What ails our airlines

Posted online: 2011-11-30

There has been much talk in the media about our airlines losing money due to wrong government policies. On the one hand, we are having double digit growth in the sector and on the other, we find that all airlines are losing their profitability. The general mood is to blame the government for its policies. The blame is that, in the domestic sector, high ATF prices and high sales tax (going up to nearly 30% for Mumbai) are the main problems. However, all airlines are being charged in the same manner and there is no discrimination. Hence, there is a level playing field.

The problem needs to be looked into in its entirety. While the contradictory trends of increasing passenger traffic and falling profitability are an industry-wide problem, they do not apply uniformly to all airlines. Two full-service airlines, i.e. Air India and Kingfisher, stand out. Both these airlines are victims of their own mismanagement. Air India has always had the goodwill of the government and also public sympathy at the middle class level. The merger of Air India and Indian Airlines has truly been a disaster, and since then the entity has been living off government dole at the cost of taxpayers. The recommendation of the Committee on Public Undertakings of the Parliament to de-merger into two airlines under a common holding company seems to be the best way out for the time being to bring sanity to the disastrous merger carried out over four years ago.

Kingfisher Airlines is another story. A wrong business model compounded by the purchase of Deccan Airlines and micro-management by the owner has led to its decline. There is nobody to blame but the owner himself. Further, the airline has already been bailed out once by public sector banks by converting its debt into equity at a much higher rate while the share price plunged thereafter. It may be pointed out that private sector banks had refused to bail out this airline and it was government intervention that made the consortia led by State Bank of India to go in for it. They are now 23% owners of Kingfisher Airlines. The only thing possible with Kingfisher is to divest the present owner of its haphazard management (they are returning to the concept of full service with more emphasis on business class).

Now we come to the issue of the profitability of the rest of the airlines. Post-deregulation in 1994, after the abolition of Air Corporation Act, the DGCA gave up its practice of approving ticket prices, which the monopoly domestic airline, Indian Airlines, used to fix. As a result of competition, and later in 2001 the coming of the LCC airlines, price wars started and the prices of airline tickets came down, which led to the great growth in air traffic in India. The LCC model was a great success and it became the dominant player in the market with its share currently around 70%.The full-service airlines, like Air India, Jet and Kingfisher, turned partially to this model. While Air India started Air India Express, Jet bought Sahara Airlines and Kingfisher, Deccan. Both Jet and Kingfisher have appeared to have overpaid in their respective deals, which has impacted their balance sheets.

The LCC airlines continued to do well and ordered a very large number of new aircraft.

As new aircraft arrived, it led to overcapacity, bringing down ticket prices and margins.While the LCCs managed on thin margins, the full-service airlines had more difficulty in this respect. With no price control, we find that market leaders and price-setters changed from Air India and Jet to LCCs. The consumers welcomed the low prices but, during festival rush when prices hit the ceiling, they complained. Further, during tragedies like the Mangalore crash and the Leh cloudburst, the prices to these destinations shot through the roof. Meanwhile, Air India, having lost the market, started undercutting below operating costs, without a care to their mounting losses as they were on government life support through budgetary support. Most airlines started operating below cost.

It has been reported that the Federation of Indian Airlines has recently gone to the government to seek stoppage of the practice of setting predatory as well as excessive ticket prices. They are interested in competition between bands to be fixed by DGCA. DGCA is also empowered and obligated to ensure the ticket prices are neither predatory nor excessive. We need a healthy airline industry and, therefore, there is, I feel, a need to allow the competition to set prices between the two limits mentioned above, which is also the mandate of Competition Law in India, to keep our airline industry from becoming sick. As far as high ATF or sales tax on ATF is concerned, it should be reduced, but should not be used as a reason for decline in profitability as they are common to all.

