Dogfight in the skies

How to create a level playing field in aviation

The dogfight between older and newer airlines over the draft civil aviation policy unveiled in October last year - and reportedly now close to being finalised - could have been avoided had the government taken industry players into confidence on the changes it sought to introduce. The Federation of Indian Airlines (FIA), which has members who control over 90 per cent of the airline business, has on many occasions gone public with its grievance that the aviation ministry has not held a single meeting with them on the issue - a charge the ministry has not refuted so far. This reluctance to engage the major stakeholders is inexplicable and opens the route to all kinds of avoidable conjectures at a time when transparency is so important. Not that the FIA has covered itself in glory by making so-far-unverified allegations against two of the new airlines - which the FIA said were effectively controlled by their foreign partners in contravention of the existing rules. It is obvious that the FIA is using this as an excuse to block the proposed lifting of the foreign ownership cap of 49 per cent on domestic airlines.

The more substantive issue is the proposal to abolish the 5/20 rule that prohibits domestic airlines from flying overseas until they have operated for five years and acquired 20 aircraft. The rule itself is arbitrary; hence, the FIA's insistence on persisting with the scheme defies logic and seems motivated by a distaste for competition. Certainly, they were wronged earlier. But that can't be an excuse for opposing scrapping the rule just because it would benefit the newer airlines. The real problem lies elsewhere. The draft policy proposes to replace the 5/20 rule with a complex system of domestic flying credits (DFC) - airlines would gain access to international skies by clocking up miles on loss-making but socially beneficial regional routes and a two per cent levy on all flights would help subsidise these regional connections. This proposal is without any foundation and not practised in any known aviation market in the world. The concept may have been derived from the ill-fated emission trading scheme of the European Union, which the Indian government itself has vehemently opposed in the past.

Where the FIA argument makes sense is the suggestion that if the government removes 5/20, it should also do away with route dispersal guidelines (RDG) under which an Indian carrier has to fly a certain percentage of its metro flights on remote and unprofitable routes. Under the proposed changes, new airlines with much smaller fleet sizes can fulfil the requirement of going overseas by flying very few planes on these routes for a year or two. Then they can add as many planes as they want for international flying. In contrast, the older airlines cannot pull out of their existing domestic flights and thus will be saddled with loss-making routes in perpetuity. Clearly, this is not a level playing field. After all, if 5/20 does not exist anywhere in the world, it is equally true that RDG also does not exist anywhere. The primary goal of the civil aviation policy should be to ensure that there is a level playing field for all operators.