The Ministry of Civil Aviation is likely to announce the third phase of the regional air connectivity scheme, UDAN, next month.
What is Civil Aviation?
The civil aviation sector consists of several segments including helicopter/seaplane services, ground handling services, maintenance and repair organizations, flying training institutes, and technical training institutions.
Civil Aviation Sector in India: An Introduction
The Civil Aviation Sector in India is a fast growing industry and has recorded considerable growth in the last 30 years. India has the third largest aviation market in terms of domestic passenger traffic (CAPA, 2017). Further, International Air Transport Association (IATA), has projected that India would overtake the UK to become the third largest air passenger market (both domestic and international) by 2025.
Data Source: Livemint
Historical Background of civil aviation sector in India
Performance of Civil Aviation Industry in India: (Data Source: IBEF)
Commercial Flights: As of May 2018, there are nearly 558 commercial aircraft in operation in India.
- India’s passenger (includes both domestic and international) traffic grew at 16.52 per cent year on year to reach 308.75 million. It grew at a CAGR of 12.72 per cent during FY06-FY18.
- In FY18, domestic freight traffic stood at 1,213.06 million tonnes, while international freight traffic was at 2,143.97 million tonnes
Investment: According to data released by the Department of Industrial Policy and Promotion (DIPP), FDI inflows in India’s air transport sector (including air freight) reached US$ 1,658.23 million between April 2000 and June 2018.
Regulatory and Legislative Framework
Entry 29, List I, VII Schedule read with Art. 246 of the Indian Constitution vests the Parliament of India with the exclusive jurisdiction to legislate in relation to ‘Airports; aircraft and air navigation; provision of aerodromes; regulation and organisation of air traffic and of aerodromes.
National Civil Aviation Policy, 2016 (NCAP, 2016):
The policy focuses on creating safe, secure, affordable and sustainable air travel that can be accessed by the masses across India. The key features of the policy are:
- Regional Connectivity Scheme:
- Under the RCS, the Ministry of Civil Aviation targets an estimate airfare of INR 2,500 per passenger for flights travelling on RCS specified routes for a distance of approximately 500kms – 600kms
- Viability Gap Funding: concessions to be provided to the airlines to encourage them to fly on regional routes. The central government will fund 80% of the losses incurred by the airlines and the rest to be covered by states.
- 5/20 Requirement for International Operations: NCAP has allowed all domestic airline operators to fly international routes provided that they deploy 20 aircrafts or 20% of their total capacity (determined in terms of average number of seats on all departures), whichever is higher for domestic operations.
- Ground handling: NCAP 2016 provides that all domestic scheduled operators will be permitted to carry out self-handling at all airports by engaging either their own subsidiary or a third party ground handling service provider like Air India, Aviaxpert, Celebi/NAS etc.
- Airports/PPP: It encourages the development of airports by state governments, AAI, private sector through PPP model. For future airports, tariffs will be calculated on a ‘hybrid till’ basis. Under this model, airport charges will be levied based on an airline’s aeronautical revenue and part of its non-aeronautical revenue
- Aviation security, Immigration and Customs: ‘Service delivery modules’ will be developed for aviation security, Immigration, Customs in consultation with the concerned ministries
- Maintenance, Repair and Overhaul (MRO): The government to take measures and provide suitable incentives for MRO activities and service providers in order to boost MRO business
- Chicago Convention on International Civil Aviation, 1944:
- The Convention requires that Contracting States ensure that their aircrafts do not cross jurisdictions and that one Contracting State’s aviation services do not interfere with another’s.
- Pursuant to this Convention, India also became one of the founding members of the International Civil Aviation Organization (ICAO) which codifies the principles and techniques set forth in the Chicago Convention.
- Convention for the Unification of Certain Rules for International Carriage by Air, 1999 (Montreal Convention): It deals with scope of liabilities to be paid to families for death or injury whilst on board an aircraft.
- The Cape Town Convention on International Interests in Mobile Equipment, 2001 (Cape Town Convention): It standardizes transactions involving movable property. The Protocol to the Cape Town Convention made this applicable to aircraft objects.
Issues and Challenges with Civil Aviation Sector in India:
- Infrastructure issues:
- The lack of adequate airport infrastructure is one of the most major barriers to the airline industry. A major issue is that aviation infrastructure growth hasn’t kept pace with the growth in air traffic. A major problemrelatively small size of the aircraft fleet available for domestic routes or international destinations
- Congestion in the terminals, on the runways and in the air, has been leading to a deteriorating passenger experience and an increasingly inefficient and costly operating environment for the airlines.
