The Hindu Business Line : New path for civil aviation

WILL the new government carry forward the civil aviation reforms process which was piloted by the Vajpayee regime or will it chart a different flight path for the sector?

Perhaps one of the first issues that is likely to exercise the new Civil Aviation Minister will be the modernisation of the airports in Delhi and Mumbai. While inviting bids from prospective bidders, the previous government had set June 4 as the last date for submission of the bids.

Despite the stated huge potential of the project, the only consortia which is known to have to made an open statement about bidding is the Sunil Mittal-owned Bharti Group which has formed a consortium with Changi Airport, Singapore. The new government will have to decide whether it should extend the deadline so as to enthuse more players to enter the arena.

The new Minister will have to look into the 71-aircraft $4-billion fleet acquisition plans for Air India and Indian Airlines which are pending with the government. Both the airlines are in dire need of aircraft not only to replace the existing ageing fleet but also to take on competition.

It may be recalled that the IA board had forwarded a proposal as far back as March 2002 to acquire 43-Airbus aircraft at an estimated value of $2 billion. This proposal has cleared the first round of bureaucratic scrutiny. But the AI proposal is yet to clear the first bureaucratic hurdle of being whetted by the pre-Public Investment Board meet.

While IA plans to acquire 43 aircraft including A-319, A-320 and A-321 aircraft, the AI board had cleared a proposal to buy 18-Boeing 737-800 and 10 Airbus A-340 aircraft in November last year. Incidentally, in the case of IA alone 70 per cent of the 43 aircraft that the airline proposes to acquire are to replace the ageing fleet with the remaining being for the growth in the civil aviation market.

A quick decision from the new government will only facilitate this process as the entire exercise involved in fleet acquisition is a complicated one, which involves at least up to four rounds of government approvals. The first in line is an approval by the pre-PIB which whets the proposal from several angles including financial viability and then forwards it to the high-power Public Investment Board.

The proposal then goes to the Cabinet Committee on Economic Affairs (CCEA) before a final decision is taken for fleet acquisition.

In addition to these issues, the government will also have to focus its attention on the civil aviation policy which involves key issues including the level at which foreign direct investment (FDI) should be capped in the sector and also whether foreign airlines should be allowed to pick up a stake in domestic airlines.

At the moment, FDI in the domestic civil aviation sector is capped at 40 per cent and international airlines are not allowed to pick up a stake in the domestic civil aviation sector. However, the high-power Naresh Chandra Committee, which was set up to establish a road-map for the civil aviation sector by the outgoing Minister for Civil Aviation, Mr Rajiv Pratap Rudy, had said that foreign airlines should be allowed to pick up a 49 per cent stake in the domestic and international scheduled air transport services. However, the committee had said that this should be done with the approval of the Foreign Investment Promotion Board (FIPB).

Besides, the new government will also have to decide on whether it wants to carry forward the implementation of the unfinished task of the last Cabinet meeting of the Vajpayee Government. This meeting had cleared a proposal to allow private sector airlines to fly to the six nations of the South Asian Association of Regional Cooperation (SAARC) including Nepal, Sri Lanka, Bangladesh, Maldives, Pakistan and Bhutan but other issues like giving the nod for allowing the airline to operate globally could not be taken up by this last meeting.

Interestingly, the Naresh Chandra Committee had also urged the government to pursue liberalisation of international air transport in two phases. While in the first phase, private airlines based in the country should be allowed to provide international air transport services to and from India, in the second, the government should seek more liberal arrangements under the bilaterals and enhance full access to wider market segments by joining a regional or multilateral group of countries with a similar agend.

The decisions that the new government takes on these issues in the months to come will play a key role in determining the direction that the civil aviation sector is likely to take in the long run.