Vijay Mathur: Aviation: Policies for growth

The success of our airports is directly linked to the rapid growth of our commercial airlines

The first 40 years after independence saw our economic policies driven by a socialistic mindset, with aviation seen as an elitist luxury of marginal economic priority that could be heavily taxed.

Over the last three decades, however, aviation and its associated activities have grown exponentially, and its users now cover most tiers of society.

Despite this "democratisation" of its users, and civil aviation becoming a significant element of goods and passenger transportation, government policy has been slow to respond.

Only in the last decade have we seen a gradual move away from this initial mindset""but as the approach to taxes on ATF and air travel shows, the changes have been relatively small.

To highlight the significant economic linkages that aviation has now acquired, an NCAER study done two years ago clearly established that a 1 per cent increase in GDP required a 1 per cent increase in air passenger traffic and a 1.3 per cent increase in air cargo traffic.

Given the future GDP growth rates of 7""8 per cent that are being talked about, this implies a corresponding growth of 7""8 per cent in passenger traffic, and a growth of 9""10 per cent in air cargo.

Though the last two years have seen an encouraging growth of passenger traffic and air cargo, given the future needs, a major effort to expand and upgrade Indian aviation facilities and capacity is long overdue.

So far, the government has shouldered the onus for aviation growth and development, with private domestic airlines coming up only in the past decade, and the new Cochin Airport being the only significant private venture on the airport front.

Since this is clearly not enough to meet demand in the coming decade, a whole host of facilitating policies need to be put in place, with supporting legislation in key areas.

These policies should include a number of fiscal incentives, as well as take specific steps to spur the creation of a niche bond market expressly designed to cater to aviation and aviation-related projects.

Broadly speaking, we need an investment of around Rs 12,000 crore just to expand and upgrade our major international hubs, i.e. Delhi and Mumbai.

Likewise, the airlines need around Rs 12,000 crore to be invested over the next 5""6 years in new aircraft and supporting ground equipment. Given the low and slow returns that both these sectors provide, we will need to supplement Indian capital with a large quantum of long-term, low-cost foreign capital as well to finance these developments. Moreover, our own capital market will need to be given appropriate incentives to ensure its participation in adequate measure, with the administrative and legislative environment modified to create international interest in our plans, and establish the credibility and transparency of the proposed mode of their implementation.

While government policy has ruled out privatising Air Traffic Control, as long as adequate budgetary support for the upgrade and expansion of these facilities in consonance with overall growth is ensured, this is an acceptable scenario.

The key must be to ensure that budgets in this area are directly linked to growth in air services. A mismatch between investments in Air Traffic Control and those in general aviation would have a significant negative impact on the projected growth of traffic, on aviation safety, and on the viability of investments made by airports and airlines.

To ensure an optimal operation of the newer ATC assets, restructuring the present ATC cadre and training are essential. In view of the tremendous changes in the technology and the methodology of air traffic control, this should be charted by a committee of specialists, including some from the equipment-manufacturing companies.

Likewise, the Civil Aviation Training Centre at Allahabad, which trains ATC personnel, needs expansion and upgrade to enable it to cope with the new curriculum that would be introduced.

The expansion and upgrade of all our airports is such a huge undertaking that some prioritisation is essential.

To retain our position on the air map of the world, we first need to focus on the immediate expansion and upgrade of Delhi and Mumbai airports because they carry around 70 per cent of our international and 50 per cent of our domestic traffic.

This would require a capital outlay of the order of Rs 12,000 crore, and necessitate use of the latest "quick-build" construction techniques to enable the new facilities being made operational in the shortest possible time.

Since Delhi Airport alone has the land available to enable commencing major new building activities, it must even take priority over Mumbai in the short term. The present site at Mumbai can only permit a marginal enhancement of capacity.

In any case, within the next 20 years, a new greenfield site will need to be chosen for the future Mumbai airport, because that alone can be made large enough to serve the needs of the second half of this century.

The government's approach to first spinning off these two airports as joint ventures correctly reflects this priority.

To do so successfully, however, comprehensive new legislation needs to be introduced and passed to enable each of these two airports to be converted into a joint venture, with a suitable consortium.

The terms of this joint venture should concentrate on ensuring adequate investments being made in the airports themselves, as they will be competing with Singapore, Dubai, and Kuala Lumpur.

Therefore, we should not seek to decide on a JV partner on the basis of maximising returns to the government. The belief that the income to the government from these two airports should be large enough to subsidise other loss-making airports, would be akin to "killing the goose that lays the golden eggs"!

The direct benefits to the economic hinterland of these airports from investments in them would more than compensate for any notional losses through lower lease rentals.

It is also important to resist a populist proliferation of international airports, so as to ensure the viability of these major hubs. In parallel, there must also be a specific programme for expanding and upgrading the 11 or 12 major (e.g. Guwahati, Hyderabad) domestic hubs.

The success and viability of our airports are directly linked to the rapid growth of our commercial airlines. The demands of our economy""particularly tourism"" necessitate a major expansion in airline capacity in both the domestic as well as the international sectors.

Central to any long-term action plan is the need to move Air-India and Indian Airlines out of the government sector, to enable them to expand rapidly and be run professionally along strictly commercial lines.

The recent A-I board decision to order 28 new aircraft is a case in point. It will still take a cabinet approval before the final letter of intent/order can be released""and that means a delay of at least several months before this executive decision can actually be implemented.

While the terms "privatisation" or "divestment" invite a chorus of protest from a variety of vested interests, what is really needed is to move the equity of these airlines out of the Consolidated Fund of India, and into the Indian public debt and capital markets.

As the Naresh Chandra Committee has already suggested, we need to move forward quickly to create far more capacity, as well as fly to many more destinations on international routes.

Accommodating the current private carriers on some international routes to meet growing shortfalls in seat availability is essentially linked to this issue, and can be resolved to national advantage without ceding undue benefit to foreign carriers.