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

Of Bullet Trains and fast Movement

The Rs. 100,000 plus core Bullet Train Project of 508 kms connecting Ahmedabad to Mumbaibased on Shinkasen technology from Japanhas taken off like a bullet after approval in May 2017 by Prime Minister Modi and is expected to make its first run on 15th August 2022- within 5 years.There has been no delay in signing the agreement. With a total cost of Rs 1.1 lakh crores(USD 17billion),  Japanese Government has agreed to fund 81% of the total cost with a 50 year Yen loan of about Rs 88,087crores(USD 14 billion) from Government of Japan with a moratorium for repayment up to  15 years. 20% of the components will be supplied by Japan and rest manufactured in India.While the interest rate is as low as 0.1%, the exchange risk is to be borne by Indian Government. Where will the Yen-Rupee ratio move over time is anyone’s guess. In the past it has been adverse for India but if Rupee strengthens it will be favourable. The train is expected to reach a top speed of 350 km per hour with about twelve stops(this is incidentally not the fastest train- they have achieved 603km per hour).The train will run largely on stilts/ elevated ground except for 21 km of underground with undersea tunnel also. Each train will carry 1300 to 1600 passengers and will cover the journey of 502 km in 2 hours 8 minutes instead of 7 hours at present. The ticket price is proposed to be 1.5 times the current first class Mumbai- Ahmedabad ticket of Rs 2000 or sayat Rs 3000. It is also estimated that by 2023 the ridership will touch 36,000 daily. At this peak assuming 100% occupants the daily receipts from ticket sale would be Rs 10.80 cr or Rs 3,942 crores per annum. Would this be enough to pay back the loan? Based on this simple calculation and assuming 0% interest and  100% occupancy with ticket constant  at Rs 3000 we should be able to collect Rs 1,77,390 crores in 45 years of its operation which is sufficient to meet the loan of Rs 88,087 crand leave a balance of Rs 89,303 crores if the Yen-Rupee exchange rate remains constant.  What about the operating expenses? We have no idea of the quantum operating expenses as yet. On top of this is the Indian portion of 19%.However, the agreement, it is understood, involves training and technology transfer( with or without royalties?). It is also expected that there will be increase in the ticket price in the 45 years of repayment period.

With the financial package being offered along with training and technology transfer, the package becomes attractive. Therefore, this project should be treated as a technology demonstrator which could help the existing railway network in innovation and adaptation in improving their existing technology and help improve rest of the network. However, without this attractive financial package, another bullet train may not be financially viable at the present ticket price.

All said and done we should also consider all other modes of transport if we want to connect the length and breadth of the country with quick transport. While China has built a huge network of HST, it is reported that they have had to lower the ticket price more than once to fill it up and it has accumulated losses of $300 billion already. Can we risk such a proposition?

Meanwhile, aviation is making inroads into railways traditional passenger clientele. In fact, railways had been cross subsidizing its passengers fares against cargo, which has led to loss of their cargo to trucks. The Low Cost Carriers of Aviation sector(which dominate over 70% of Airline industry) have actually made a dent into the II class tier and above railway passenger  market. With double digit growth in domestic passenger aviation and over 900 new commercial aircrafts joining the existing fleet of 400 aircrafts in the next few years, the competition of future bullet trains with aviation will be fierce. It may be further added that Airline industry raises its own funds to finance new aircrafts unlike railways and therefore, do not add any burden to the exchequer. Further, Airports including Airports Authority of India is self sustaining and pays tax  dividend to government.

Today the largest civil Aircraft A380 is capable oftaking  853passengers in a single economy configuration. The bullet train will carry 1300 to 1600.Each A 380 aircraft should cost around Rs 2,500 crores (Listed price US$375million). if we allow a shuttle service of A380 from length and breadth of the country i.e. Dibrugarh to Mumbai; Delhi to Trivandrum; Jaipur to Chennai and many more, it might be able to take the load of passengers off the railways, which can then concentrate on cargo services , which is their mainstay. Ten such A380 will cost around Rs 25,000 crores and can connect the traffic of at least five cities. And there would be no capital cost to Government. No cost of putting upnew linesor stations. No land acquisition. The Railways could then limit itself to provide quick rail service between the airport and the city so that passengers have a seamless experience.

To conclude, Railways, at least for now, should concentrate onimproving  shorter distance services for passengers and more on their main bread and butter- the cargo services rather than High Speed Trains, a job which can be better served by Low Cost Airlines.

Dr SanatKaul is Chairman of International Foundation for Aviation, Aerospace and Development

Flawed and disappointing

After five and a half months of the new government coming to power, the Ministry of Civil Aviation has announced a draft aviation policy. Besides the Airport Infrastructure Policy of 1997, India is yet to produce a cabinet approved Civil Aviation Policy though draft policies have existed for over last 25 years. Now, we have yet another half baked four page draft document.

After enunciation of the economic importance of civil aviation, the ministry has made certain announcements. The proposed corporatisation of Airports Authority of India (AAI) and Pawan Hans Helicopters Limited is a good sign as it will bring in greater efficiency and transparency. 

However, there is no mention of hiving off and corporatising air traffic management, which has been on the anvil for some time and has been recommended by the Naresh Chandra Committee on the ‘Road Ahead’ as far back as 2002. Further, there is no mention of converting the Directorate General of Civil Aviation (DGCA) office into a Civil Aviation Authority – a much needed catalyst for an efficient DGCA – that was approved by the last government. This is a step backwards.

On specific issues starting with international aviation, it has proposed to develop six international hubs in India when we have none presently. We have also done great damage towards it than good by giving away very liberal bilateral rights to the Gulf region to sweeten our private deal leading to further re-enforcement of their hubs.