- Financial Health: Though India is among the fastest growing aviation markets in the world, its airlines has been gripped in loses. The Centre for Asia Pacific Aviation predicts expects India’s consolidated airline industry to post a loss of $1.65 billion to $1.90 billion in the year-ending March 2019. It had earlier forecasted a loss of $430 million to $460 million.
- Rupee Depreciation: the recent rupee’s depreciation has had negative impact on the airline industry. About 25-30% of airline costs (excluding fuel) are dollar denominated. Example: aircraft lease rents and maintenance costs to ground handling and parking charges abroad.
- Aviation Turbine Fuel (ATF): International prices of ATF, is one of most important factor that affects the cost of air operations. Further, the high state tax levied on the ATF in India makes it one of the most expensive in the world. As compared to the world average of 20-25%, ATF accounts for over 40% of the total cost for the airline companies.
- Competition: The arrivals of LCCs (Low cost carriers) lead to wearing down the market share of the premium airlines. To moderate the decline in market share, the premium airlines were forced to reduce their fares and this in the long run lead to a pricing war amongst the airlines with potentially affecting the financial viability of the carriers
- Security: A 2016 report by a department related to the Parliamentary Standing Committee on Transport, Tourism and Culture raised deep concerns by suggesting that 27 functional airports in the country are protected by forces other than the Central Industrial Security Force (CISF). Explanations given to the committee for non-deployment of CISF at remaining airports were lack of fund.
- Regulation: The aviation sector is generally believed to be over-regulated. There is excessive concentration of power in the DGCA through which the Central government exercises its authority. According to critics, this negatively affects the competitiveness and viability of the aviation industry.
- UDAN (Ude Desh ka Aam Nagrik) Scheme:
- The scheme seeks to boost air connectivity by linking up un-served and under-served airports in Tier 2 and Tier 3 cities with the big cities and also with each other.
- Critics have raised concerns as the viability gap funding (concessions provided to the airlines to encourage them to fly on regional routes) under UDAN scheme will last only for three years and various operational issues, such as the lack of slots for connecting flights at major airports will affect financial health of airlines
Note: A number of smaller airports have come up- Example: Shirdi in Maharashtra, Pasighat in Arunachal Pradesh and Pakyong in Sikkim
- In the upcoming 3rd phase of UDAN, the government would invite proposals for air routes that include tourist destinations and seaplanes to connect through places such as Sardar Sarovar Dam, Sabarmati Riverfront in Ahmedabad, Tehri Dam in Uttarakhand and Nagarjuna Sagar in Telangana
- International UDAN:
- It seeks to connect India’s smaller cities directly to some key foreign destinations in the neighbourhood.
- Only the State government that will provide the financial support for flights under international UDAN.Financial support and flying exclusivity on the route will be for three years
- Project DISHA (Driving Improvements in Service and Hospitality at Airports): It aims to enhance operational efficiency and the overall travel experience of the travellers. The Airports Authority of India has planned to invest Rs. 17,500 crore in upgrading the existing airport infrastructure as part as part of Project DISHA
- Draft charter of passenger rights: It aims to improve passenger experience in India. Some key provisions include:
- Passengers will be compensated if an airline is at fault for any delay. Passengers are eligible for a full refund if a domestic airline cancels a flight 1 day before departure or delays it for more than 4 hours.
- Delay resulting in flight departing next day- Airline to provide free hotel stay
- Compensation for missing connecting flights: Rs. 5000-Rs.20000
- Free Cancellation of air tickets 24hrs of booking and within 4 days before scheduled departure. Further cancellation charges cannot be more than the sum of basic fare and fuel surcharge
- Air SEWA mobile app: It enables passengers check flight status and connecting flights in real time, and get information on the facilities available at all airports in the country. It also helps users address their grievances through the application.
Few Major Committees:
- As Indian aviation market continues to surge, focus should be ensuring adequate airport infrastructure capacity.
- The Air Navigation Services (ANS) unit of the AAI operates communication, navigation, surveillance and traffic management systems for aircraft operating in Indian airspace. With ever increasing busy airspace, it is of paramount importance to ensure that ANS can continues to provide aviation safety.
- The MRO industry in India holds great potential. It is important to ensure that the industry is regulated properly, and that the required skills are developed to service increasingly sophisticated aircraft
- More transparent ATF regime should be ensured where oil marketing companies are required to declare costs and methods used to price the end product.
- Excessive concentration of power in the DGCA should be checked to ensure proper competition and economic viability of the sector.