the airline does not shift into the hands of foreign nationals. It has further said that jet must comply with the sectoral cap of 49% FDI within 3 years as proposed in the QIP. Why is QIP so important for Jet?   

Environment and Development: Issues of Conflict Management

Dr Sanat Kaul and Dr Davendra Gupta

Jairam Ramesh’s recent statement, “They(forests) not only face the existential threat from encroachment… but they also face what is becoming perhaps the single biggest threat to Indian forests, which I call the development threat”. He has also stated that 40% of the country’s total 70 million hectares of forests is open degraded forests. None of our government economists or planners has ever made a serious attempt to look into the factors responsible for such a high percentage of degraded forests. This can possibly be explained by their undue obsession with macro planning and modeling and little regard for geographical and spatial planning?

None of India’s five year plans ever gave serious consideration to the need for spatial planning except giving some lip service. Clearly the rural urban divide is unsustainable with the kind of development model we have adopted. This is so because 70% of our 1.2 billion populations cannot eke out a living out of rural economy which largely consists of small, uneconomic and unviable agricultural holdings. This may be contrasted with the decline of the share of agriculture in the GDP from nearly two third at independence  to a low of around 15% in 2010 while the decline in rural population showed a correspondingly low decline during the corresponding period, being from about 80-85% in 1947 to only 70% in 2010. The burgeoning rural population is finding it difficult to eke a living out of the limited fertile land which is becoming increasingly expensive and out of reach. Consequently, this rural population has little option but to drift towards urban areas to look for jobs and eventually settle down often in unauthorized slums, mostly on encroached but affordable land and housing prices. For all those who are unable to emulate such encroachers resort to encroach land in rural areas. In such a situation, forest land becomes an easy prey. The phenomenon of landlessness and marginal holdings is becoming more and more pronounced.

What went wrong? While our investment in agriculture has generally remained relatively small, it is also true that we did not plan for a smooth transfer of rural populations to urban areas by creating suitable urban agglomerates with transit accommodation for a smooth movement from rural to urban areas. While part of the problem of relocation may largely be related to the democratic path that the country has justifiably adopted, it should also be admitted that this could have been achieved through a concerted spatial plan, with focus on employment combined with the availability of a minimal, affordable transit accommodation. There is an urgent need for government to locate lands which are neither fit/required for agriculture and forests and at the same time not difficult to acquire. There is nearly 64 million hectares of degraded, saline, arid and desert lands. While land is a state subject, migration of population is not. Government of India should help set up Industrial Parks and EPZs in such lands in consultation with the concerned state governments. This will also involve minimum housing and welfare provision. In this case we could seek lessons from China which created such zones and allowed a massive transfer of populations from rural to urban areas and that too in a short span of time to become the factory of the world. Admittedly such a course is not easy to emulate for a country like India, but what can however be done is to try the China model on a pilot basis.

Modern economies have a large component of employment engaged in industry and service sectors, and modern agriculture can hardly sustain perhaps no more than 10 to 12% of the population. This percentage is indeed much lower in countries like US, France, UK, Germany or Japan. For India to emerge as a modern economy and also to retain its forest cover there is a dire and emergent need to initiate vigorous measures steps towards spatial planning, with massive but controlled urbanization. The instrument for such an exercise would require care so that the sensibilities of civil society are not hurt. This could perhaps be achieved through incentives and clearly not by force and coercion. This may also contribute to the revival of our forests which are so essential for country’s ecological health. 
The SEZ policy adopted by the Government does not have any special characteristics and, therefore, does not meet the criteria of Spatial Planning. NREGA is yet another scheme which has hardly any significant economic rationale except for providing a dole to rural poor against ill conceived rural developmental schemes which may not leave any lasting impact on the society. In fact there is hardly any evidence to demonstrate that the huge expenditure on NREGA has succeeded in creating assets commensurate with the expenditure on the programme.  Indeed the annual expenditure on NAREGA at about Rs.60,000 cores could easily have built up urban infrastructure to sustain the living of many millions of migrant rural population.

Dr Sanat Kaul is a commentator and Prof. Davendra Gupta is with NCAER

Not so Safe Flights

Not so safe flights

Sanat Kaul
 2010-01-19
Aviation has come a long way over the last 60 years. Once considered the most dangerous way to travel, it is now the safest mode of transportation, safer than road, rail or shipping. How did aviation go from being the most dangerous to being the safest in just 60 years? The answer is constant improvements in technology and the concept of ‘failsafe’, which provides multiple backups, theoretically eliminating the possibility of a technical glitch or breakdown. In fact, most accidents today are due to human error, not technological failure. In modern times, the failure of an Instrument Landing System (ILS) or a breakdown in radar systems are virtually unheard of.