Hub creation is no easy task. It would be more realistic to propose a single international hub in India in the present context and work towards it. Linking hub creation with future bilateral air service agreements is a good suggestion.

The junking of the existing 5/20 policy (which stops younger airlines of India from flying abroad) will be a corollary to creating international hubs. However, the draft policy only mentions its review and not abolition. Further, this item is wrongly placed along with regional connectivity.

Domestic aviation and regional connectivity have been discussed. The policy proposes to tweak the existing Group Dispersal Guidelines (GDG) of DGCA to enhance regional connectivity. The GDG is a cross subsidy by private airlines forced by the DGCA and has not been favoured by the Naresh Chandra Committee which had recommended an Essential Aviation Services Fund (EASF). But, EASF finds no mention, which is unfortunate. This, again, is a regressive step.

The draft policy mentions that while developing airports one must ensure that related sectors such as manufacture, business, tourism and pilgrim are developed as well. While such a statement is welcome, with less than a dozen out of the 132 airports in India making profits, a policy towards unviable airports as part of general infrastructure needs to be developed. Creating an aerotropolis or developing good connectivity to tourist/pilgrimage spots with good hotels, will make the airports more viable.


Much needed subsidy While AAI is able to cross-subsidise all such airports from its profits, opening new regional airports in the private sector as well as running of regional air services may also require a subsidy, at least for a short period. But there is no mention of it.

While mention has been made of ‘upgrading’ DGCA, air cargo, Air India, corporatisation of AAI and Pawan Hans, there is, however, nothing in the draft policy regarding ground handling, aviation safety (we are already downgraded by the FAA of US) or security, satellite navigation, issues of leasing of aircraft or harmonising of laws with our international commitments.

Although, there is mention of developing Maintenance, Repair and Overhaul (MRO) facilities, we find that a similar sentiment was expressed by the then finance minister two budgets past. As the fiscal regime for MRO facilities is very high, India’s airlines find it cheaper to send the aircraft abroad for maintenance and repairs. This unfortunate tax treatment is stopping a remunerative industry from taking roots in our country to serve our own aircrafts.

One of the biggest flaws in the draft policy is that there is no mention of encouraging aviation related industries in India. As an emerging aviation power, India has lost sight of domestic growth of this industry in spite of the general call for ‘Make in India’. Even unmanned aviation vehicles (UAV), whose manufacture has started in India, have been banned by DGCA on grounds that International Civil Aviation Organisation (ICAO) has not made clear its Standards And Recommended Practices (SARPs) on it. As a matter of fact, rules regarding use of UAV within a country is not a subject matter for ICAO as it deals only with international aviation.

Air Navigation Service Provider (ANSP) has a great responsibility for both Indian and foreign aircraft. Unless it is modernised and kept up with the growth of aviation, it will lead to congestion in the air and compromise on air safety. While the policy speaks of improved service in very general terms, it does not mention the introduction of navigation by satellite, an area where India has taken a lead by launching GAGAN - the augmentation satellite for satellite-based navigation. There is no mention of hiving off the Air Navigation Services/ Communications, Navigation and Surveillance (ANS/CNS) functions from AAI into a new entity, an issue which has been debated for long.

Lastly, Air India has been retained as a holy cow. It went through an abortive process of divestment to a strategic partner in 2001, but then the policy was reversed not to divest it. This draft policy, unfortunately, continues the same. In one word, the draft policy may be described as ‘disappointing’.

(The writer, a former joint secretary, civil aviation ministry, is Chairman, International Foundation for Aviation Aerospace and Development)

DALAI LAMA VISITS TAWANG

Dalai Lama’s visit to Tawang on 8th – 9th October 2009 has raised the antennas of the Chinese Government who have expressed their unhappiness for allowing Dalai Lama to go to a territory which they claim to be theirs. The Chinese have consistently been seeking a forward policy with India claiming 93000 sq kilometres of Arunachal Pradesh right down to north bank of Brahmaputra in Assam (besides their occupation of land at Aksai Chin in Ladhak and in Gilgit in Pakistan occupied Kashmir). Now they even object to who should visit Arunachal Pradesh. Even Indian Prime Minister’s visit to Arunachal Pradesh has to been in this light. It is unfortunate that Prime Minister did not visit Tawang when in he visited Arunachal Pradesh last year (which was visited by an Indian Prime Minister after 9 years). While no reasons were provided as to why he did not keep Tawang in his itinerary, it appeared to the country that it was done to avoid the Chinese criticism. However, with his visit to Tawang in October 2009 this issue seems to have been put to rest. The latest issue of Dalai Lama’s visit has again put Chinese antennas up. The Chinese have been told politely but firmly that Dalai Lama is an honoured guest and he can go to any part of India as and when he likes. It is a little reassuring to the people of India that the government has taken a stand to allow Dalai Lama to visit Tawang in spite of the Chinese protest. What is little unsettling is that foreign Journalists have been barred from entering Arunachal during this period.

