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Cabinet clears civil aviation policy, eases overseas flying norms

17 June, 2016

The Union Cabinet on Wednesday gave its green signal to the civil aviation policy that will allow newer domestic carriers fly on international route and also provide incentives to the maintenance, repair and operations (MRO) sector.

The key change in the new policy relates to the ‘5/20’ rule for commencement of international flight by domestic carriers. The norm, which has been in operation since 2004, bars domestic airlines from flying abroad before they have operated in India for at least five years and have 20 aircrafts in their fleet.

The new policy partly scraps this rule by taking out the five years minimum flying experience for domestic carriers. It has, however, retained the rule that insists on domestic carriers to have a minimum of 20 aircrafts before flying abroad.

The government has said all airlines can commence international operations provided they deploy 20 aircraft or 20% of total capacity (in term of average number of seats on all departures put together), whichever is higher, for domestic operations.

The move will especially benefit Tata’s full service airline Vistara that operates in a JV with Singapore Airlines besides firms such as AirAsia India, another JV between Tata and Malaysian low cost carrier AirAsia. AirAsia already operates on the international route but through its overseas businesses. The new policy would make the Indian firm venture take to the international skies and fly to more destinations.

The 5/20 rule has been a big lobbying factor for the incumbents who would now face far greater competition from younger peers.

The new policy will also open the skies to more foreign direct investment as new airlines becomes an investment opportunity as they can fly on the more lucrative international route faster.

The policy note projects that India will become the third largest civil aviation market by 2022 from ninth currently and domestic ticketing would grow from 80 million tickets in 2015 to 300 million in the same period.

Among other key measures, new policy seeks to boost regional connectivity, introduces flexible and liberalised ‘open skies’ and ‘code share’ agreements and provides incentives to MRO sector to develop India as a hub for South Asia.

MRO sector has seen some private investments in the past with Air Works India Engineering Pvt Ltd counting NEA, GTI Capital and Elephant Capital as investors.

In the Union Budget for 2016-17, the customs duty for MROs had been rationalised and the procedure for clearance of goods simplified, in particular duty on tools and tool kits.

The new aviation policy seeks to incentivise the sector further with persuading state governments to make VAT zero-rated on MRO activities, provision for adequate land for MRO service providers in all future airport/heliport projects and no levy of airport royalty and additional charges on MRO service providers for a period of five years from the date of approval of the policy.

Ground handling, routes, code-share, regulation

The existing ground handling policy too is being replaced with a new framework. The airport operator will ensure that there will be three Ground Handling Agencies (GHA) including Air India’s subsidiary/JV at all major airports. At  non-major airports, the airport operator will decide on the number of GHAs based on the traffic output, airside and terminal building capacity. All domestic scheduled airline operators including helicopter operators will be free to carry out self-handling at all airports. Hiring of employees through manpower supplier will not be permitted under the new policy.

The government said necessary administrative and financial flexibility will be provided to Director General of Civil Aviation (DGCA) for an effective aviation safety oversight system and for creating a transparent single-window system for all aviation safety related issues.

The policy also liberalises the route dispersal guidelines with more transparent criteria for trunk routes. These routes would have a flying distance of more than 700 km, average seat factor of more than 70% and annual traffic of half a million passengers.

Meanwhile, the regime of bilateral rights and code share agreements will be liberalised with ‘open skies’ to be implemented on a reciprocal basis for SAARC countries and countries beyond 5,000 kms from Delhi.

A method will be recommended by a committee headed by the cabinet secretary for the allotment of additional capacity entitlements wherever designated Indian carriers have not utilised 80% of their bilateral rights but the foreign airlines/countries have utilised their part and are pressing for increase in the capacity.

The government will also promote helicopter usage by issuing separate regulations and development of four heli-hubs initially.

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Cabinet clears civil aviation policy, eases overseas flying norms

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