India’s much awaited and anticipated National Civil Aviation Policy, 2016 (NCAP) was released in June this year. It represents remarkable progress. There are clearly some positives in the policy which will help several aspects of the sector. These are directionally well intended and key details and implementation plans are keenly awaited.
On the flip side, the NCAP is found wanting in addressing key structural issues and providing the sector with the institutional infrastructure and framework required for the ambitious long-term growth envisaged. In this respect, the NCAP is a missed opportunity to create a strategically enabling aviation sector which is supportive of the prime minister’s inspiring vision for the Indian economy.
Fiscal incentives: Providing infrastructure sector benefits to maintenance ,repair and overhaul (MRO), ground handling, cargo and aviation turbine fuel (ATF) infrastructure co-located at an airport is a major breakthrough initiative. It will help attract increased investments, reduce costs and enhance overall confidence in the sector. The government should consider extending infrastructure status to training and education institutes, and fixed-base operation and general aviation infrastructure.
MRO: This segment has received a very welcome boost, including being granted infrastructure sector status. The policy proposals should result in the development of skilled jobs in India, reducing costs for Indian carriers and conserving foreign exchange outflows. However, all this will happen over time and will be critically dependent on the availability of dedicated physical infrastructure, including maintenance hangars, as well as trained and skilled manpower.
Ground handling: This segment has finally seen long- awaited policy attention. However, clarity is required on the structure of how airline joint ventures will operate. In addition, allowing self-handling by scheduled airline operators, including helicopter operators, is a positive development. However, the proposal to have a minimum of three handlers may not be appropriate for all major airports. For non-major airports, clarity on a standardised principle used by airport operators to determine the number of handlers, based on traffic and capacity, is required. Also, some of the manpower companies are professionally run with established corporate structures; an appropriate role for them should have been retained.
Economic regulation: Clarity on economic regulation of airports (hybrid till for future tariffs at all airports) is a positive development. The government’s intention with respect to identifying ways to bring down airport charges is welcome and requires further details on actual implementation.
Helicopters: Focus on helicopters, including plans for separate regulations, facilitating heli-hubs, and increased cap under the Regional Connectivity Scheme (RCS), are welcome and long-overdue developments. They have the potential to liberate the helicopter industry and enable it to achieve its potential. The government will have to continue to play an active role in developing an enabling ecosystem in terms of infrastructure, maintenance and training facilities.
Code-sharing: Liberalisation of the code-share regime and the removal of the need for Ministry of Civil Aviation (MoCA) approval for designated Indian carriers are welcome developments. These will provide greater commercial freedom to Indian carriers in implementing code-sharing with foreign carriers. However, requisite oversight from relevant authorities will be critical to ensure there is no adverse impact on consumers in terms of higher pricing and loss of connectivity.
Cargo: A viable air cargo, express and logistics segment is critical to the success of the Make in India initiative and for overall industrial development and productivity. Development in this segment will ensure that India is integrated into the global logistics and supply chains. However, with multiple agencies involved in this segment (from the private sector to government bodies such as those for quarantine and customs), it will require close and effective coordination to achieve timely cargo delivery. The proposal to mandate a minimum level and standard of cargo facilities while considering future concessions/development of airports is a welcome move.
The grey areas
Bilateral agreements: Liberalisation of bilateral agreements will be pro-consumer and support India’s trade and tourism connectivity. But this liberalisation must happen within a rule-based, transparent framework. A SAARC open skies policy is welcome as it is critical for India’s strategic interest in South Asia. The decision to declare open skies for countries with territories located entirely beyond a 5,000 km radius on a reciprocal basis is also welcome but will have virtually no impact in the foreseeable future as there are no markets above that threshold that are seeking additional bilateral rights. Clarity is, however, required on the method to be adopted for the allotment of additional capacity entitlements to countries/carriers falling within 5,000 km that have exhausted their bilateral rights capacity.
Regional services: Regional connectivity and spreading traffic beyond the metros is an important objective. Plans to revive airstrips and airports, the development of no-frills airports, unencumbered and free land acquisition through state governments as well as multimodal hinterland connectivity are key positives. The waiver of airport charges for 10 years is also a positive measure. However, some proposals within the policy require additional thought. Key among these are the proposed target fare of Rs 2,500 for a one-hour flight, the definition of RCS routes, the need for a comprehensive architecture to govern the RCS, management of the scheme, the Airports Authority of India’s (AAI) role in airport development and the management of viability gap funding. In addition, criteria and rationale for the revival of airstrips and airports, and the development of no-frills airports need further clarity.
Commuter airlines: These have a very different business model and require a separate framework rather than being combined with regional airlines. Redundant operating technologies and a fragmented market characterised by small operators with limited capital and one-two aircraft are challenges that require a rethink about what is intended to be achieved and how.
Lack of clarity on institutional framework, AAI, and Air India: Institutional strengthening at the MoCA is required because the outcomes of the policy will be dependent upon implementation capability. To move from a policy document to develop a detailed sectoral plan and to implement it at a time of fast growth and increasing sector complexity will require greater management capabilities.
The policy does not make the structural changes required in the Directorate General of Civil Aviation (DGCA). The absence of any reference to the proposed Indian Civil Aviation Authority was surprising. A complete overhaul of the DGCA is necessary including building capacity with greater management capabilities, skills and resources. This is extremely critical to ensure aircraft and aerodrome safety in light of exponential growth.
The policy makes no reference to the future of Air India. The government’s ownership of the national carrier negatively influences policy decisions and has cost the Indian taxpayer billions of rupees. Clarity on what the government plans to do has a massive bearing on the industry. AAI requires a new business model that better reflects the changed environment and its strengths and weaknesses. Instead, the policy indicates status quo.
Further, plans to corporatise air navigation services appear to have been shelved.
Need for infrastructure development: Sufficient airport capacity is a critical infrastructure requirement for the growth of the aviation sector. And it starts with the development of a long-term master plan on capacity planning for the airport segment. A shortage of airport infrastructure is a looming crisis for Indian aviation with no credible long-term plan. This calls for fundamental reforms to avert a capacity crisis. These include addressing land acquisition and associated costs, developing infrastructure ahead of demand, continuing regulatory certainty and an appropriate risk/reward framework. These reforms will be crucial to attract private sector participation. The role, structure and capabilities of AAI with regard to airport development also need to be revamped.
Expansion of route dispersal guidelines (RDGs): The expansion of the scope of the RDGs will add to the complexity of operations and financial burden on airlines. It will also lead to excess capacity on CAT II and CAT III routes. Till the RCS is established and, ideally, replaces RDG, there will be two levies for regional connectivity on the industry – one in the form of the Regional Connectivity Fund and the other towards the obligation to operate non-viable routes under the RDGs.
Migration to 0/20 from 5/20: This is an adverse provision and completely abolishing the 5/20 rule was essential to restore a level playing field and support international connectivity.
Fiscal environment: Greater emphasis was required on addressing the negative fiscal env-ironment which airlines face with respect to sales tax on ATF, service tax on fares, withholding tax on aircraft leases, etc.
In conclusion, the NCAP reflects an ambitious intent of the government for the growth of India’s aviation sector. It would have been more remarkable had it addressed the creation of appropriate structures for managing such growth which would have provided a strategic boost to the country’s aviation sector.