        Chinese aggressive postures have been consistent with the world including India even when they were a weak nation. It may be recalled that in spite of  Pt Jawahar Lal Nehru’s indulgence of the communist regime in China since their taking over in 1949, especially taking up the issue of their UN Membership in place of Taiwan when no western power was prepared to do so, has been paid back to India in a totally different manner. The Chinese occupation of Tibet by military force and thereafter treatment of Tibetans in a brutal manner has not been accepted by the world. India, however gave them a certificate in 1954 by the infamous Panchsheel agreement in which we not only conceded Tibet as a region of China, but voluntarily gave up our existing rights in Tibet inherited from the British including maintaining some troops. We also did not even seek a border settlement in return. The Chinese are now also using their economic and political might to downplay  visits of Dalai Lama of which the latest victims are President Obama for not meeting Dalai Lama during the latter visit to US, UK’s and France’s abject surrender. While India may not be a powerful country, it has always been ahead of times and taken stand. We provided a lot of accommodation to the Chinese in their early days when they were condemned by rest of the world. We even accepted Tibet as a region of China even though it was a military occupation (still remains). But now with their obnoxious behaviour towards India on issues of direct concern to India like renewed border claims in Arunachal, we need to have little modification in our foreign policy even if we have stand out alone and speak up to China.

        In the present instance, Dalai Lama’s visit to Tawang, while routine, has irked the Chinese. There is no reason why India should soft peddle the issue and not allow foreign journalists to visit Arunachal Pradesh. Infact, according to press at least four foreign journalist were issued 30 day permits to visit Arunachal Pradesh but the same was cancelled at the last minute. The foreign Correspondents club of South Asia has issue a terse statement to this effect.

          If the purpose of the present action is to appease the Chinese Government, it will not help. It will be taken in as yet another buckling in by India- confirming their view that a weak Indian government can always be bullied into submission.

Dr Sanat Kaul was earlier served in Arunachal Pradesh and Ministry of Home Affairs  

COMPLETE LIST OF ARTICLES [up to 2010]

· Nobody in the Control Tower, For some time, India hasn't     filled aviation safety posts, Indian Express, 31.05.2010

· What’s in the air, Financial Express, 21.05.2010

· Nuclear liability lessons from aviation, Financial Express, 07.05.2010

· Forecast: still cloudy, Financial Express, 22.04.2010

· Can a foreign COO save Air India? Financial Express, 13.04.2010 

· A regulator for our runways, Financial Express, 17.03.2010

·  Are Indian Airports Safe from Threat? Mail Today, 1^st January 2010

· At sea over where to build Mumbai’s second airport, Financial Express, 16^th October 2009

· This no way to manage AI, Financial Express, 1^st October 2009

·  Pilot Strike, Bird Strike – Financial Express, 18^th September 2009

· Yamuna’s Delhi Woes, Financial Express, 1^st September 2009

· Solution that was missed six years back, Financial Express 12^th August 2009

· A way out of Aviation Crisis, Financial Express 4^th August, 2009

· The wrong flight plan: What went wrong with Air India? Financial Express, July 17^th, 2009

·  How the Maharaja lost his sense of boeing, Financial Express, July 11^th 2009

· Hit those near-misses: With air safety in India nosediving, it’s time someone buckles the seat belt: Hindustan Times, February 14^th 2009.

·  A near miss too many: civil aviation needs an independent   regulatory authority to implement higher safety standards:   Financial Express, 12^th February 2009.

· Why India should ratify the Montreal Convention 1999’ (Indian Express, May 2007)

· ‘Higher Education in India: a missed opportunity’ ( ICRIER, New Delhi 2005)

· Evaluation of Study on the need and structure of an Educational Centre for Telecommunications in India : (European Commission: April 1996)

· ‘2020: Housing for Chandigarh’ (Chandigarh Administration, 1995)

·‘New Industrial Policy for Delhi & Neighbouring States’ (Indian Institute of Economic Growth & Institute of Economic Growth, Tokyo, 1995)

·   ‘Financial Aspects of Urban Governance’ (University of Toronto, 1994)

·  ‘Housing Finance and India’s Urban Poor’, Har Anand Publications, New Delhi, 1993  (Planning Commission, Government of India) [co authors: Dr. D.B.Gupta & Ms. Rita    Pandey]

· ‘Case study on the implementation of Punarvaas habitat & livelihood movement through multipurpose cooperatives’ (UN     Centre for Human Settlement, 1991) 