However, recent incidents in Delhi have raised questions about the state of our aviation equipment. The media reported the January 9 failure of the ILS and the January 14 radar failure with great concern. Security had been our principal preoccupation ever since the IC184 hijacking in late 1999, but now safety is replacing it.

The recent ILS failure was caused by a problem with the Runway Visual Range (RVR) system, which provides visibility levels to pilots from three locations on the runway. On January 9, the RVR was not functioning from the last location on the runway, meaning that under low-visibility conditions pilots were unable to land using the ILS. It was later discovered that the wire connecting the last instrument had been cut off during work on the runway. Delhiites should be familiar with such scenarios as underground cables are frequently cut off due to roadwork. But we cannot treat our airports in the same callous way in which the PWD treats the capital’s roads.

However, the most serious concern in the RVR failure is that the failsafe mechanism did not work. Normally, the RVR’s wireless mode should have functioned in lieu of the wire that had got cut off. The blame game now starts to find out who is responsible—the Airports Authority of India who maintains it, the Met department that maintains the RVR system or the airport operator that maintains the runway.

Five days later, on January 14, there was another technological failure—a radar malfunction. The radar software upgrade malfunctioned while uploading and switched off. There was no backup for at least 45 minutes. Autocrat II, the existing software of the surveillance radar, malfunctioned and its display unit went blank at 5.44 pm. As a result, the ATC could not monitor the locations of the aircraft in flight. The backup also failed. Luckily, the new software, Autocrat III, was also running and was used. But since this software was not fed with the data, it ran as the primary radar and therefore could not identify individual aircraft, which appeared only as blips on the screen.
Both instances are rare in modern aviation. The issue is not only technical malfunction of the main systems, but also the reliability of the backups that failed. While the causes of these two particular failures will eventually be determined, the greater issue is the maintenance and reliability of all our aviation equipment and by extension the safety of passengers and flight crews. How is it that the backups also failed? Is it because they were already down and had not been repaired and were therefore unable to function at the critical time? How often is the safety equipment tested? Is there an independent agency that conducts safety audits to ensure our equipment is in top working condition? What are the best practices around the world? These questions need answers. Aviation system failures can have a deadly cost.

The author is chairman of the International Foundation for Aviation and Development (India chapter). He was formerly India’s representative to ICAO

What beleaguers air safety in India?

10th June, 2010

V THULASIDAS 

FORMER CMD, AIR INDIA 


Safety concerns are overplayed, flying is safe in India 
THE MANGALORE AIR CRASH HAS THROWN up questions regarding air safety in India. It is but natural that a tragedy of this proportion will invite public and media attention to the negative aspects of Indian aviation. It is, however, unnatural, and typically Indian, to imagine all possible horrors and see an accident in every flight that takes off. 
    

Is aviation in India worse than rail or road transport in terms of accidents and fatalities? Scan any newspaper almost any day, and you will read about crashes, on either the roads or rail lines. Are those deaths less painful or less important? 
    

Let us concentrate on all the negatives in an attempt to improve air safety in India. But, this need not be done by imagining near misses all over Indian skies. Is it that, even if true, these happen only in India? 


A quick internet search shows that in 2009 and 2010, till now, there were six accidents in the USA/US aircraft, three each in Indonesia and Iran and two each in India and Dubai/Dubai aircraft and one each in 14 other countries. The Air India Express crash is the third highest in terms of fatalities, after 228 deaths in the Air France crash in the Atlantic and 168 deaths in the Caspian Airlines crash in Iran. There were 52 deaths in the case of US. It is pure luck that the passengers of the US Airways flight that ditched in the Hudson river did not drown. 


The Air France crash of June 1, 2009 does not make France an unsafe country for air travel. If frequent accidents and fatalities happen, that certainly casts doubts on safety standards in a country. The last fatal crash of a commercial airline in India was the Alliance Air crash in July 2000 in Patna. 
 

The reason for any accident needs to be understood before we start the blame game. Investigation in to the Mangalore crash will bring out the reason. The earlier it is done, the better. It is important, thereafter, that the agencies concerned, government, Director General of Civil Aviation (DGCA), airline and airport take corrective action, promptly and transparently. This alone will send a reassuring message to the travelling community. 
 

