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Up in the air

Only a revolution, as in telecom, can rescue the ailing civil aviation industry.

Written by Amber Dubey |
Updated: December 31, 2014 1:30:27 pm
Nine airlines have shut shop since the mid-1990s. More may follow. (Express photo by Kamaal Syeed) Nine airlines have shut shop since the mid-1990s. More may follow. (Express photo by Kamaal Syeed)

For Indian aviation, 2014 is a year best forgotten. It started with the humiliating downgrade of India’s safety ranking to Category II by the US Federal Aviation Administration (FAA) and ended with the near-closure of SpiceJet. Things don’t look rosy as we enter 2015. Meanwhile, aviation hubs like the UAE and Singapore, with population sizes smaller than that of South Delhi, continue to thrive at our expense. Experts have blamed SpiceJet’s mixed aircraft fleet, rapid network expansion, below-cost fares etc. While some of that may be true, the fact remains that most airlines are in distress. Nine airlines have shut shop since the mid-1990s. More may follow.

The problems are systemic: high taxation, high operating costs and low purchasing power of the “Aam Hindustani”. This is not very different from mobile telephony during NDA rule in the late-1990s. Bold policies made the telecom revolution. It’s time for an encore in aviation.

What Indian aviation needs is a 10-year tax holiday. The growth in investments, jobs, tourism and taxes from downstream consumption will more than compensate for the taxes foregone.

Aviation turbine fuel (ATF) in India is nearly 60 per cent costlier than in competing hubs like the Middle East and Southeast Asia. Annual per capita income in India is $1,600, a fraction of the $44,000 in the UAE and $55,000 in Singapore. No wonder nearly 98 per cent of Indians haven’t seen the insides of an aircraft. If the 300 million-strong middle class in India takes one flight per person per annum, we are looking at 300 million domestic travellers, nearly five times the abysmal 65 million domestic tickets sold in 2014. Crude oil prices crashed from $116 in June 2014 to $59 in December 2014. Sadly, this doesn’t reflect in ATF prices in India.

Delhi and Maharashtra account for over 40 per cent of domestic traffic and are both ruled by the NDA. If they reduce tax on ATF to below 4 per cent, other states will be forced to follow suit. Or the Union cabinet should simply notify ATF as a “declared good”, limiting the sales tax on it to a maximum of 4 per cent. Auctioning off Air India would also save Rs 3,000 crore per annum that can be used to compensate states for the ATF taxes foregone.

The Union cabinet should also review the practice of posting non-aviation personnel at the helm of aviation entities like the MoCA, Airports Economic Regulatory Authority (AERA), Directorate General of Civil Aviation (DGCA), Air India, Airports Authority of India and Pawan Hans. If professionals like Nandan Nilekani and Raghuram Rajan can head sensitive entities like the UIDAI and RBI, why not in a highly technical sector like aviation? IAS, IPS and IRS officers posted in aviation entities should undergo a two-year on-the-job training in the aviation industry before taking charge. Interestingly, most developed countries do not have a ministry of civil aviation in the first place. Interaction with the DGCA should be nearly 90 per cent online. It should clear all licences and permits within 90 days, except in doubtful cases.

With the type of growth projected in its civil and military aircraft fleet, India is an ideal location for aerospace manufacturing. Local manufacturing will reduce the aircraft leasing cost, as in the case of Airbus A-320s assembled in China.  The government should also set up an independent aeronautical commission in line with the ones created for atomic energy and space. The commission should be headed by a technical expert and report directly to the prime minister. It should be empowered to change policies and procedures to make “Make in India” a reality.

In other measures, airport charges need to be capped in line with global norms. The Air Navigation Services (ANS) need to be hived off from the AAI and converted into a not-for-profit entity, reducing navigation costs in India by at least Rs 1,000 crore. The 5/20 rule and the Route Dispersal Guidelines must be abolished. Air connectivity with tier two/ three areas should be funded by the Essential Air Services Fund. New airports, especially in Navi Mumbai, Mopa and Chennai should be hastened.

Changes are long due in ‘maintenance, repair and overhaul’, (MRO), air cargo, helicopters, private jets and aviation training. The next year is a watershed one for this sick industry. The growing economy and low oil prices are an ideal launchpad. Indian aviation needs a bold, mobile telecom-type revolution by the government.

The writer is partner and India head of aerospace and defence at global consultancy KPMG. This article was co-written with S. Vasudevan, associate director, aerospace and defence, KPMG India. Views are personal

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