Draft National Civil Aviation Policy 2015 – An Overview

The ministry of Civil Aviation released Draft National Civil Aviation Policy 2015 in New Delhi on 30th October 2015. This comes almost a year after the initial policy was released on 10th November 2014 (Draft Civil Aviation Policy – Another policy without substance). The policy and subsequent suggestions tended to list down all the problems faced by the industry and not offering any solutions.  The new policy is a mixed bag addressing a lot of areas in detail, offering no clarity on many, yet keeping the important ones open ended.

Certain factors like rationalisation of Aviation Turbine Fuel (ATF), Listing of AAI and Pawan Hans, development of only 6 hubs for international traffic, which were mentioned in the last draft do not find a mention in the current draft.

This blog had extensively written about the revised policy (Revised policy on 5/20 and Route Dispersal Guidelines) and recommended changes in Route Dispersal Guidelines (RDG) and suggested gradual removal of 5/20 (Gradual removal of 5/20 and new Route Dispersal Guidelines). The changes recommended in the Route RDGs have been partially incorporated in the new policy. These recommendations were conveyed through the government platform mygov.in and acknowledged by the concerned teams.

The current policy released on the website is far more detailed than any previous policies. However, there are many areas in this policy as well where long term direction is not offered.

The document states that the vision is to enable 30 crore domestic ticketing by 2022, a feat difficult to achieve due to congestion at major airports where the traffic is bound to either originate/terminate or transit in the Indian Aviation Growth Story.

Regional Connectivity

The new policy proposes setting up a Regional Connectivity Scheme (RCS) and aims to have a fare of not more than Rs. 2500 per passenger per hour of flying for these routes which will be indexed to inflation and ATF.

The policy aims for revival of un-served or under-served aerodromes and airstrips with Viability Gap Funding (VGF) for scheduled commuter airlines. The policy says that only 75 out of 476 airports/airstrips have scheduled operations and no-frills airport will be built at a cost not exceeding Rs. 50 Crore by AAI.

The scheme will be applicable only in those states which reduce VAT on ATF at these airports to 1% or less. Currently VAT ranges from 4% to 30% on an average. The state government is expected to chip in with free land and multi modal hinterland connectivity.

RCF will be funded by levying a 2% cess on all domestic and international tickets except those which are Category IIA and RCF. However, it is not clear if the 2% is on base fare or on total fare. People on routes were cess is levied are bound to question this logic.

While un-served is easy to understand, there is a lot of ambiguity in under-served. The policy does not mention how these routes will be determined. There is ambiguity on the VGF being provided for scheduled airlines or regional airlines.

The proposal talks about concessions of various kinds for a period of 10 years from commencement of operations but it is not clear what happens if there is a break in operations and how long a break can an operator take. Also there could be runway repairs and other related maintenance work which could keep the airport out of operations and a greater clarity is required on how the subsidy will work in such cases.

5/20 Rule

Instead of proposing a solution, the draft policy gives three options – removal of 5/20 in totality, continuation of 5/20 as is or a complex mechanism of Domestic Flying Credits (DFCs).

There has been a change in DFC calculation, while earlier it was a mix of Deployed ASKMs and RPKMs across Category I, II, IIA and III, the calculation proposed is prima facie simpler but has more complexities involved. An airline will have to accumulate 300 DFC before commencing flights to SAARC and countries with territories located entirely beyond 5000 km radius from New Delhi. Airlines will need 600 DFC before starting flights to other parts of the world.

DFC will be equivalent to ASKM deployed by the airline on domestic routes divided by 1 crore. However the calculation changes for aircraft with 100 or lesser seats. DFC in this case will be equal to the ASKMs deployed on Category II, IIA and RCS routes multiplied by the prescribed multiplication factor and divided by 1 crore. The policy does not spell out the multiplication factors and makes it even more complex.

Eg: one aircraft with 180 seats flying between Mumbai & Delhi will gain 0.026 DFC. As the seats go down, so does the DFC, making it difficult for premium airlines like Vistara to garner enough to start flying international.

While the existing airlines a minimum of 300 DFCs per year is must, a new airline would be eligible from the next financial year which is not in line with the international Summer and Winter Schedules, which is when generally airlines change schedule or start new flights.