Knee-jerk reactions from any quarters, prompted by frenzy on TV channels or prophets of doom, should not dictate policy or corrective action. For example, the environmental lobby baying for blood for the construction of the second runway in Mangalore or the lobbies demanding ouster of all foreign pilots wholesale or the impression sought to be created that a table-top runway is essentially unsafe, are all to be taken with a pinch of salt. The regulator in India, the DGCA, has been in the forefront of enforcing safety standards. True, India can do with better technology, more sophisticated equipment and more skilled manpower. After all, Indian aviation grew too fast, perhaps, in the last 5-6 years, and the regulator also needs to grow. But, let us not send wrong signals to the international community that Indian aviation is not safe; it is safer than that in most other countries. It is safer than other modes of transport in India.

SANAT KAUL CHAIRMAN IFAAD* (INDIA CHAPTER) 


DGCA lacks both financial and technical independence 
IS SAFETY OF OUR CIVIL AVIATION SET-UP IN good hands? Is the safety apparatus adequate? These are some of the questions in the mind of the public after the Mangalore crash and the reports of ‘near-misses’ happening on a daily basis. After Mangalore crash, there have been a series of near misses such as a tyre burst in Delhi, a goaround at Patna airstrip and sudden descent over Muscat while the pilot took a toilet break.

These are signs that our safety apparatus is under stress. While we cheered and gloated over the growth in civil aviation, new aircrafts and new or refurbished airports, little attention was paid to safety surveillance. Alongwith growth of aviation, it is essential to enhance the safety systems. In India the reverse happened. We gloated over growth and forgot the safety. As a result, we did not even fill up essential safety posts. With posts lying vacant over a year, they attracted the across-the-board ban on filling vacant posts when permanent economy cuts were imposed by the finance ministry. In 2006, International Civil Aviation Organization rated India poorly in its safety audit. Finally, it was the threat of a downgrade from category-II country to category-I by Federal Aviation Authority (FAA) of US that led to a prime ministerial intervention and creation of posts. 


We need to clarify where the buck stops and who are the stakeholders. At one end is the Director General of Civil Aviation (DGCA), the safety regulator. The second is the Airports Authority of India (AAI), which has the statutory charge of air traffic management and are, therefore, the sole service provider for air traffic management. Third is the ministry of civil aviation. Both the DGCA and the AAI are subordinate to the ministry. The only difference is that AAI is an independent authority with its own finances and its chairman and executive directors are appointed by the Public Enterprises Selection Board. DGCA, is, unfortunately, an attached office of the ministry with very little financial and non-financial powers. The budget of the DGCA is a part of the ministry’s budget, and therein lies the problem. 


The lack of independent status almost cripples the DGCA. Unlike in other countries such as the US where the FAA comes under the Department of Transport but is independent by tradition and statute, DGCA appointments are an internal matter for the government. This puts DGCA at a disadvantage. All essential matters have to be referred to the ministry. All accident reports have to be approved by the ministry. He cannot create even a post of peon. 

It is high time that DGCA was made into an independent authority with financial independence and with power to create technical posts and fill them up. Without such independence, issues of surveillance over safety oversight in aviation will remain a pipe dream. Further, the issue of accident investigation (including near-misses) should be with an independent statutory authority similar to National Transport Safety Board of the US, an autonomous body for all transport modes including the railway and roads, and kept independent of the government. 


    *International Foundation of Aviation, Aerospace and Development

Need to integrate Technology in Higher Education

Get AI out of public sector to make it profitable

Sanat Kaul, Oct 2, 2014

The Tata Airlines was started in 1932 but post-independence, the government bought it over in 1954 and renamed it Air India (AI). By 1962, it became world’s first all-jet airline and was considered a jewel in the crown by independent India. 


The AI had a paid up capital of Rs 154 crore which continued till 2004. Further, till then, the national carrier had never received any budgetary support from the government and it was able to purchase its aircraft and built its numerous properties out of its own funds. 


After the NDA government took over in 1998, it was decided to privatize state-run airline through strategic sale to an Indian entity which could also have a foreign airline as a joint venture partner. 


The process of divestment of AI was nearly completed in 2001 but fell through at the last minute as the joint venture partner pulled out and 9/11 incident in New York took place. The UPA government took over in 2004 and reversed the previous policy decision and decided not to divest the airline which was like a holy cow to them. 


No reasons were cited but this was followed by a decision to purchase new aircraft which had been suspended by the NDA government due to divestment. Since Indian Airlines, the other public sector  airline, was also in need for a new fleet, a collective decision to order 111 new aircraft was taken on a ‘nudge’ by  then civil aviation minister Praful Patel. This top down decision leaves a lot of unanswered question and former official Jitendra Bhargava in his book ‘Descent of Air India’ (not available in bookshops due to a case filed by Patel) has made a reference to it.  


