Chinks in the new aviation policy’s armour

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india’s first-ever National Civil Aviation Policy (NCAP) formulated by the NDA governmentis no doubt well-intentioned and aimed at achieving overall growth of the sector in a structured manner. However, several shortcomings, as pointed out by analysts, could derail the projected growth and objective.

The policy has touched almost every aspect of civil aviation, but gives no direction for professionalising the Directorate General of Civil Aviation (DGCA) and Bureau of Civil Aviation Security (BACS), crucial entities that govern aviation safety and security in the country.

Though measures have been announced to strengthen both these entities and bridge the deficit, the policy is silent on how to radically transform these organisations to meet modern-day challenges and to be process-driven to deliver world-class service.

With around 20 per cent growth in the number of air passengers, what India needs is strong air safety and security regulators.

The expected upside in helicopter operations, private flying and regional airlines will add to the pressure.

Kapil Kaul, Chief Executive Officer, South Asia, Centre for Asia Pacific Aviation (CAPA), says: “India’s safety and security dynamics are structurally changing, NCAP is not focused on managing these challenges.”

“The NCAP is also silent on the formation of an independent Civil Aviation Authority (CAA),” says Amber Dubey, Partner and Head, Aerospace & Defence, KPMG in India.

No clarity on AAI’s fate

Airports Authority of India (AAI) is another entity that needs complete transformation, yet NCAP falls short of addressing that.

There is little clarity on the way forward for the AAI or about its listing in the stock exchanges. According to analysts, this is a big negative as India’s massive airport infrastructure development plans requires a strong entity to see the execution through.

Analysts feel that the AAI focuses heavily on capital expenses.

NCAP is silent on long-term plans for airport development. Industry observers expected directions on the hiving off Air Navigation Services (ANS) from the AAI and making it an independent, professional body.

“Not addressing key and structural issues is a big disappointment. NCAP is ambitious about growth but has not focused on creating structures for managing growth,” says Mr. Kaul.

“Without a clear infrastructure plan in place I don’t know how job creation can happen,” he added. The policy also does not say what the government is doing with Air India and the way forward for the airline.

International flying

Moving to 0/20 from the 5/20 rule in international flying is a compromise following hectic lobbying by incumbent airlines which struggled to fulfil the criteria of five years of domestic experience and 20 aircraft to fly abroad. The relaxation to just 20 aircraft without any domestic flying criteria will not help new carriers like Vistara and AirAsia India significantly as they cannot fast track expansion owing to a resource crunch.

Both these airlines, in which the Tatas are shareholders, have exhausted the initial capitalisation and their operations are continuing to make losses. Fast-tracking expansion would mean more cash burn. Analysts say that the airlines would take about three to four years before building a capacity of 20 aircraft, while they need to have have enough capital to run the operations in the meanwhile.

ATF sales tax

The NCAP gives no direction on removing the negative fiscal regime on Indian airlines which includes sales tax on ATF and other taxation measures. These have not been effectively addressed.

The policy has not given any direction for improvement in regulatory and policy-making competence.

There has been no direction on improving institutional capability in the Ministry of Civil Aviation. “The NCAP shows a clear missed opportunity and is a significant disappointment. India needed an aviation policy which is strategically aligned and supportive of PM’s bold and inspiring vision for the Indian economy,” says Mr. Kaul.

“Unfortunately, NCAP doesn’t provide the sector with the institutional infrastructure required for long-term growth. CAPA was expecting strategic shift given the time and effort spent on the policy,” he says.

The helicopter industry will structurally change with the announced measures, but its success is dependent almost entirely on DGCA, BCAS and infrastructure development.

Environmental clearances will pose a big challenge for helipad development. Moving to a hybrid till in airport development will end uncertainty and promote investment.

The fiscal incentives granted for the Manufacture, Repair and Overhaul (MRO) sector is a big positive, says an analyst.

The regional aviation policy is well-intentioned, but private capital is unlikely to flow to loss-making projects.

The UPA government too had announced a regional airline policy with sops like four per cent sales tax on ATF and no landing/ parking charges, but progress has not matched expectation.

New beginning

But a beginning has been made and hope springs eternal.

“Making the first-ever integrated aviation policy was tough. The road ahead will be tougher as we implement it.

If the government, industry and end-users work togetherkeeping India’s national interest in mind, there’s no reason why India can’t become the third largest aviation market by 2020 and the largest by 2030,” says Mr. Dubey, who was involved in the framing of the policy.