Interview with Usha Padhee

“The plan is to move forward from regional connectivity towards remote connectivity”

The Indian aviation sector has been growing at the rate of about 18 per cent for the past four years – the fastest growing aviation sector in the world. Domestic air traffic passengers have almost doubled during the past five years. In December 2018, Indian aviation completed 52 consecutive months of double-digit growth. With a growing economy, rising incomes, a supportive policy environment and intense competition among airlines, the growth story is likely to continue. The rapid expansion in airports and an enabling regulatory ecosystem will further fuel growth. In an interview with Indian Infrastructure, Usha Padhee, joint secretary, Ministry of Civil Aviation (MoCA), talks about India’s aviation growth story, key initiatives, plans and targets, unresolved concerns, priority areas, and future outlook for the sector…

What is your assessment of the progress in the civil aviation sector during the past year?

India’s civil aviation sector has quite an interesting and incredible success story. In the past few years, the sector has witnessed huge growth, coinciding with a fall in global crude oil prices. Globally, growth has hovered at around 7-8 per cent while in India it has been exponentially higher.

Airport infrastructure received a tremendous boost as a total of 23 airports were operationalised in the past three years alone, an impressive achievement in such a short period. Further, around 17 underserved airports in Tier II and III cities, where earlier only one aircraft was operated per day, have added new flights. Hubli, Belgaum, Kolhapur and Allahabad are some of the airports that have increased flight operations. Allahabad airport, which had been defunct for a long time, opened 13 new routes.

With respect to airlines, there has been a considerable surge in the import of aircraft to cater to the increasing demand. That said, there was a common notion regarding a capacity constraint with the grounding of over 200 aircraft owned by Jet Airways. However, with the large aircraft order book of other operating airlines, the situation was restored to normal within a span of two months. Several aircraft were inducted and, at present, the fleet strength stands at almost same number.

Further, as far as the aviation ecosystem is concerned, ancillary industries comprising maintenance, repair and overhaul (MRO), aircraft leasing facilities and ground handling have also contributed to the growth story. This growth is sustainable as infrastructure has been developed keeping in mind the demand requirements for the next 20 to 25 years.

What have been the MoCA’s key accomplishments?

Several initiatives have been taken by the MoCA in the past few years. One of the noteworthy developments was the introduction of the National Civil Aviation Policy, 2016. It is the most comprehensive policy document that provides a clear direction to the ministry and ensures a good governance structure under which all stakeholders can thrive. It is a broad framework of the ministry’s intent with respect to development in the sector.

The introduction of the Regional Connectivity Scheme (RCS)-Ude Desh Ka Aam Naagrik (UDAN) as also been a game changer for the sector. Earlier, air travel was associated only with the elite class. However, with the introduction of the RCS, the scenario has changed. States themselves have come forward to get listed on the aviation map. It has now become an aspirational issue. To support the initiative, there is an innovative funding mechanism under which viability gap funding (VGF) is provided to airlines to ensure connectivity to underserved and unserved airports. This VGF is collected in the form of a fee from airlines serving trunk routes (or profitable routes) to partially fund underserved and not-so-profitable routes. Further, non-financial incentives such as tax benefits and waiving of landing and parking changes have been offered. In this way, states have become stakeholders in the initiative.

The MoCA has also given a push to infrastructure development to be undertaken either through privatisation or direct investment. Emphasis has been laid on the development of greenfield airports besides the upgradation of existing ones.

What are the plans with regard to the privatisation of existing airports, regional connectivity and development of greenfield airports?

Public-private partnership (PPP) is an accepted concept in the sector and different models of the same have been implemented. The first PPP model in the aviation sector was seen in the 1990s when the Cochin international airport attracted private investors. In Budget 2018-19, the government announced the NextGen Airports for BHarat [NABH] Nirman scheme with the aim of expanding airport infrastructure fivefold to handle 1 billion trips annually. In order to realise this aim, supporting infrastructure is needed which requires huge investments. However, for the provision of adequate funds support from the private sector is required. Therefore, the government’s policy is to have strategic development of infrastructure through the best possible funding source. At the same time, the government is mainly involved in infrastructure development in the interior areas, where investment from private players is not forthcoming or viable.