Then came the final blow. A decision reportedly taken at the minister’s level but recommended by a compliant consulting company for a fee, it was decided to merge the two airlines. The merger was approved in 2007 but was implemented half-heartedly.


The new AI never recovered from this merger and it was losses all the way till the biggest bailout of Indian history of Rs 32,000 crore. In spite of this, AI has really not made any significant turnaround. This was further hampered by very large allotment of bilateral flying rights to a carrier in a Gulf country to sweeten a deal of an Indian private carrier. In contrast, the publicly-owned Japan Airlines was in a debt of about $5 billion, declared bankrupt but was bailed out and revived successfully by Kazuo Inamouri, the proven entrepreneur and founder of Kyocera and who was specially brought in for this purpose. It was revived within 12-15 months and is now in profits. The lack of will and desire to see through the merger and revival was clearly missing in the case of Air India.

While AI is going through an ‘ICU’ like treatment at public’s expense, it is also celebrating currently the 7th anniversary of its merger with IA which is a fitting tribute to the way tax payers money is being squandered! Further, not only its property assets are being sold, it is getting rid of its fleet by sale. Meanwhile, two new developments have taken place which will impact its recovery. 
The first is the sale of 24 per cent of equity of Jet Airways to Etihad and its de facto transfer of management to them, which makes Jet a feeder airline to Etihad with its hub at Abu Dhabi and the coming of Vistara, the Tata-Singapore Airline joint venture. The only redeeming fact in favour of AI is that is has finally joined Star Alliance, which will open up a new market provided it improves its performance and quality of service.



Road map for aviation
There is a need to lay a new road map for future development of international aviation in India. While expansion of aviation depends upon economic growth, a good international and domestic connectivity is a catalyst for growth. It’s a chicken and egg issue. However, past experience shows that city-states of Singapore and Dubai have managed high growth led by civil aviation as they developed their international air connectivity first which made it attractive for foreigners to come and invest in their country. 

India needs to think on these lines. A well-connected airport becomes a hub and helps growth of business and industry. With Jet-Etihad combination covering west and Tata-Singapore covering the east, it is only AI which can stop India from becoming a passenger-supplying country to Abu Dhabi and Singapore. Can AI achieve it at this late stage? 

The public sector carrier can still make it provided a complete organisational overhaul is carried out. It has to get out of public sector mould with seniority, nepotism, rigid rules and multi-unions with their extortionist agreements and strikes that kill initiative. It has to transform itself through financial engineering like its shareholding being handed over to public sector banks.

Once AI reaches profitability it can also seek a joint venture with an airline beyond Gulf on the west or beyond Singapore on the east. AI now needs a strong counter to the new development of Jet-Etihad and Tata-Singapore carrier to ensure a growth of a hub within in India. Looking into the current situation, an early revival of this white elephant seems to be the only solution. Can the Narendra Modi government manage this near-miracle?


(The writer, a former Board Member of Air India , is Chairman of the International Foundation of Aviation, Aerospace and Development) 

Experts hail new aviation policy despite ‘compromise’ on 5/20

By ANANDO BHAKTO | NEW DELHI | 18 June, 2016

The 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 SAARC countries and countries beyond 5,000 km from Delhi on reciprocal basis.

Aviation experts have hailed the Centre’s decision to do away with the 5/20 rider that barred many India based airlines from overseas operations. They have welcomed the new aviation policy, which focuses on increased competition and more investment and connectivity, and have said that the UPA government’s 5/20 directive in 2004 was an “unprecedented decision” and was “without rationale”, envisaged primarily to stifle competition to Jet Airways, which, at that point of time, was the only domestic airline flying internationally, besides government funded Air India. As per the 5/20 rule, India based airlines were not eligible to fly on global routes unless there were 20 carriers in their fleet and they had at least five years of flying experience.

“There was no rationale then. This was an unprecedented decision which does not exist anywhere in any country. It was done solely with the intention of benefiting Jet Airways, so that other carriers like Sahara etc., did not fly abroad,” alleged former Air India executive director Jitendra Bhargava, while speaking to The Sunday Guardian. The National Democratic Alliance government on Wednesday announced an overhaul of the aviation sector, and scrapped the five-year criteria. The 5/20 rule, thus, stands amended to 0/20, although aviation experts feel that no private airline can go international at the very outset as it will take them time to acquire the required number of 20 aircraft.

