The new aircraft acquisition licence raj

Recent reports that the Ministry of Civil Aviation is going slow in allowing private airlines to import more aircraft have raised questions about the role of the Government in the investment and financial decisions of companies not owned by it in the first place.

Take the Delhi-based low-cost private airline, IndiGo, which had sought permission from the Aircraft Acquisition Committee in the Civil Aviation Ministry for import of 16 aircraft during this current calendar to add to its fleet.

According to reports, the airline has instead been permitted to import only five aircraft.

The Aircraft Acquisition Committee is the nodal agency, which clears all requests by airlines or even private individuals wanting to import aircraft. Earlier, this panel was headed by a Joint Secretary-level official, but recently it got ‘upgraded’ and is now headed by none other than the Minister for Civil Aviation.

And this, at a time when private players, in keeping with the spirit of liberalisation, are supposed to not be told by the Government how to run their business. And that should presumably apply to airlines as well.

Acquisition Committee for what?

An Aircraft Acquisition Committee may well have been needed in the days when there were only two airlines in the country —Indian Airlines and Air India — both of which were state-owned and are still so even after their merger into a single entity.

If these two airlines wanted to import aircraft, one could understand why they had to approach the Government for permission. After all, it is the Government that had invested in the equity of these airlines. Therefore, all their investment decisions had to be cleared by a Public Investment Board, which included representatives from the Ministries of Finance, Environment and Civil Aviation.

Even after 1994, when the winds of liberalisation swept the country, the Committee may still have had a role to play. One reason for that was there was not enough infrastructure at airports to accommodate the fast-expanding fleet of the private airlines. It was then, perhaps rightly, felt that the limited infrastructure should be evenly distributed among all the airlines so as to create an orderly environment for the industry to grow.

But much has changed since then. To start with, the private sector has entered the airport space as well. Today, the busiest airports, including those in Delhi, Mumbai, Hyderabad and Bangalore, are managed by private operators, who have actually created infrastructure in excess of demand. Probably, the only exception is Mumbai, which is still constrained due to lack of physical space.

Private airlines, on their part, have vastly expanded their operations. Apart from adding to their routes within India, they are also now flying to destinations abroad. That obviously means they need more aircraft. In these circumstances, if the Government decides to go slow in giving them permission to import more aircraft – for what reason nobody knows – it would simply affect both their business and expansion plans. And in this case, it is the Minister upon whom the responsibility has been thrust for deciding which airline can import how many aircraft and when!

An airline like IndiGo uses every aircraft for running 6 or more flights a day. For each of these, it starts making bookings well in advance. Not having the requisite aircraft even for increasing the frequency of flights on existing routes ultimately means the entire growth plans going haywire. If could even translate into cancelling flights — and thus inconveniencing passengers who have already booked with the airline — that were based on deployment of additional aircraft.

Controlling capacity

It goes without saying that in today’s business environment, the Government’s business in the civil aviation sector, other than owning Air India, should be confined largely to safety issues. Why should it at all be concerned with controlling the number of aircraft that an airline wants to import? Every Airbus-320 or Boeing-737 has a list price of $ 65-80 million, which can go as high as $ 150-200 million for the larger aircraft. If the private airlines have the money to pay for expanding their fleets, shouldn’t it be at their risk? Why should the Government be so concerned?

In any case, there is still logic for having a Committee for Acquiring Aircraft for a country, where there is just one commercial aircraft for every 3.2 million Indians. The corresponding figure is one for every 900,000 in The Philippines, one for every 1.14 million in China and one for every 600,000 in Brazil.

The other consequence of trying to control capacity — which the Government used to do for steel or polyester filament yarn in the days of the Licence Raj — is, of course, fares going up. The Government putting a break on airlines’ importing aircraft means is nothing but controlling capacity. Surely, this will not help passengers, while opening up avenues for favouring one airline over the other.

So what is the way out? Well, the Government has to clearly rethink the role that it ought to and needs to play in a purely market-driven industry. When it does not interfere in the automobile, steel or cement businesses, why should it play a role in the way in which private companies run their airlines? Let them spread their wings as they see it.

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