When the RCS was announced, the plan to go international was not on the agenda. It was the north-eastern states that came forward with the suggestion of taking up international regional connectivity to reap benefits of trade with countries in Southeast Asia. However, the ministry did not have any budgetary support for this and so states were asked to fund the scheme and the MoCA would undertake bidding. The Assam government was the first to enter into an MoU for the scheme and in June 2019, the first international RCS flight from Guwahati to Dhaka commenced commercial operations. Soon, operations to Bangkok will also commence. Further, routes connecting Hanoi, Kathmandu, Kuala Lumpur, Singapore and Yangon will be awarded to the airlines by September 2019.

With respect to the RCS, the plan is to move forward from regional connectivity to remote connectivity. For this, the government aims to develop another 100 airports in the next five years. Till now, airlines have been inclined towards profitable routes and routes in the hinterland and remote areas such as Pithoragarh and Tewang are yet to generate interest. Therefore, we now plan to tap these routes. Financial support will be given for a period of three years and hopefully operations will become viable within three to four years.

The government also announced its long-term plan under the Vision 2040 document. It includes plans for the RCS, creation of leasing facilities and development of in-house MRO facilities. As part of the RCS, 40 airports have already been operationalised and another 66 have been awarded for upgradation. In a first-of-its-kind initiative, 10 water aerodromes and 31 heliports are envisaged for development. Earlier, there was no template for the development of a heliport or water aerodrome, but it has now been framed by the Directorate General of Civil Aviation.

The document also envisages the induction of about 2,600 aircraft for which a leasing ecosystem will be created. At the same time, avenues for revenue generation for ancillary activities such as MRO for which airlines depend on Sri Lanka, Singapore and the UAE, among other countries, will be facilitated in India.

How are the challenges for the sector different as compared to a few years ago?

The civil aviation sector is highly capital intensive and requires technical expertise and skilled manpower. There are challenges with respect to the availability of finance and infrastructure. Earlier, there were issues related to growth and passenger load. Now, however, the market appetite has increased but capacity constraints are surfacing. For instance, within three days of beginning operations, the Jharsuguda airport reported a 90 per cent passenger load. So today the challenges are to address the need of demand rather than creating demand.

Airlines too are facing challenges related to a shortage of pilots and the training needs for operating different aircraft. After the suspension of Jet Airways’ operations, banks have become cautious in lending. Leasing and MRO are yet to establish a foothold in India. At the same time, there is an ever-increasing threat to security. Ensuring adequate security entails huge costs and this invariably falls on the passenger. The tax structure is also an area of concern. Airlines complain of high value added tax on aviation turbine fuel, goods and service tax on tickets and import duties.

Budgetary sources will be used to develop critical infrastructure or public goods such as navigation systems, automatic control towers and technology induction where private players are not likely to contribute. However, for the development of civic infrastructure, private funds will be sought. For airport upgradation, Rs 4,500 crores have been sanctioned in the 2017 budget. In order to operationalise airports in unserved areas, we aim to have a mechanism where airport losses can be shared between the central and state governments. We expect these airports to become self- sustainable within seven to 10 years and the states can then own the asset. This will facilitate faster capacity creation in remote areas.

What are the top priorities and focus areas for the next two to three years? What is the future outlook for the sector?

The mandate for civil aviation is that people must travel safely and that air travel should be made accessible. Currently, India has only 7 per cent penetration in terms of air travel and the majority of the middle-class population is still out of its ambit. In terms of overall ranking, India ranks seventh in international passenger traffic and third in terms of domestic passenger traffic. In the next five years, we aim to reach third position in both international as well as domestic passenger traffic. If the middle class starts using air travel as a preferred mode then this can be achieved even sooner.

Our aim would be to expand the air transport system to make it inclusive so that the aspiration of every citizen to fly is fulfilled

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