Alluding to the stiff resistance offered by the Federation of Indian Airlines which represents Jet Airways, GoAir, SpiceJet and IndiGo (all of which fly both domestically and internationally), Bhargava said the Central government got “swayed by pressure” and agreed on a “compromise formula” instead of fully revoking the 5/20 stipulation, as had been demanded by AirAsia India and Vistara. “If you go by the simple philosophy of what the Prime Minister preaches—India first—then take decisions which are in the best interest of the country. Don’t get swayed by pressure of this side and that side,” Bhargava said, adding the Centre took a “middle path” so that the new aviation policy does not get delayed.

The sentiment was also reflected by CEO of Vistara, Phee Teik Yeoh, who told the media, “We would have preferred, of course, that the 5/20 rule be completely abolished to ensure that Indian aviation achieves its full potential.”

Sanat Kaul, chairman at International Foundation for Aviation, Aerospace & Development, hailed the regional connectivity scheme (RCS) spelled out by the National Civil Aviation Policy, asserting that this will lead to economic development of remote regions through industrial growth and tourism. “RCS will be the basis of an aviation infrastructure for the country. This involves keeping ticket price for regional aviation of one hour flight at Rs 2,500 for unserved airports under RCS. Along with this is the opening of about 50 remote unserved airports. In order to meet the likely loss due to fixing of ticket price for remote connectivity, it has been proposed that a viability gap funding (VGF) will be provided by a small levy per departure on all major domestic routes. This will go a long way in making RCS at unserved airports viable,” Kaul told this newspaper. Many developed countries like the United States, Canada and Finland already have such schemes.

Kaul further said that by including Uttarakhand and Himachal Pradesh in the Route Dispersal Guidelines, the Centre will enable them to get the incentive they deserve as “aviation is a catalyst to growth”. The RDG was earlier applicable to the Northeast, Jammu and Kashmir and the island territories. But Bhargava countered that the RDG is uncalled for. “It is not a desirable thing for the government to tell anybody how to run a business. Airlines should be allowed to run their business the way they want to because they are concerned about their profitability also. If they make losses, government does not come up with subsidies,” the author of The Descent of Air India argued.

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 SAARC countries and countries beyond 5,000 km from Delhi on reciprocal basis. Kaul said this will check the imbalance that worked to the disadvantage of domestic airlines during the erstwhile UPA II government, by ensuring that the Gulf countries and Singapore are kept out while opening the skies internationally. “This is necessary as far too many flying rights were given to the Gulf at the detriment of our airlines during UPA II, while also retaining the policy of 5/20. This imbalance has been corrected in this policy with the hope that one or two of our airports could become an international hub like Dubai or Singapore. This is a good policy as it will give a major boost to inbound tourism along with improved visa policies,” Kaul said.

The government has said that the new policy will boost domestic passenger traffic nearly four-fold to 300 million by 2022. Experts have also said that the policy is likely to attract more investment to India as it clears the ambiguities and uncertainties in the future path of aviation in India. Bhargava summed up: “In totality, the policy is a good one. A much needed policy and one should welcome it.”

NEW AVIATION POLICY
* 0/20 replaces 5/20: Airlines will need 20 aircraft, but not five years of local operations before flying globally.
* 22 areas will be covered under Regional Connectivity Scheme (RCS).
* Fares under RCS will be Rs.2,500 or less; viability gap funding will support airlines.
* Himachal Pradesh and Uttarakhand added to destinations under Route Dispersal Guidelines.
* Mutually open skies introduced for SAARC countries and countries beyond 5,000 km from Delhi.

Rescuing air travel from the clutches of the Maharaja

Jan 8, 2013

International aviation is a controlled business as each sovereign country has full rights over allocation of routes over its territory to airlines of other countries. This is done through bilateral air service agreements between countries.

In India the strong influence of Air India over the ministry of civil aviation led to a conservative policy towards such agreements in spite of repeated requests of ministries of commerce and external affairs to be more liberal. Did this lead to an overall economic loss to the country as business people could not get tickets when needed? No such calculation has been made but the answer is likely to be in the affirmative. 

In the past it was always Air India’s inability to meet the requests of foreign airlines for more capacity in matching the flights performed by them into and out of India that discouraged the government from giving more international routes into India. 

The conflict was whether Air India is more important than India as the demand from foreign airlines for transporting passengers, especially during winter season, far exceeded the sanctioned capacity.

