Although Indian law limits foreign ownership of domestic airlines to 49 percent, some established carriers in India complain that startups such as Vistara operate under direct control of their overseas parents. (Photo: Flickr: Creative Commons (BY-SA) by Rameshng)
India plans to release a new aviation policy next month and put it into effect on April 1, Ministry of Civil Aviation secretary R.N. Choubey confirmed to AIN during a civil aviation seminar in Delhi on February 2. The policy that has remained a draft for almost two decades comes at an opportune time, as Indian aviation posts record growth rates and low oil prices lead to competitive fares. Once a policy exists, investors can look seriously at investing in infrastructure-related projects.
The policy focuses on development of regional connectivity and waiving of taxes that make maintenance, repair and overhaul (MRO) more expensive to perform in India than abroad. Of the $700 million MRO business, only $70 million gets carried out in India, said H.R. Jagannath, CEO, Air India Engineering Services. “Discussions with the Ministry of Finance on waiving of taxes related toMRO have been encouraging,” said minister of civil aviation Pusapati Ashok Gajapathi Raju.
The policy will pursue development of around 350 unused airstrips to promote access to remote areas for regional connectivity. “India has a 350 million [strong] middle class of which only 70 million have traveled by air,” said Choubey. We plan to develop no-frills airports so that airlines can offer $40 fares for one-hour flights. [However], the central and state governments will have to take a haircut and will incentivize airlines to fly to smaller and remote airports.” Possible actions include waivers of landing and parking charges and taxes on tickets “to make flying affordable,” he added. “This is the single most important feature of the policy.”
A major issue that remains unresolved centers on whether or not to waive the so-called 5/20 rule, which prohibits domestic startups SIA-Tata Group owned Vistara and AirAsia India to launch international service until they complete five years of operations with 20 aircraft. While discussions on the draft policy opened to the industry have concluded, the Federation of Indian Airlines (FIA), whose membership includes Jet Airways, IndiGo, SpiceJet and GoAir, has appealed to the prime minister to review India’s norms on ownership and effective control of an Indian airline by foreign carriers. The law now allows foreign carriers to own up to 49 percent of Indian airlines. However, many express concern about the lack of effective enforcement. “Airlines such as AirAsia India and Vistara are clearly controlled by their foreign parent, blatantly flouting the principal of effective control,” said Ajay Singh, chairman and managing director of SpiceJet.
“Rules in India are ambiguous,” said another airline official. “They need to be elucidated as in the U.S.Given that all Indian carriers have had to wait for five years before being permitted to fly abroad, the two startups clearly get a competitive edge over us and remain feeder airlines to their parent. The 5/20 should be phased out, but slowly.”
“This will also ensure [new] airlines that seek to utilize the present carriers’ share of bilateral rights to fly abroad must first serve the country,” concluded Singh.