Indian aviation sector out on sale

For the first time in India’s civil aviation history, a serious attempt has been made by the government to present a comprehensive “National Civil Aviation Policy 2016”, after a detailed study of its civil aviation industry and global practices for almost two years. The key focus of the policy, according to the government, is to make regional air connectivity a viable reality despite the fact that the country’s brand new airport at Andal near the Durgapur-Asansol industrial hub in West Bengal is lying idle for want of a regular airline operator. 

Civil Aviation Minister P. Ashok Gajapathi  Raju said “the policy aims to take flying to the masses” by making air travel affordable and convenient. The policy seeks to establish a combined eco-system that is meant to ensure a significant and lasting growth of the sector and enhance ease of doing business through deregulation, simplified procedures, and e-governance.  The steps listed to make the policy successful are largely practical as also laudable.

However, the policymakers may have, at this stage, deliberately avoided reference to a few critical areas concerning customers, rogue private operators and contractors, and creditors and shareholders of private airlines and the impact of 100 percent FDI in domestic air service. These issues are important and need to be addressed by the government with all sincerity before civil aviation in India becomes a mass transit mode as in other more developed countries such as the US, Canada, China, Russia, and most EU member nations. The policy is also unclear about allowing foreign airlines to operate domestic services in India involving the question of national security. The adoption of such a policy by the government also gives rise to the speculation on a future possibility of FDI control over the other transport sectors such as railways, interstate roadways, and coastal-cum-inland shipping.

The 100 percent foreign direct investment into scheduled domestic carriers could lead to a total foreign control of India’s domestic airline services and a complete shut-down of the national carrier, Air India. In such an event, India will be the first country to allow full foreign control of civil aviation and of its skies. Surprisingly, the Union Home Ministry that is in charge of the national internal security, is yet to react to the civil aviation ministry’s offer. Right from the time the late Narasimha Rao-led Congress government set off the country’s economic reform process in 1991-92, privatisation of civil aviation business remained on top of the government agenda despite the failure of a series of private airlines, including East-West Airline, Modiluft, Damania Air, Sahara, Air Deccan, Skyline NEPC, and  Kingfisher. Few of the promoters, except for Air Deccan’s Captain Gopinath, had any knowledge of airlines business. 

The East West Airlines collapsed soon after its promoter, an NRI from West Asia, was mysteriously shot dead. All these airlines went public to raise capital with big promises and borrowed heavily from Indian banks before they collapsed to the utter financial misery of their stakeholders. Their sole contribution was to weaken the business of India’s national carriers, IA and AI, even before the former civil aviation minister, Praful Patel, put the two public sector airlines in a precarious financial situation by mindlessly merging them and entering into huge aircraft purchase deals.

The civil aviation policy is also silent about India’s growing, often unwieldy, air travel fees over and above basic fares to make sure that air travel remains mostly within the reach of the rich. For example, airfare of a Delhi-Chennai frill-free budget airline contains 35 percent extra fees over and above the one-way base fare. Fliers to Kolkata from Delhi are much worse treated. The extra charges on one-way base fare worked out almost 75 percent. These extras include government service fee, CUTE fee, Krishi Kalyan cess, fuel charge, Swachh Bharat cess, travel and tourism fee, user development fee, and passenger service fee. With this type of fee structure, one only wonders how the policy will help the government achieve its principal aim of taking flying to the masses. The cost of aviation turbine fuel (ATF) is among the highest in India. Domestic airlines are refuelling abroad. They are also being allowed to set up hubs outside the country to save on expenses.

 The inflated cost of airport modernisation and operation through private contractors are being borne by passengers. Not many countries will tolerate such private builders and operators. Even a small island nation such as the Maldives, India’s neighbour, threw away its airport modernisation contract with a leading Indian builder recently on account of unacceptably high construction cost.

Unless the government is able to bring down the cost of air travel within the reach of at least the middle class using luxury inter-state buses or air-conditioned two and three-tier train services, there is little hope of success of the civil aviation ministry’s resolve to bring air travel under the mass transport system. There are 394 unserved and 16 under-served airports in the country. “No aircraft movement takes place at 32 airports out of 125 airports, including civil enclaves belonging to Airports Authority of India,” said Minister of State for civil aviation Jayant Sinha recently in Parliament. His ministry has sought a budgetary provision of Rs.4,650 crore to revive at least 50 unserved and under-served airports and airstrips to boost regional air connectivity. The fund allocation will certainly benefit contractors, but air connectivity may remain a distant dream under the current ticket pricing system. If the government could not induce airlines to use the privately built beautiful airport at Andal with the support of Singapore’s Changi airport, there is no guarantee that those closed or under-served airports will be served by commercial airlines.