As a last resort, to meet the annual demand of passengers going into and out of India during the winter season, the Director General Civil Aviation would declare an ‘open sky’ for the winter season permitting foreign airlines to bring in bigger or more aircrafts. 

This policy met with limited success as airlines find it difficult to change their schedule or size of aircraft at short notice for half the year because of  their commitments worldwide. However, in recent times the influence of Air India in bilateral negotiations has diminished. Air India no longer has the right of first refusal in getting foreign routes.

With private airlines of India being allowed to operate abroad from India from 2002, Air India tried to maintain its prime position. This was done by three means: First, it managed to get a commitment from the government of first right of refusal for new foreign routes when given to other airlines. Second, private airlines were not permitted to go abroad unless they had completed five years of operations in India. The third was an embargo of 5 years on the lucrative Gulf routes for other Indian airlines. 

Not allowing any domestic airline to take foreign routes even when they were not being served by Air India amounted to a national waste. These were administrative decisions and discriminated against private airlines of India. A new foreign airline without any previous experience could come into India if it was designated by another country but our airlines could not go abroad unless they had completed 5 years and had 20 aircrafts with them. 

Filling up slots

The first anomaly has been done away with by allowing our airlines to go abroad and fill up our vacant bilateral slots. As a result private airlines of India now carry more passengers than Air India and are opening up new routes. However, the second policy of not allowing Indian airlines to go abroad unless they have completed 5 years of domestic flying also needs a review. The third regarding Gulf routes has also been done away with in 2007 on completion of the five year embargo.

With a booming market, there is no reason why foreign airlines should take away our international traffic disproportionately. Ideally, Indian airlines should handle 50 per cent of the actual international traffic while foreign airlines coming into India should handle the other half. This correction is now taking place slowly as a result of our change in policy and now private airlines carry more passengers internationally than Air India.

 This brings us to the issue of creating an international hub at Delhi, Bangalore or Hyderabad. Dubai and Singapore airports have grown as hubs partly because India never had an airport capable of providing a good and friendly hub. Now with Delhi, Hyderabad and Bangalore having good and capable airports  promoting one of them as hubs is a distinct possibility (Mumbai does not have an airport capable of becoming an international hub).

 Promotion of an international hub requires a good and cheap transit airport and government support, especially with regard to a liberal bilateral aviation policy for that airport/ city. Can we achieve this feat? Difficult, unless we evolve a proactive policy towards it. The concession agreement signed between Airports Authority of India and GMR Group  for Delhi International Airport Limited (DIAL) provides for 26 per cent equity for Airports Authority of India (AAI) and 74 per cent for GMR  group. However, it also stipulated that AAI will not bring in more than Rs 500 crore as equity. 

This faulty condition did not allow higher equity base when desired by GMR and they had to resort to collecting Airport Development Fee (ADF)  more as viability gap funding measure. The first step towards correcting this anomaly has been taken by reducing the airport development fee by half . 

The second step is now being taken by directing AAI to bring in more equity into DIAL.This corrects the anomaly in the original concession Agreement of 2006.These two steps will hopefully reduce the high costs of Delhi airport followed by Mumbai airport and make them more competitive.

Among the future steps needed are to reduce the sales tax on ATF by bringing it under the category of ‘declared goods’ thereby attracting only 4 per cent tax unlike around 30 per cent in some states. There is also a need to look into possible cartelisation by the four public sector undertakings in manipulating Air Turbine Fuel prices.

(The writer is chairman of International Foundation for Aviation, Aerospace and Development, India Chapter)

Should foreign airlines be allowed to invest in domestic aviation?

The move will enhance competition and benefit consumers, but it will put a booming sector at a disadvantage.

AMRIT PANDURANGI

Senior Director, Deloitte Touche Tohmatsu Pvt Ltd

There is no need to ‘protect’ any airline in the domestic industry — we already have enough of it and it is really time we reduced that protection

Ever since we opened up the skies and thanks to our good economic growth, India is one of the very few countries that still have healthy double-digit growth in the domestic aviation market. This is also one sector in which private participation – in both the airlines and airports sectors – has benefited customers immensely. Liberalisation has helped and we can showcase this industry as a success of our policies. The only lesson one can learn from successful liberalisation should be that we should go for more liberalisation. Isn’t it ironic, therefore, that we successfully go for open skies to make flying more accessible and affordable but continue this strange debate of whether or not we should let foreigners (foreign airlines in particular) be part of the game.

