In a move that signalled the government’s strong reform drive, the FDI floodgates have been thrown open in nine sectors, including aviation. The government has given the nod to foreign non-airline entities to invest up to 100 per cent in domestic airlines. These measures, coupled with the Civil Aviation Policy last week, are bound to ward off at least some turbulence in aviation sector. Bloomberg TV India discusses the efficacy of the measure with Tony Fernandes, Group CEO, AirAsia.

Let’s start with your view on the overall policy intent of the government, with regard to the opening up of FDI channels. Companies cannot invest beyond 45 per cent, but funds will be in a position to invest beyond 49 per cent.

I think this is a great step for the Indian aviation sector and for the government. The fact that they removed the 5/20 rule and replaced it by 0/20, is a compromise. We would love to see it removed completely. But I think it was a surprise, a very positive step to see that foreigners could now own 100 per cent of an airline. It is a good step and it shows the intent of the government to bring in more capital into this industry which is a great driver of the economy.

In terms of brown field expansions, that is quite a booster for airport developers in India…

It is a superb and very progressive move. Probably, the most progressive in Asia to allow foreign and private companies to build new airports with 100 per cent FDI. I really applaud that. I urge other countries in Asia to look at what the Indian government is doing.

Certain quarters of the industries have expressed a grouse to the effect that the government could have been more aggressive in the Civil Aviation Policy. You spoke about doing away with the 5/20 norm. The weightage on ‘5’ has gone. But in terms of ‘20’, aircraft rules still remain. How big a deterrent do you think it is for the new entrants in the space of civil aviation, which is a capital-heavy, long gestation-period space?

It is not perfect. India is a complicated country. The fact that they have actually done it, which is more than any other government has done previously, is indeed a step forward. And we continue to lobby, we continue to change and we continue to seek better policies. But I applaud that they have done something. At least, for the first time, we have clarity and we know what we need to do. That is not easy because there are so many vested interests. Local airlines have been lobbying against the 5/20, they talk about confusing credit systems and all this. But India is a fantastic market.

Another issue that I want to speak to you about is the Maintenance Repair and Overhaul (MRO). Now, the intent of making India one of the hubs as far as Asia is concerned for MRO remains to be good… Incentivising MRO has not really come about even though the intent is there…

I think that policy is probably not enough to spur the MRO. But we have to make representations to the government because India is at a disadvantage to the rest of the world. Few taxes are higher — taxes in MRO are higher and airport charges are generally higher. Ajay Singh of Spicejet once in a joint meeting with us made a comment that the government has to look at the cost structure of aviation to ensure that Indian airlines compete with the rest of the world. And that is something we as an industry have to keep lobbying to try and get right. But Rome was not built in a day. From where we were, it is a good step forward. India is leading the way in Asia in terms of foreign ownership. They are trying to make it less competitive and trying to have less involvement of the government. I think that the capping of air fares is probably a step backwards; but at the airport side, giving incentives to regional flights is very progressive.

The government will compensate for 80 per cent of the losses that airlines make on unserved routes. We have seen this in industries in the past; say for instance, refiners or even urea manufacturers wherein the subsidy payment really skewed the working capital cycle. For airline companies, working capital is an essential portion and that needs to be in order at least for the operational profit to continue being churned at a similar level or at a particular CAGR. What is your view on the 80 per cent compensation and the time lag?

I think that’s fine. An airline gets subsidies from airports, it gets subsidies from many areas. I think it is again well done. The government should try and incentivise this through regional routes and AirAsia will grab it. You can’t have everything. I think that is a much better system than forcing airlines to do routes in other schemes. I think we should get rid of that and incentivise the airlines to go in to the routes to develop them.

Let’s also speak about AirAsia India in specific. Currently you ply in 13 routes in India and you two hubs — New Delhi and Bengaluru. Post the Civil Aviation Policy, do you find incentives enough in expanding your routes to certain tier-II, tier-III geographies?

Yes absolutely. That is something for the Joint Board to look at. And we are waiting for the management to present plans to us. As we have a clear policy now, we can tweak our plans and when the Board meets, the shareholders and Board members of Tata and AirAsia will consider what the management puts in there and we will move forward. But the best thing for us, the best thing for any business is clarity. Of course, businessmen and entrepreneurs want more. But this is a big step forward for Indian aviation and long, long overdue. Now, India is like China, India is like ASEAN in aviation development. While it is not 100 per cent where you want to be, it is more than 50 per cent. And we will take it, we will use it and we will continue to show the government what aviation can contribute. We will create more jobs; we will create more economic development for India.

You also added six new routes in 2015 which almost doubled your route serving. You have also attained 1.5 million passengers in the last year. How is the Passenger Load Factor (PLF) panning out? Understandably, that is one of the highest from among the geographies that you serve, at around 81 per cent.

As a company, last month we had 92 per cent load factor, which is fantastic. When we started, we never had such a high load factor. I think some of our competitors have helped us. Our brand is very strong now. We are happy with the way we are progressing. We are going to add two more planes and we will try and add four more planes by the end of the year.

The total fleet will be 10 by the end of FY16…

That is the hope. Now, with the new policy we are trying to move it to 10 by the end of FY16. By FY17, I hope we move it to 20.

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