The policy proposed higher weightage to Scheduled Airlines operating on Category II and to Scheduled Commuter Airlines operating under RCS, however it is silent on the weightage.

Bilateral Traffic Rights & Code Share agreements

The draft policy looks at plans to liberalize bilateral rights and proposed reciprocal open skies with SAARC and countries whose territory is entirely beyond 5000 KM from New Delhi. These would help operate flights to major international airports in addition to the quota allotted under bilateral. This will help flights to Germany, France and beyond on the western side and Tokyo/Japan on the eastern side along with Australia.

For counters which fall within the 5000km radius and places where airlines from India have not exhausted their bilateral rights, the policy proposes an auction to allocate additional seats for a period of 3 years and the money obtained to proceed to Regional Connectivity Fund. For countries where airlines from India are close to capacity on utilization of bilateral rights, negotiations will be initiated for increase in bilateral rights.

The code share agreement if allowed under existing Air Services Agreement will be made simpler with no prior approval from the ministry but just intimation. This will help Jet Airways and Air India to code share with more carriers and start the marketing and selling of such flights earlier than what it currently takes.

The open skies policy, if accepted will come in effect from April 2020, which I feel is a little too late.

Maintenance, Repair & Overhaul (MRO)

The crown of the policy is the MRO part where there is a detailed step wise plan in place to make the business more competitive. This includes

  • No service tax on output services of MRO
  • Exemption from customs duty for tools and tool kits used by MRO
  • Ease of clearance including self attestation
  • Tax free storage of parts for a period of 3 years from import
  • Visas for foreign MRO experts
  • Ease in licence/visa for crew and aircraft inbound for MRO activity
  • MRO to be made as a separate category and not clubbed with ground handling
  • Discussion with state government to remove VAT on MRO activities

The only place where the MRO policy may need a re-look is provision for adequate land for MRO service providers to be made available for all future airport projects, which will increase the cost of airport projects and not all airports would want to have MRO. That would lead to overcapacity of MROs.

Route Dispersal Guidelines (RDG)

While the RDG would stay, there will be an update in the Category I routes. More routes will be added which have average seat factor of 70%, annual traffic of over 5 lakh passengers and a flying distance in excess of 700 kms.

This revision will be applicable 12 months after the notification and would be reviewed every 5 years. There will not be any change in Category II, IIA and III routes. With the concept of RCS in place, the policy has ignored RCS routes for RDG.

I would like to go back to my proposal on revised Route Dispersal Guidelines where Category I was dynamic but more routes were added to Category II and IIA.

Scheduled Commuter Airlines (SCA)

The policy talks about promoting efficient regional connectivity by having another category of airlines – Scheduled Commuter Airlines. These would have considerably lower paid up capital and they shall have an aircraft with capacity of 100 seats or less without any restrictions on minimum number of aircraft.

The policy requires the SCA to operate minimum number of movements per week to RCS, without specifying that minimum number. These airlines will also be allowed for VGF and be eligible for code share with other airlines – domestic as well as international.

The policy is silent on the existing Regional airline policy and if SCA will be a replacement or an addition to that policy.

Other areas covered

The policy proposes much needed fillip to helicopter operations in the country, talks about Air Navigation Services and its improvement, incentivising Air Cargo and fast movement of cargo.

The policy also gives clarity on Ground Handling Policy doing away with the controversial proposal of 2010 and having a minimum of three ground handling agencies (GHA) including Air India or its subsidiary. There will not be any upper limit on the number of GHAs.

The policy has touched upon Aviation Security, Immigration and Customs along with Ancillary Revenues. It proposes to include ground handling, catering and aircraft refuelling under ESMA (Essential Services Maintenance Act).

Closing comments

The policy should look at all areas in as much detail in which they have looked in MRO or Helicopter Operations.

There are questions at each and every stage of the policy on its implementation. While the policy requests for comments from stakeholders and general public, it will be difficult to comment till clarity is provided and vague statements are replacement with something concrete.

Considering it took a year to prepare a revised draft after the initial policy, its implementation with effect 1st April 2016 will be challenging.

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