Stopping foreigners will not only not get us any benefits, but it may also unnecessarily take away some of what customers always want — good service at affordable prices. There is no need to “protect” any airline in the domestic industry — we already have enough of it and it is really time we reduced that protection. One can well ask why taxpayers’ money should be used to “protect” private players whose troubles are not caused by taxpayers at all.

We need strong experienced players whether they come from domestic or international origins and we need to ensure that there is fair competition between them and they are well regulated on the services they provide. We certainly don’t need or want weak players who can’t invest, who don’t have “real” experience and whose intent on service and safety are always in doubt. We have excellent domestic players who have shown that high-quality service and affordable prices do indeed work wonders. We may get one or two more such players if our doors are open, wider the better.

As always, the opponents to opening up would raise the bogey of “national security” issues if we get international airlines to own majority of any airline operating in the domestic space. I don’t understand what the big security issue here is. If international airlines can fly in and out of all our international airports (and we have plenty of them these days), what is the problem with them owning parts of domestic airlines? If you are worried about ownership by one or two particular countries, then please put a ban on those one or two rather than use that excuse to keep the door closed.

What may happen if we open the doors to more investors and operators to enter and own more existing domestic airlines or even start new ones altogether is that we will, hopefully, have stronger and more experienced players. And that will invariably benefit the customer. Competition will be greater and, hopefully, more rational. Also, we won’t have inexperienced short-term players grabbing market share by pricing tickets that bring down industry profitability (which also prompts all airlines to make a quick buck when there is a demand surge and take prices to the skies).

It is possible that some of the existing weak domestic players (especially those with a short-term outlook) will die a natural death or get taken over by a stronger player. But isn’t that desirable from a customer point of view? It is better to have good quality, reasonably priced and safe airlines whether they are domestically-owned or owned by international airlines than try to control the bad behaviour of airlines through mandated regulations.

It would, however, be desirable that a decision to open up be announced now, explaining the full rationale for the decision and allowing for a roll-out from, say, a year ahead. This will give everyone – incumbents and newcomers – breathing space and time to prepare for the opening up. It will also clearly signal that the government has thought through this issue and has definitive long-term views on it. Such policy changes should always be done in a planned and comprehensive manner.


SANAT KAUL

Chairman, International Foundation for Aviation, Aerospace and Development*

We have enough capital and expertise available. Mistakes by some airlines need local solutions and not a sell-out to foreign airlines

Cabotage has been defined by the Concise Oxford Dictionary as “coastal trade” and “reservation to a country of (esp air) traffic operations within its territory”. Most countries do not allow coastal shipping as well as domestic air traffic by foreign operators. The European Union (EU) is a different case since it is emerging as a single nation with common laws, single sky and even common air-traffic agreements as a quasi-sovereign entity. They allow intra-EU domestic aviation by airlines registered within the community but not outside. We, therefore, cannot take EU as an example. But no other major country (except for Australia) allows foreign airlines to operate domestically or even allows foreign airline ownership in domestic carrier. Article 7 of the Chicago Convention, 1944 of Cabotage also states that a member country should not enter into any arrangement that specifically grants any privilege on an exclusive basis to any other state or an airline of any other state. However, there is a sudden demand in India to open our domestic airlines to foreign airline ownership or part ownership on a unilateral basis when similar facilities are not available for us in other countries.

Globalisation has its merits. But why should we allow our domestic nationally-owned airlines to be even part-owned by foreign airlines, specially when the future of our domestic aviation sector is looking so bright? One argument is that we need to raise capital abroad. However, this argument is met by the foreign direct investment (FDI) norms that allow foreign capital (not airline) up to 40 per cent. SpiceJet had an investment of about $80 million from Wilbur Ross. External commercial borrowing is another option.

Coming to domestic aviation, we see that it is a healthy sector with very major prospects of high growth. It is also true that negative government policies like excessive taxation and fees in direct or indirect form, the high price of aviation turbine fuel (ATF) and absurd levels of sales tax on ATF (as much as 30 per cent) are impacting profits. It is these aspects that need correction, not allowing foreign airline ownership in our domestic routes, which will solve problems of airline profitability — an issue of our own creation.

We see today that the airline sector in India is divided into Legacy and Full Service Carrier model on the one hand and the new Low Cost Carrier (LCC) model on the other. LCCs have become dominant, and it is the Full Service Carriers that need to reinvent themselves. Air India is a classic example of what is wrong in a legacy carrier, Kingfisher is another.