·  ‘Role of Infrastructure Development & Provision of Basic Services for Employment Generation in Asian Megalopolis’      (ARTEP-ILO, 1991) 

·‘Survey of Capital Markets & Monetary Policy in the 70s & 80s’ (ICRIER, New Delhi, 1990)

· ‘Wanted: Mortgage Insurance & Secondary Mortgage Market’ (Financial Express dt.16-4-1990) 

·  ‘Innovative Community Based Housing Finance & Credit System for Low Income Households in India’ (National Institute of public Finance & Policy, New Delhi, 1989) [co-author: Dr. D.B.Gupta]

· ‘Resource Mobilization for Housing’ (National Cooperative Housing Federation Bulletin, Vol. II No.3, 1989)

· ‘Cooperative Movement in Delhi: Achievements & Prospects’    (Management in Government Publishers, New Delhi, 1985)

· ‘Is the Building Society Model appropriate for Resource Mobilization in India: A report on the Working & Functioning of      Building Societies in U.K. & U.S.A (Chairman of Study Group appointed by National Cooperative Housing Federation of India, 1985) 

· ‘Housing in Delhi: Past, Present & Future: Role of Housing Cooperatives’ (Delhi Cooperative Housing Finance Society    Journal, 1985)

• ‘Housing Finance in Small & Medium Towns : SHIMLA a case study’ (Indian Human Settlement Programme in collaboration with Institute of Housing Studies, Rotterdam, Research Report No 11,1979)

COMMENTS ON THE NEW CIVIL AVIATION POLICY

The new Aviation Policy has been cleared by the Cabinet a couple of days back. It’s a welcome change after living with the draft policy for the last decade or so. The 5/20 rule controversy has been resolved as the period of five year wait has been done away with while retaining requirement of 20 aircrafts 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 group of airline.

The fact that the domestic aviation is not as profitable as international has been accepted and to that extent there is a need for introspection by the Ministry.

Another major aspect of the new policy is laying down a policy for Regional Connectivity Scheme (RCS) for unserved airports which is excellent. This 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.2500/-  for un-served airports under RCS. Along with this is opening of another reportedly 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 to provide Viability Gap Funding (VGF) by a small levy per departure on all major domestic routes. This will go a long way in making RCS at un-served airports viable. Such a policy will lead to economic development of remote regions through industrial growth and tourism. Many developed countries like USA, Canada, Finland have such schemes and its good that we are starting such a scheme now.

The existing Route Dispersal Guidelines (RDG) have been retained with some tweaking. RDG are meant to assist North-east, J&K and Island territories.Uttarakhand and Himachal have been added to this list which is good.

So we have now two subsidized schemes in the new civil aviation policy i.e. the RCS and RDG. While RCS will be subsidized by the government directly, RDG will be subsidized by Airlines. However, it is the passengers who will pay for both. Nevertheless, I consider this as a positive development as aviation is a catalyst to growth and remotes regions will get the incentive they deserve.The mechanism for RGD is already established. For RCS a new mechanism will need to be put in place.Normally this is done by reverse auction ie airlines are asked to bid for remote routes and the one asking for the lowest subsidy gets it. If it is ensured that frequency of flights to such remote airports under RCS is maintained throughout the year, the economics of the remote airport also becomes viable. Some state governments have already introduced such a scheme like Madhya Pradesh and Andaman and Nicobar Administration 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 SAARC countries and countries beyond 5000 km for Delhi on reciprocal basis. This will ensure that while opening the skies internationally, Gulf countries and Singaporeare kept out. This is necessary as during UPAIIfar too many flying rights were given to Gulf, at the detriment of our airlines while 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 (outbound tourism from India is already doing well).

Another major feature of this policy is giving a positive direction towards viability of MRO which has been an unnecessary negative drain on the country as airlines have been sending airlines abroad for major maintenance.

Apart from these the policy talks about improvement of Air Navigation Services which is an on-going process and modifying the policy of 150 kms regarding construction of new airports.

The policy falls short of replacing DGCA with an independent authority but promises to give DGCA more independence. The policy has projected that India will have 300 million domestic passengers by 2022 ie in 6 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 of over 7% annually is maintained along with the policies of RDG and RCS.

