Saturday, Sep 20, 2014

Unraveling in the sky

In the past, the FAA has downgraded US allies like the Philippines (January 2008), Israel (December 2008) and Mexico (July 2010), which proves that the FAA’s actions are independent of US foreign policy interests.  PTI In the past, the FAA has downgraded US allies like the Philippines (January 2008), Israel (December 2008) and Mexico (July 2010), which proves that the FAA’s actions are independent of US foreign policy interests. PTI
Written by Amber Dubey | Posted: February 10, 2014 12:25 am | Updated: February 10, 2014 9:42 am

The US Federal Aviation Administration’s (FAA’s) downgrade of India’s aviation safety rating couldn’t have come at a worse time — just when India was creating a positive investment climate in its aviation sector with several far-reaching reforms. Barely 16 countries are in Category II, which India has just been included in. Bangladesh, Belize, Ivory Coast, Congo, Gambia, Haiti, Nauru, Swaziland and Zimbabwe are some of the other countries in the category.

January 31, 2014 will be remembered as a black day in the history of Indian aviation. Ironically, India’s downgrade happened in the month when the aviation world was celebrating the centennial of the world’s first commercial airline flight.

The last two years have seen a series of aviation sector reforms. The biggest gamechanger was allowing 49 per cent FDI by global airlines in Indian carriers. Other important reforms include lifting the ban on Airbus A380s, allowing the direct import of aviation turbine fuel, allowing external commercial borrowings for maintenance, repairs and overhaul (MRO), removing import duties on aircraft parts, opening up India’s bilateral rights to low-cost carriers, abolishing the aircraft acquisition committee, privatising leading Indian airports, etc. The safety ratings downgrade may set us back several years.

Sanctions by aviation regulators under the International Civil Aviation Organisation (ICAO) norms typically have a domino effect. So far, thankfully, we haven’t seen a similar downgrade in other key regions like the EU, Singapore, Japan or the UAE. There are, however, reports of a likely increase in the scrutiny of Indian aircraft landing in these regions.

Should a global downgrade happen, the outcome will be significant. The benefits of Air India joining the Star Alliance may diminish, since its alliance partners may be prohibited from codesharing with it. Jet Airways’ plans to expand its global footprint through the Abu Dhabi hub may suffer. IndiGo and SpiceJet may not be able to expand their international services. Start-up airlines, like Tata-SIA and AirAsia, may not be able to fly internationally, even if the rule stating that an Indian carrier must be at least five years old and have 20 aircraft in its fleet to fly abroad is abolished.

The global downgrade may also negatively impact our airports and air cargo, MRO, general aviation, tourism and hotel industries. Global bids for airports in India may be affected. Aircraft lease rents and insurance premiums may rise, hurting Indian carriers. The bottomline is that it’s time for decisive action on a war-footing.

But how did we get to this point? India’s aviation industry witnessed phenomenal growth over the last decade. It now boasts of several world-class airports and airlines. Global players entered sub-sectors like cargo, MRO, aerospace manufacturing, ground-handling, training, etc. All this enhanced the scale, complexity and reputation of the Indian aviation market.

Somewhere along the way, ICAO regulations on safety didn’t receive enough attention. These regulations judge sovereign safety regulators on eight key parameters — legislation, organisation, licensing, operation, airworthiness, accident investigation, air navigation and aerodromes. The ICAO has on several occasions since 2009 highlighted shortcomings and the corrective action needed — but some of this went unheeded.

To be fair to the Directorate General of Civil Aviation (DGCA), it scores high on most parameters. The DGCA seems to have scored low on organisation and licensing, which are critical requirements. In the end, after repeated interventions, the FAA decided to take the extreme step of a downgrade. We have the option of either correcting our shortcomings or playing the “victim” and retaliating. Though the latter could be counterproductive, it can be used tactically
at a later stage.

In the past, the FAA has downgraded US allies like the Philippines (January 2008), Israel (December 2008) and Mexico (July 2010), which proves that the FAA’s actions are independent of US foreign policy interests. While Mexico bounced back to Category I in a record six months, Israel took four years. The Philippines continues to be in Category II.

We may do well to learn from Mexico’s example. We should work closely with the ICAO and FAA, identify remedial actions, the person responsible for affecting them, and the deadlines for the same. Flight operations inspectors should be hired from Indian carriers and the defence forces, and trained immediately. Many countries that have a large aircraft fleet but few local inspectors depend on global contractors. We should explore that option as a short-term measure. We can always phase them out later.

The necessary funds must be allocated by the government on a priority basis. The financial losses stemming from the downgrade are several times what the DGCA needs. The Civil Aviation Authority Bill has been hanging fire for various reasons. The passage of the bill should be expedited. The shortcomings of regulation and oversight procedures should be addressed immediately. Perhaps we waste too much time on pointless debates till things reach breaking point. Well, time’s run out now.

The reaction of the Indian media has been quite mature. There have been no jingoistic editorials. Instead, most have been critical of the Indian authorities. Once India is back in Category I, hopefully in the next six months or so, we need a thorough post-mortem of this episode. Heads need to roll.

The FAA and ICAO, for their part, should assist the DGCA in the spirit of collaboration. Keeping India down is not in the best interests of the global aviation, aerospace and defence industries. After all, India is a responsible democracy, a large market and an emerging aviation power.

The writer is partner and India head, aerospace and defence, KPMG. This article was co-written with Gautam Arjun, senior consultant, aerospace and defence, KPMG.  Views are personal

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