Another aspect of foreign airline ownership of a domestic fleet is the strategic importance of this sector. It may be recalled that in October 1947 India organised the biggest airlift in the world at that time in moving troops to Srinagar when Pakistan was sending irregulars by land. The Indian Air Force, still under British officers, showed its inability to provide the aircrafts. All private airlines (about 17 of them) were requisitioned to supply aircraft for troop movement. If the strategic ownership of domestic fleet falls into the wrong hands, serious security implications can arise.

Finally, is there a real need for it? We have enough capital and expertise available and such expertise can be bought also. Mistakes by some airlines need local solutions and not a sell-out to foreign airlines.

In conclusion, the liberalisation of domestic aviation with permission to allow in part or full foreign airlines ownership is perhaps not the best option for India at this stage. It will be handing over a booming industry to foreign ownership when it is not required.

Some hard talk about space

Posted online: 2010-08-09

With all our Five-Year Plans and battery of economists working in the Planning Commission, elsewhere in government and various other organisations, there seems to be almost a total lack of awareness about spatial planning in India. In the last 60 years of our independence, we have become a trillion-dollar economy. However, the ratio of GDP from agriculture, which was 55% has now fallen to 17%, while the GDP ratio of manufacturing has gone up only slightly—from under 10.6% to 18.5% and services (including construction) constitute around 65% from a mere 34%. Such a dramatic change, however, is not reflected in the rural populace. The proportion of people living in rural areas, which was about 80% in 1947, is still as much as 70%.

Also, there has hardly been any significant expansion in employment opportunities in the non-farm sector in rural areas. Therefore, based on a sectoral shift of GDP, the urban-rural ratio has to be at least 50%, if not more, in favour of urban areas. The result of the present lack of spatial planning is now evident in the recent report released by the NSS, according to which there are 49,000 urban slums in India today. 24% of these slums are located along nallas and drains and 12% along railway tracks. Further, 57% of the slums have come up on public land owned mostly by local bodies and state governments.

The UPA government had made the ambitious promise of a slum-free India, with about 10% notified and 20% non-notified slums. All the slums are in dilapidated and unhygienic conditions, with half of them severely impacted by water logging during the monsoon.

The issue that is now arising is not of slum improvement but a total lack of planning in dealing with obvious trends in sectoral distribution of wealth between the agriculture, industry and service sectors. Small agriculture holdings that are not fully viable cannot hold the families as they grow, resulting in migration of the youth. If a study is made based on family-wise holdings, there is little denying the fact that the situation is rife for mass migration to cities and other urban areas, and in turn for the consolidation of holdings. This is where planners have failed to both visualise and anticipate how they would go about the task of attracting and directing rural migrants to the designated urban areas and what arrangements would need to be made for their stay even though it may be transitional. In the absence of such anticipatory measures, it would be difficult to avoid the growth of slums—taking place unabatedly on government land leading to serious implications for general health and law and order related issues.

The contention of Delhi’s chief minister that migration to Delhi has taken place because of rural poverty in Bihar and other poor states may be partially correct but there is little denying that even with better administration of state governments, rural to urban migration is inevitable, given the trends and distribution of GDP.

It is indeed a pity that despite considerable contribution of slum dwellers to the urban economy, there is little recognition or credit by the city. What is therefore needed is developing an appropriate economic model by our economists, which would predict the future quantum of migration, area wise, and direct them to cities with employment potential. One would also need greater clarity with regard to facilities for employment and living. Even in a situation where government land has to be used for the migrants, it could be better planned with some sense of legitimacy, temporary allotment for nominal rent and hygiene systems in place. This would not only facilitate smooth and orderly migration but also avoid the growth of slum lords, violation of law and other associated corruption and criminal activities. Similarly, the provision for supply of electricity, water and public health care facilities, even in limited quantities, could be better planned by local authorities if they are forewarned of the impending migration.

As urban land prices have gone through the roof, it is almost impossible for rural migrants to buy land when they seek to settle in a city looking for work. Provision of temporary rental accommodation even in slum-like conditions, but with proper hygiene, officially sanctified for those entering a city on payment of some minimum rent would be preferable to illegal squatting. Illegal squatting has its own underground economics and is not free of charge. Even in slums, rental accommodation is available and is used. Payments under the table to slum lords, police etc are the expenses that have to be met. However, there is no adequate recognition that these are realities of life and squatting on government land is now an acceptable phenomenon, especially when state governments do not hesitate to legitimise illegal slum settlements, usually at election time. This has become a major issue for electoral bank politics.

Sanat Kaul is a commentator on current issues. This article is co-authored with DB Gupta, senior consultant with NCAER