SanatKaul is Chairman of International Foundation for Aviation, Aerospace and Development (India chapter)

Next Step in Aviation: Developing an International Hub in India

The nineties saw the saw the re-emergence of private domestic airlines in India after their nationalization in the fifties. The popularity of the new private airlines went up as they provided better service and on time performance with new aircrafts. Then the concept of Low Cost Airlines (LCC) was introduced into India and it found a great acceptability. By late nineties the popularity of low cost airlines raised so much that from marginal players in the market they became a dominant factor with their share of passenger traffic overtaking the full service airlines.  The DGCA of India also did away price control over tickets. With liberalized domestic market came the flexible pricing of ticket. Since airline seats are perishable like vegetables, the new concept of price of ticket for the same flight varying from day to day and hour to hour also stated. Internet sale of ticket provided an excellent medium for this. This brought in a social revolution in India next to that of telecomm where cheap cellular phone became a social and business necessity. With airline tickets hitting the bottom, it enabled the middle class to find a new form of freedom- the freedom to travel long distance for business and pleasure by air. The composition of air traveler transformed. From largely government and corporate travelers, students, housewife, self- employed small and medium entrepreneurs all found flying by LCC viable and time saving.
Dr Sanat Kaul is Chairman of International Foundation for Aviation and Development (India chapter)

                     The next step took place in start of this century when private airlines were permitted to fly abroad. An unnecessary condition of five years was kept as a qualifying period for a domestic airline to start foreign operation. Be that as it may, two of our full service airlines, besides Air India, now fly abroad competing with the best of the world airlines and more will join. This gives our Indian airlines an experience of competing with the best in the world.

              Meanwhile, our airports were in a shabby condition and needed an improvement. Kerala took the lead in 2000 with a brand new airport in Cochin in the joint sector followed by Hyderabad and Bangalore. This was followed by modernization of existing Delhi and Mumbai airports through a long term concession.

           Now that we have a reasonably modern infrastructure of civil aviation in place with a large domestic traffic and good international connectivity, what should be our next step? To me the obvious answer is to create an international hub in India. What exactly is a hub? A hub is a place where a large number of airlines meet from different destinations and exchange passengers. India is well located in Asia connecting Europe with Far-East and Australia. But unfortunately, since we did not have a good airport nor did we encourage a liberal policy of bilateral air service agreement (except in the last few years) we missed the opportunity which gave rise to Singapore and Dubai to come up as hubs in our region although their own domestic traffic was negligible. We need to correct this mistake. How can we develop a hub? A hub requires a good friendly airport where waiting and transfers to another flight can be done in a friendly atmosphere. It also requires the city where it is located to be efficient and tourist friendly. Post Commonwealth Games it is hoped that Delhi will show these signs. Heathrow airport in London has come up as a major hub as it developed into a great point of interchange with the airport providing all modern facilities and city of London providing a good city for a break. In the east Singapore developed as a hub after Singapore split with Malaysia. First they developed their own airline and then the hub. Similarly, Dubai decided to develop their airline first and then the airport. In India, with the new T3 terminal in Delhi there is a scope of developing a hub in India. Delhi airport has two parallel runways which provides it with growth potential and is the busiest airport in India. Unfortunately, the existing Mumbai airport cannot grow due to limitations of land and the fate of the second airport is in a limbo, thanks to Jairam Ramesh. It is now time for government to take a concerted decision to develop an international hub in Delhi. For this they will have to encourage more flights into Delhi even thought our own airlines may protest to guard their turf. We also need to encourage bigger aircrafts like Airbus 380 to land in Delhi to create the critical mass required to create a hub and compete with the likes of Singapore and Dubai. Creation of a hub requires a good airport which we have and flights coming in from all directions, both domestic and international to provide connectivity. The advantages are many. A hub provides an increase in localized tourism and overnight stays; it provides an incentive to do business in the region. However, the state government of Delhi also needs to play a more proactive role in the airport hub development as it enhances the brand value of the city rather than sit back and take undeserved credit.

Cheers, IndiGo goes global

Posted online: 2011-06-17 02:58:36+05:30

After a self-imposed ban, India is finally allowing IndiGo Airlines, India’s leading low-cost carrier (LCC), to go abroad from September this year. Indigo completes five years of operation in the domestic sector, which is the main qualification to allow it to go overseas. Hopefully, other airlines will follow as soon as they qualify. The moot question is, what was the rationale and philosophy behind the ban? This ban, which has no legal bearing, is highly questionable, when India has not put a similar condition on carriers of foreign countries that come into the country.

Under the regime of Bilateral Air Services, all issues of commercial or scheduled aviation are supposed to be resolved between two countries based on agreements negotiated between them to their mutual advantage. These agreements determine the frequency of service, location of points of landing in each country and designation of air carrier companies. It is not left to the country to nominate its carrier. The nomination has to be acceptable to the host country too.

