What does the Draft Aviation Policy Hold for the Aam Aadmi

The draft aviation policy may make fares costly initially, but is promising in the long run, writes Shishir Asthana.

The Narendra Modi government has attempted to bring airline travel to the general population by announcing a slew of measures in its draft aviation policy. The measures announced in the draft policy will be open for consultations for three weeks, after which a final policy will be announced.

There is more for the industry in this policy than for the general public. But there is little denying the fact that the policy will have a long term impact on the economy.

We shall look at some of the major highlights of the aviation policy and how it affects the aam aadmi and impacts the economy.

Bad News First – Fares to Go Up

Airfares are expected to rise a bit initially. Government is planning to levy a cess of 2% on all commercial flights either domestic or international. Civil Aviation Secretary RN Choubey said that this cess would help the government raise Rs 1,500 crore annually.

But there is a reason for introducing the cess. The Government wants you to travel to regions which are not too well connected.

Air Lifting the Masses

The reason the cess is being introduced is to increase regional connectivity at low cost. The Government is introducing an all-inclusive air ticket ceiling of Rs 2,500 per person per hour for travel between two non-metro cities. The losses that an airline will incur if its cost is above Rs 2,500 will be compensated from the cess pool that will be collected.

The government is also considering viability gap funding (VGF) to keep the price at Rs 2,500 per passenger. The funding will be pegged to aviation turbine fuel (ATF) prices which accounts for the lion’s share of the cost for an airline. The gap funding will be shared by the centre and the state in the ratio of 80:20.

Airports Everywhere

Believe it or not, India has 430 airstrips and airports throughout the country out of which only 90 are operational. The Government plans to leverage around 300 regional airports to increase its regional penetration. These airports and airstrips will be upgraded to no-frills airport and concessions by various stake holders will help in making the scheme viable.

Unused airports will be revived, many of them from the time of World War II by incurring a cost of Rs 50 crore per airport to revive them. This is a good move since land acquisition is nearly impossible as per the old Land Acquisition Act introduced by the UPA government. Thus setting up an airport infrastructure will not take too much time.

In order to make the scheme feasible government is offering tax concessions to the operators. Aviation Turbine Fuel (ATF) filled from regional connectivity airports will be exempted from custom duty.

A Boost for Religious Tourism

One of the biggest problems an elderly person encounters during pilgrimage is connectivity. Generally pilgrimages are planned to a cluster of temples in one state or region. Railways have capitalised on the pilgrimage tourism business. But airlines too have enough room, especially if the government is willing to cap the price of travel. Air travel saves on time and if it does not cost too much, religious tourism can pick up.

In order to promote this sector government is promoting the growth of scheduled commuter airlines. The eligibility criterion is kept at an equity capital of only Rs 2 crore in order to facilitate new players in the sector.

Takeaways from Draft Aviation Policy

• Airfares are expected to rise a bit initially since the government is planning to levy a cess of 2% on all commercial flights
  
• Government will introduce an all-inclusive air ticket ceiling of Rs 2,500 per person per hour for travel between two non-metro cities
  
• A viability gap funding (VGF) pegged to fuel prices is also under consideration to keep the fair at Rs 2,500 per passenger
  

Other Modes of Transport: Helicopters and Seaplanes

Apart from aircrafts and airports, the aviation ministry has thought of incentivising other modes of air travel. It is developing four heli-hubs across the country to promote regional connectivity.

Rules prohibiting helicopter flights have been relaxed, with them being allowed to fly without prior Air Traffic Control (ATC) clearance in airspace below 5000 feet and areas other than prohibited and restricted ones, after filing the flight plan with the nearest ATC. Government is also promoting the use of seaplanes for growth of tourism and regional connectivity along India’s long coastline.

The Game Changer – MRO

After the software sector, the biggest outsourcing globally takes place in the Maintenance, Repair and Overhaul (MRO) sector. MRO is nothing but working on an aircraft to keep it airworthy as per the prescribed norms. With almost every airline adding aircrafts, Indian companies had to incur a huge cost for its MRO activities, which beyond the first two levels (there are four levels of certification required) could not be done in the country and hence the planes had to be sent abroad.

MROs like software is manpower intensive business. India has a high number of trained aircraft maintenance engineers and enough expertise to capitalise on the situation. In order, in order to promote the sector, the government has taken a number of steps like removing service tax on companies offering MRO services. Equipment needed for MRO will be exempt from customs duty. Foreign aircrafts brought to India for MRO work will be allowed to stay for the entire period of maintenance or up to months, whichever is lesser.

This sector has huge potential for Indian companies who can cater to both domestic, as well as international planes.

In Conclusion

There is something for everybody in the aviation policy released by the government. Long term policy measures which will improve the ease of air travel between two destinations will reduce time of travel, and at the same time increase employment.

(The writer is a Mumbai-based market analyst.)