The Hindu Business Line : Five years of UPA: The right thrust to aviation

As the Government enters the slog overs of its five-year innings, this may be a good time to review the progress made in the civil aviation sector, which experienced extreme highs and lows during the tenure of the United Progressive Alliance (UPA) Government.

It was during the era of Prime Minister Manmohan Singh that almost all the stakeholders, be it the travellers, the airlines or even the developers of airports, enjoyed better times that they ever had before. The five years were also characterised by aviation turbine fuel (ATF) hitting an all-time high, prompting the sector to appeal to the Government for help and increasing fares, which did not go down well with the air passengers.

If the innings opened with private sector airlines being permitted to fly abroad, it was followed up in quick succession with a liberal exchange of air service bilaterals with a number of countries, including the United Kingdom, the United States, Germany and several others, which allowed all airlines to operate more flights to and from India. A case in point was Dubai, where the number of seats per week that airlines are offering is to increase from the current 31,300 to 54,200 by October next year.

The then two state-owned airlines — Air India and Indian — were also beneficiaries under the new Government. Both the airlines, which had not purchased any new aircraft for several years, saw a major fleet expansion plan being undertaken. While Indian signed an agreement with Airbus to purchase 42 Airbus A-320 aircraft, Air India flew with Boeing and decided to acquire 68 aircraft, including the yet to be delivered Boeing 787.

Creating infrastructure

Infrastructure development was also given top priority, a move that saw the Government award the contract for the modernisation of Delhi and Mumbai airports to the GMR and GVK group-led consortiums respectively.

The modernisation plan for the two busiest airports was pushed ahead with, despite the Left parties, then supporting the Government, being against the move.

The new greenfield airports at Bangalore and Hyderabad were also commissioned during the tenureship of the Manmohan Singh Government. While the Government was successful in starting, and in the case of Bangalore and Hyderabad completing, the launch of airport projects, it was unable to get the modernisation of non-metro airports off the ground.

The projects for city-side modernisation of 35 non-metro airports will be completed in 2010 and not, as planned, in 2009. The Government also moved to set up an independent regulator, in the form of the Airport Economic Regulatory Authority, to watch over airports. Besides, India also signed an international treaty that saw compensation being paid for death in an air accident or loss of baggage raised to be at par with internationally accepted figures.

Not only did the number of airlines operating in the domestic skies increase from just three, when the UPA took over, to close to 10 now, but the Government also introduced the new concept of regional airlines to promote air connectivity to small towns and cities.

The period also saw consolidation taking place in the industry with the buyout of Air Sahara by Jet Airways being followed in quick succession by the merger of Air India with Indian, and Kingfisher Airlines buying out Air Deccan.

New status for ATF

The rise in global crude oil prices, which resulted in fuel surcharge being charged by airlines slowly creeping up to more than the cost of an air ticket, and the general slowdown in the economy affected the growth prospects of the sector.

While the industry recorded growth of 46.5 per cent and 32.5 per cent during the full calendar years 2006 and 2007, domestic passenger growth fell to record negative growth in January-October this year.

Now the Government is working on trying to reduce the financial burden on the sector by providing “declared goods” status to ATF used in the Boeing and Airbus aircraft operated by domestic airlines. As and when the “declared goods” status is granted, airlines will pay a standard 4 per cent sales tax on ATF.

At the moment sales tax on ATF varies from 4 per cent to more than 30 per cent across different States.

The implementation of the decision is likely to help improve the financial health of industry, which is expected to report a loss of around Rs 4,000 crore this year, as ATF accounts for 40-45 per cent of the operating costs for airlines.