Under these circumstances, it is not clear on what basis India allowed LCCs of other countries to come to India and take away our business while Indian LCCs were not allowed to go to their country. Putting a restriction of five years of domestic operations for Indian carriers before they are allowed to go abroad while putting no such restriction on foreign carriers amounts to a restrictive policy against our own carriers and, therefore, denies our own carriers a level field. In the airline business, like in any business, it’s the early bird that takes the worm. India is one of the most attractive aviation markets. India’s outbound market is booming, with Indians’ increasing propensity to travel abroad having put the Indian travel trade in reverse gear. Where bringing foreign tourists into India used to be the most lucrative sector, the travel operatives are now working on sending Indians abroad on holidays. Indians are, however, cost conscious, especially when they travel on their own expense. Here, permitting foreign LCCs to get a foothold into the Indian market before Indian LCCs are allowed to go abroad amounts to cutting our own foot.

This issue becomes all the more intriguing when we see the utilisation of bilateral aviation rights already existing between India and various foreign countries. While foreign carriers use up all their rights on most of the popular routes, utilisation by Indian carriers remains well behind potential. Here, we have harmed ourselves; there is no foreign hand involved.

It is also a moot question as to who allowed this to happen and what were the circumstances. Giving our opponents a business advantage to the detriment of our own industry needs to be investigated. Like spectrum in the telecommunications sector, international routes are also sovereign property and have value attached to them. In this case, two countries are involved in each route and negotiations have to ensure that both countries benefit equally. But by not utilising our rights, we are giving undue advantage to our competitors and not providing a level playing field to our own industry. This becomes all the more relevant in the face of the anti-corruption agitation going on in India today. From questionable pilot licensing to indiscriminate distribution of bilateral rights that undermine home advantage, there is much that merits a serious inquiry in the aviation sector also. Is anyone listening?

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

Draft Civil Aviation Policy 2015: Are we making our airports safer?

The proposed changes to the ground handling policy could easily lead to chaos and become a security issue

By: Dr SanatKaul | December 22, 2015 

While the current draft civil aviation policy 2015 has come out with some positive, forward-looking directions such as regional and remote connectivity, it has also made some issues more retrograde than necessary. Two such matters that stand out are the indecision on the 5/20 rule and the proposed new ground handling policy. While much has been written on the 5/20 rule and the matter is now with the Competition Commission of India, the ground handling policy has been turned upside down.

Ground handling at an airport involves all aspects of management of an aircraft between the time it arrives and takes off—cleaning, passenger and cargo handling, cabin service, catering service, ramp service, guiding aircraft into parking slots, lavatory cleaning, air conditioning, airstart services, baggage handling, etc. Clearly, speed, efficiency, security and accuracy are important in these services.

One aspect of these services is the use of expensive and sophisticated equipment, its maintenance and parking in the limited area available at an airport. There is a tendency amongst European airlines to outsource this business to ground handling agents (GHAs). European airports with over 20 million passengers tend to have about two GHAs while the European Union wants to have three for greater competition. It has been documented that productivity decreases in proportion to the growing number of ground handlers. More the GHAs, more space for parking their equipment is needed. The pooling of equipment has been suggested but it is found impractical due to competition.

While airlines want greater competition to lower the prices, it becomes a case of decreasing inefficiency—for one of the most efficient airports in the world like Dubai, there is only one GHA, besides the Emirates doing self-handling.

Another aspect of ground handling is the use of skilled whole-time bona fide manpower and restricting its number. Since efficiency and high skills are essential for a good and quick turnaround of aircraft, the labour needs to be highly trained and motivated.

On top of this is airport security, an issue which is paramount for Indian airports. The more the ground handlers, the more will be the manpower and, therefore, the greater is the security risk. The risk becomes much higher when the labour component is casual and not permanently employed by GHAs or a self-handling airline. In India, there is a tendency to use labour contractors for ground handling. This is a dangerous security issue because police verification and on-ground vigilance of such a large and changing workforce cannot be done in a short period of time, and will never be as good as a permanent workforce permitted inside the airport by the Bureau of Civil Aviation Security.

Let us, therefore, examine the changes in the ground handling policy in the proposed draft. From the existing policy of the Airports Authority of India (AAI) based on ground handling regulations of 2007 along with amendment of 2010, which permitted three GHAs per airport, of which two were selected through competitive open global bidding process (the third being a subsidiary of Air India or its JV), and thereby ensured the best handling agencies selected through a proper process, the draft policy wants to turn it upside down. The 2007 policy allowed only bona fide whole-time employees of GHAs to be deployed at airports, thereby eliminating casual manpower. Further, only Indian airlines were allowed self-handling, not foreign airlines. The selected GHAs were given a 10-year period at the airport so that they may bring in the expensive equipment needed for efficient ground handling—a period which ends around 2018-19 (with provision of extensions) and recruit and train a permanent skilled manpower. Any change in the policy now may, perhaps, attract penalties and legal cases. However, under the current proposal, each airport operator must have at least three GHAs, of which one will be Air India through its subsidiary or its JV but there will be no upper limit of GHAs at an airport. Further, all domestic airlines and charter operators will be free to carry out self-handling through themselves or their own subsidiaries and are permitted to ground handle another airline. This means that any Indian airline or its subsidiary automatically qualifies to become a GHA. Also, while ground handling staff will be on the rolls of GHAs, airlines or their subsidiaries are allowed to take contract employees with a contract of at least one year, which is against the labour laws.

