Indian ground handling industry headed down a vulnerable path on unsustainable bids

Updated: Jan 21, 2019 7:19 PM

2018 has been a bittersweet journey for India’s civil aviation industry. While domestic passenger traffic in the country registered a double digit growth for the 50th month in a row in October 2018, balance sheets of airlines continue to be in the red due to fluctuating ATF prices, depreciating rupee and ruthless competition.

In a laudable move towards ensuring better and safer airports in the country, Airports Authority of India (AAI) in 2018 invited bids for issuing licenses to agencies to provide ground handling services at 93 airports under its control.

:- By Ashok Chhibbar

2018 has been a bittersweet journey for India’s civil aviation industry. While domestic passenger traffic in the country registered a double digit growth for the 50th month in a row in October 2018, balance sheets of airlines continue to be in the red due to fluctuating ATF prices, depreciating rupee and ruthless competition. Moreover, airport expansion and upgradation hasn’t been able to keep pace with passenger traffic. Government’s efforts to widen air connectivity through flagship initiatives such as UDAN have spurred the need for ensuring our airports are equipped to handle the increased traffic without compromising on passenger comfort, safety and security.

Ground handling (GH), a core function in the aviation industry, shall be critical for the success of these connectivity plans as it enhances the safety and comfort of the flying experience in addition to securing short turnaround time at airports. GH includes services such as check-in and baggage handling, aircraft handling, servicing and cleaning as well as cargo handling services. Signalling the significance of GH in the development of aviation sector, the Ministry of Civil Aviation revised the ground handling policy last year mandating that airports should have at least three certified agencies providing ground handling services.

Also read: IMF lowers global growth projections for FY19, retains India at 7.3%; here’s what would benefit India

In a laudable move towards ensuring better and safer airports in the country, Airports Authority of India (AAI) in 2018 invited bids for issuing licenses to agencies to provide ground handling services at 93 airports under its control. As per the bidding process, the service provider that quotes the highest royalty that it can pay AAI in lieu of carrying out ground handling services at an airport will be the awarded the GH license.

By following a competitive bid process to award GH tenders,AAI had taken a step in the right direction with a view towards encouraging competition between service providers and enhancing choice for users. Ideally, GH licenses should be awarded to service providers who create economic value for all stakeholders and above all for the nation.

Irrational aggression of aspirants have rendered the process vulnerable to being hijacked by fly-by-night operators who pose a grave risk to aviation security and passenger safety apart from irrational bids pushing up the end cost to the user. The AAI tenders specified financial and eligibility criteria for participation. However, this provided an opportunity to local service providers to participate in the bidding process by bypassing the laid down criteria through teaming up with financially and technically eligible parties. Thus the outcome of the recent bids has particularly dealt a blow to the well-being of the ground handling industry in the country, and India’s aviation landscape at large.

More than 70 of the airports have been awarded to erstwhile manpower companies with little experience in professional ground handling, who have participated in the bidding process as part of consortiums that include foreign airlines as partners. This is against the civil aviation policy norms which disallows even self-handling by foreign carriers in security sterile areas of the airport.

Moreover, the past demonstrates that such consortiums often collapse after winning bids as the eligible parties don’t consider India their focus market resulting in a demise of the partnership within a short duration. In fact, the obligation of the foreign partners in such a consortium is limited at 26% with no financial liabilities. This creates a dangerous scenario wherein the operationally inexperienced and financially ill-equipped local partner continues to operate at the airport with the GH license in the absence of the qualified partner.

Additionally, the bids quoted by these consortiums are unsustainable and may lead to cost escalation of up to 200%. Given the shaky financial capacity of some of these local service providers, they are prone to compromise on operational safety and quality in a quest for financial survival.This can lead to large scale aviation disasters and security breaches that India can ill afford. In the event of one unfortunate incident or accident, these local service providers may not even have the financial capability to underwrite the damage cost. Such a situation shall cast enormous negative impact on the industry, and, sadly the Airports Authority of India may not achieve what it set out to accomplish.

The right to better and safer airports in the third largest aviation market of the world must not be held hostage to manoeuvring of processes by a few players.An important step in mending these gaps would be defining strict service standards and financial commitments from GH providers, by seeking majority ownership from the qualifying party in the consortium to weed out non-bona fide players. Additionally, the evaluation process for awarding licenses must consider the experience of the bidders and their long-term strategic intent as qualifying credentials.It is thus imperative that the capabilities of prospective bidders be considered while awarding such tenders.

2019 will witness Indian aviation scale new peaks with the government aiming to take UDAN international and planning to construct over 100 new airports. In a rapidly evolving aviation landscape, the importance of efficient and professional GH shall only grow as citizens will demand better managed airports that offer a safe and secure flying experience. Therefore, it is imperative upon the State to create an enabling ecosystem that nurtures the evolution of a professional and responsible GH industry in India.

Air Commodore (Retd) Ashok Chhibbar is a former fighter pilot and CEO, Aviation Ground School. The views expressed are his own.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Quarterly Results: IDBI Bank posts Q3 net profit of Rs 378 crore as NII grows
2Enforcement Directorate initiates FEMA probe against Amazon
3Telegram rolls out WhatsApp chat migration tool for iPhone users looking to switch sides without losing conversations