Column: FAA downgrade a wakeup call

Updated: Feb 25 2014, 08:17am hrs
In the history of Indian aviation, January 31, 2014, would go down as a black day. Ironically, the Federal Aviation Administration of the US (FAA) downgrade of India happened in the month when the aviation world was celebrating the centennial of the worlds first commercial airline flight in January 1914. India now joins ranks with 15 other countries in category 2including Bangladesh, Belize, Ivory Coast,

Congo, Gambia, Haiti, Nauru, Swaziland, Zimbabwe, etc. It is a humiliation that will take a long time to heal.

The FAA downgrade comes at a time when India was creating a positive investment climate in its aviation sector with several far-reaching reforms. The biggest game-changer was allowing 49% FDI by global airlines into Indian carriers. Others includedallowing entry of A380s, direct import of ATF, ECB for airlines and MRO, removal of import duty on aircraft parts, opening of Indias bilateral rights to LCCs, abolition of the aircraft acquisition committee, privatisation of leading Indian airports, etc. The downgrade may set us back by years.

How bad can it be

Sanctions by aviation regulators under International Civil Aviation Organization (ICAO) norms, typically, have a domino effect. So far, thankfully, we havent seen a similar action in key regions like EU (EASA), Singapore (CAAS), Japan (CAB), UAE (GCAA), etc. There are, however, media reports highlighting a likely increase in scrutiny of Indian aircraft landing in these countries. That may affect airline schedules and upset passengers may opt for other airlines.

Should a global downgrade happen, the outcome could be significant for India. The benefits of Air India joining the Star Alliance may diminish since its alliance partners may be prohibited from doing code-shares 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 international even if the 5/20 rule is abolished.

The global downgrade may negatively impact our airports, air cargo, MRO, general aviation, tourism and hotel industries. The global bids for airports in India may be affected. Aircraft lease rents and insurance premium may increase, hurting Indian carriers. The bottom lineits time for decisive action.

How did this happen

Indias aviation industry witnessed phenomenal growth in 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, focus on strict enforcement of ICAO safety regulations took a back seat. These regulations judge sovereign safety regultors on eight key parameterslegislation, organisation, licensing, operation, air worthiness, accident investigation, air navigation and aerodromes. ICAO, on several occasions since 2009, highlighted shortcomings and suggested corrective actions, some of which apparently went unheeded.

To be fair to the DGCA, it scores high on most parameters. As per media reports, DGCA seems to have scored low on organisation and licensing, which are critical requirements. In the end, after repeated interventions, FAA decided to go for the extreme step.

Where do we go from here

We have an option of either correcting our genuine shortcomings, or play the victim and go for retaliatory actions. The latter could be counter-productive, but can be kept as a tactical option for later.

In the past, FAA has downgraded US allies like Philippines (in January 2008), Israel (December 2008) and Mexico (July 2010), which perhaps proves that FAAs actions are independent of the USs foreign policy interests. While Mexico bounced back to category 1 in a record period of six months, Israel took four years; and Philippines continues to languish in category 2.

We may do well to learn from the Mexico example. We should work closely with ICAO and FAA and identify remedial actions, with clear identification of the person responsible and a strict deadline. The flight operations inspectors (FOI) should be sourced from Indian carriers and the defence forces, and trained for the job immediately. Many countries that have a large aircraft fleet but a small base of local inspectors depend on global contractors. We should explore that option as a short-term measure. We can always phase them out later.

Necessary funds should be allocated by the government on priority. The financial losses stemming from the downgrade are several multiples of what the DGCA needs. The Civil Aviation Authority Bill has been hanging fire for various reasons. The passage of the Bill should be expedited. Shortcomings in terms of regulations, oversight procedures and documentation should be addressed immediately. We perhaps waste too much time on pointless debates in India, till things reach a break-point. Well, times run out now.

FAA and ICAO, on their part, should assist DGCA in a spirit of collaboration and help India revert to category 1. Keeping India down may not be in the best interests of the global aviation, aerospace and defence industry. India, after all, is a responsible democracy, a large market and an emerging aviation power.

The reaction of the Indian media has been quite mature. There have been no jingoistic editorials. Instead, most of them have been critical of the Indian authorities. Once India reverts to category 1, say in the next six months or so, we need to do a thorough post-mortem. Heads need to roll.

With inputs from Gautam Arjun, senior consultant, Aerospace and Defense, KPMG.

Amber Dubey

The author is partner and India head, Aerospace and Defense, KPMG. Views are personal