The background to this new policy is the ongoing tussle between the government and airlines who want an open ground handling policy with outsourcing being permitted. However, in a press statement of October 25, 2012, the ministry of civil aviation had clarified that outsourcing of employees will not be permitted due to security reasons.

It may be pointed out that charges and rates for ground handling at airports with over 1.5 million passengers per annum is the responsibility of the Airports Economic Regulatory Authority. Therefore, limited competition at an Indian airport is not an issue as a regulator is already in place.

The proposed changes to the ground handling policy could easily lead to chaos and a security issue. It is presumed that the proposed policy has been made in the ministry of civil aviation and no consultation has yet taken place with the ministry of home affairs or the National Security Advisor office.

The author is chairman, International Foundation for Aviation, Aerospace and Development

In policy’s implementation lies the rub

The draft aviation policy is an improvement over past versions but what parts of it make it as policy remains to be seen [November 11, 2015] 

The Modi government has at last produced yet another Draft Civil Aviation Policy. The first draft was put up over a decade ago but the final policy never saw the light of day. In between a draft was put up a few months back which was very cursory and vague. This draft is a major improvement and has a comprehensive coverage. But how much of it will be  converted into policy and then implemented is anyone’s guess.

The draft policy covers ten items of importance namely, Aviation Safety, Regional connectivity, 5/20 rule, bilateral traffic rights, code-sharing, route dispersal guidelines, fiscal support, helicopters, scheduled commercial agreement, airports development, cargo, skills development, essential services, aero-manufacturing, offsets.

The controversial issue of 5/20 has been made more complicated by inviting suggestions from public to either keep or discard it or go in for a point system. This indecision of the government should not have been reflected in the draft policy. In the same para it states that Route Dispersal Guidelines  (RDG) meant for remote areas will be retained. Although RGD amounts to cross-subsidy by airlines, this system has been functioning quite well and its retention at this stage is, perhaps, worthwhile even as it adds to the cost of operation of domestic airline services. Significantly, no analysis has been given why domestic cost of operation for airlines is high thereby making domestic flying expensive when compared to international. For example, issues of excessively high sales tax rates in states like Mumbai and Delhi have not been discussed. The whole issue of retention of 5/20 is based on the premise that if all airlines are allowed to go abroad from the start, many will abandon domestic services. Why domestic services make less money than international services has not been analysed.

A mention has been made of Satellite based Navigation (RNSS) using our own augmentation satellite GAGAN which will be made compulsory for all Indian aircraft after 1-4-17. This is an important step in the right direction.

There is greater clarity on Ground Handler Agencies (GHA) policy. However, the policy states that there will be at least three GHAs including Air India to ensure fair competition, with no upper limit. Generally, airports restrict the number of GHAs so that the limited land available is utilised properly. A total laissez-faire policy at airports may lead to chaotic conditions. The policy also proposes to bring GHA along with catering and aircraft refueling under the Essential Services Act.

The draft policy strongly advocates regional connectivity and has introduced a Regional Connectivity Scheme (RCS). This is excellent. To ensure it, it provides for Viability Gap Funding for ‘strategically important but financially unviable’ Airports, 2% cess on all tickets and other financial support like no service tax, free police and fire services, no excise duty on ATF and other incentives for airlines and operators connecting remote regions. This is most welcome as it will help build a strong aviation infrastructure for the country.

The policy is favourable towards developing the nascent MRO industry in India. The issues of customs duties and taxes could not be sorted out by both Chidambram and Jaitley as FMs though both had mentioned it in their budget speeches. Similarly, bold promises have been made on air cargo (India is the only country in the world which unilaterally declared open sky for Cargo decades back but the biggest impediment to it is the deeply entrenched bureaucracy.

This draft is an improvement on the previous drafts, but it needs to be converted into final policy. At this stage one can at best say that yet another draft policy has come out. What this draft has not touched at all is the emerging sector of Unmanned Aerial Vehicles (UAV) and the important issues relating to leasing of aircraft with regard to the Cape Town Convention which need urgent attention. Otherwise, it has brought out most of the issues.

The author is Chairman of International Foundation for Aviation, Aerospace and Development (India chapter). He was also India’s Representative to ICAO