The Telegraph
Since 1st March, 1999
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Aviation policy take-off hint in air

New Delhi, April 2: The long-awaited civil aviation policy will come up before the cabinet later this month. Among other things, the policy will recommend setting up an independent civil aviation regulator and frame guidelines on formal mergers and acquisitions.

The policy, as drafted by the civil aviation ministry, wants to retain the current ceiling of 40 per cent on foreign direct investment in domestic airlines. The finance ministry, however, wants the ceiling to be raised and is also in favour of allowing foreign airlines to hold equity in Indian-run airlines.

The civil aviation regulator is supposed to set standards for the entire sector, issue licences to operators, regulate tariff, punish those who violate standards and ensure that there are no unfair trade practices and abuse of market dominance.

A comprehensive aviation law will be framed to replace the existing acts on aviation and security. This law will legally establish the regulator.

The draft policy will frame guidelines on mergers and acquisitions in the aviation sector and is likely to allow 100 per cent transfer of aircraft, flight rights and parking bays on payment of fees.

It will, however, not allow, ‘grand-fathering’ of these rights. This means it won’t be possible for one airline to sell these rights and slots to another before or after the merger.

Though North Block is pushing for a change, the civil aviation policy is unlikely to recommend a relaxation in FDI limit in domestic airlines. The civil aviation ministry wants the current cap of 40 per cent and the ban on foreign airlines from owning stakes in domestic airlines to remain.

Backed by the Planning Commission and the Prime Minister’s Office (PMO), the finance ministry would, however, like to see the recommendations of the Naresh Chandra committee incorporated in the policy. The committee is in favour of allowing foreign airlines limited stakes in Indian-owned airlines.

Top officials said a tug-of-war is possible on the FDI issue when the policy comes up before the cabinet for discussion.

In the policy, the civil aviation ministry will stick to the current rules, limiting foreign flight rights to those that have a five-year track record as scheduled airlines within the country. Airlines such as Air Deccan, SpiceJet and GoAir have been lobbying to relax this condition. This, too, is an issue that can spark debate as other ministries seem to favour a change.

The draft policy favours the levy of an aviation cess, which will replace various taxes on air travel. It has also recommended the creation of an Essential Services Fund ' which won’t lapse ' out of the aviation cess and proceeds from privatising airports.

The money from this fund will be used to subsidise air travel on uneconomic but essential routes such as the Northeast, Kashmir and the Andamans. The fund will also be used to upgrade existing airports and build new airports in the state sector.

Now that private parties have been allowed to modernise airports, the regulator will have to ensure that there is no discrimination between different airports in allotting capacity to foreign and Indian-run international airlines. At the same time, a well-defined transparent mechanism for the allocation of slots at airports will be brought in.

More international gateways will be opened up to ensure there is at least one international airport in every region.

The government is also going to give international charter flights the freedom to land at any airport where there is customs facility. At present, they are allowed to land at selected destinations only.

Such a move is expected to give a fillip to charter tourist flights to various destinations. Charter flights, after entering the Indian airspace and being cleared by one customs airport, will also have the freedom to fly to any other airport within the country.

At the same time, tourist charters from domestic airports to foreign destinations will be permitted. However, steps will be taken to safeguard operations by scheduled international carriers.

This means while these charters will be allowed, they would be barred from operating parallel services to scheduled operators. They could only operate in certain seasons such as the summer months or for specific events such as the Olympics when tourist flow would warrant such charter flights.

The policy would, however, put no restrictions on global cargo flights. This is expected to give a fillip to the government’s plans to develop certain airports as global cargo hubs. However, officials said, these global cargo flights would not be allowed to carry domestic cargo for offloading at Indian destinations on their flights.

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