Flying in the air

Written by N K Singh | Updated: Nov 8 2004, 06:08am hrs
The Cabinet decision on foreign equity cap and recent observations of Praful Patel (Union civil aviation minister) have created new expectations for the sector.

India remains a difficult destination to get in and an equally difficult destination to get out. Low air linkage density, poor infrastructure and cumbersome procedures add to its woes. Several committees have made worthwhile recommendations, not the least, those contained in the Naresh Chandra committee reports.

The ills of civil aviation arise partly from our prevarication. For years, we postponed restructuring of Air-India and Indian Airlines or airport modernisation in the belief that they were being privatised. The civil aviation industry all over the world nosedived in the aftermath of 9/11. When markets were willing, we were undecided. And when we decided, markets had collapsed!

The key areas which need priority attention are:

First, the short run. The benefits of airport privatisation and fleet expansion will take at least two to three years. In the meantime, tourist traffic is rising at 30% and Delhi is the venue of next years World Travel & Tourism Councils convention. Small investments in optimising the use of the single runway in Delhi; operationalising Mumbai terminal IA, introducing satellite-based navigation, allocation of optimum flight levels and modernising air traffic management systems will yield quick results. Improving numbers, quality and procedures for immigration management brooks no delay.

Second, to bury the hatchet of privatising Indian Airlines and Air-India, at least in the foreseeable future. They now require fleet augmentation. The leasing by Indian Airlines is primarily for replacing worn-out aircraft and do not substantially augment capacities. It is amazing that proposals made by Indian Airlines three years ago for fleet acquisition first remained pending with the civil aviation ministry for 18 months, and thereafter still await PIB approval. The acquisition programme for Air-India is also proceeding at a tardy pace. The fear of scams makes postponement, instead of a decision, a preferred option.

It is unequally appalling that proposals for enhancing the equity base of IA recommended by Vijay Kelkar years ago to compensate for the grounding of Airbuses continues to languish. Given current needs, the equity of both IA and A-I require substantial enhancement. These can be reflected in the second supplementary to be presented before Parliament in the winter session.

Civil aviation costs in India, notwithstanding the rate war between operators, is still misaligned with global costs. The single biggest factor is the fuel cost, namely, aviation turbine fuel (ATF). While excise duty has been moderated, the penalty of state sales tax averaging 25% is unacceptable. There will never be consensus among states, which are cash-strapped, and the remedy lies in notifying, ATF as a Declared Good. This has been suggested by several committees and reflected in the 10th five-year Plan. Further, airline companies should have the flexibility for importing ATF in a manner considered most economical. Insisting on canalising through designated companies is not rational.

Currently, air travel in the country is cross-subsidised. The burden of servicing uneconomical routes classified as category II and III, depending on whether they are short or long hauls, is borne by the more paying category I routes. The route dispersal strategy should be revisited; the categorisation itself needs a second look. The broader national objective of connecting uneconomical routes should be borne either directly by the Budget or through a cess accruing to a non-lapsable fund with subsidy level being determined through competitive auctions.

The open skies policy is somewhat of a misnomer. Capacity augmentation has not kept pace with traffic. The policy of bilateral rights is somewhat like a dog in the manger. Because we do not have aircraft to utilise new bilateral rights, we deny these to those who may utilise them. We need to seek new arrangements. The unutilised rights of public carriers should be auctioned to private operators, while future rights acquired by the sovereign should be allocated in the most cost effective way.

We also need to move with speed in permitting domestic private operators access to West-bound routes, even if the lucrative West Asian route is reserved for public carriers. The civil aviation industry is rewitnessing a demand upsurge. New orders for aircraft acquisition or leases has hardened the supply-side response. An early decision is necessary for enabling private operators to effect the most economical contracts.

On airports, luck must favour us. Assuming that the new lease agreements are signed by the middle of the next year, visible progress will still be a few years away. Short-term issues deserve priority. Nonetheless, the joint venture process initiated must be brought to an expeditious closure.

Civil aviation improvement is at the centre of tourism, export and investment promotion for positioning India as an emerging global power. Its chequered history of broken promises fills one with weariness, if not despondency.

Praful is not used to flying in the air; his zest leaves some scope for an optimistic outcome. However, to succeed he needs all his persuasive skills to secure the helping hand of Chidambaram.