The thrust on regional connectivity is in the best interest of the Indian airlines industry, but the implementation of the RCS will be no easy task
On June 15 this year, the Minister of Civil Aviation P. Ashok Gajapathi Raju released the National Civil Aviation Policy (NCAP) 2016 in New Delhi. The event was regarded as unique in a way as it was for the first time in the history of Indian civil aviation since independence that an integrated civil aviation policy was brought out by the Ministry of Civil Aviation.
While the policy document covered 22 different areas of the civil aviation sector and was generally described as “very comprehensive”, its major focus was on regional aviation and rightly so as this is the segment of the Indian airline industry that is currently neglected and underexploited; but has the potential to provide the impetus required for the next phase of growth for the Indian civil aviation industry. Speaking on the occasion of unveiling of the policy document, the Minister of Civil Aviation said that the thrust on regional aviation in the NCAP 2016 was “To take flying to the masses by making it affordable and convenient for them, establish an integrated ecosystem which will lead to significant growth of the civil aviation sector to promote tourism, employment and balanced regional growth, enhance regional connectivity through fiscal support and infrastructure development as well as enhance ease of doing business through deregulation, simplified procedures and e-governance.”
To achieve this objective, the NCAP 2016 enshrined the Regional Connectivity Scheme (RCS) as the primary theme which while facilitating air travel for the masses was also designed to provide incentives to airlines to operate to regional airports that are located in remote and inaccessible areas of the country where traffic density was expected to be low and hence unprofitable for the airlines as well as airport operators at least during the initial years of the implementation of the scheme. To compensate for the losses suffered by airlines, the policy has a provision for a form of subsidy for the airlines through what is referred to as Viability Gap Funding (VGF). Under this scheme, the government would be providing financial assistance to carriers operating under the RCS and the required resources for VGF would be raised by imposing an additional levy on airfares for flights on non-regional routes. The Central Government would bear 80 per cent of the liability leaving 20 per cent for the state governments to bear. “We will do handholding for a limited period of time and the civil aviation industry should benefit the economy,” Gajapathi Raju had said at the time of releasing the draft RCS.
FOR AIRLINES THAT ARE EQUIPPED WITH BIGGER AIRCRAFT (A320 OR BOEING 737) AND WOULD LIKE TO VENTURE INTO REGIONAL AVIATION, THEY WOULD NEED TO INDUCT A FLEET OF SMALLER AIRCRAFT
A little over four months after the release of NCAP 2016, the government formally kick-started the RCS, giving it a very imaginative nomenclature UDAN in Hindi the expanded form of which is Ude Desh ka Aam Naagrik or “Let the common man of the country fly”. In a media briefing by Gajapathi Raju accompanied by Jayant Sinha, Minister of State for Civil Aviation, and R.N. Choubey, Secretary, Ministry of Civil Aviation, in the presence of all stakeholders of the Indian civil aviation industry, the operators were invited to submit initial proposals to fly to airports that do not have regular flights at present. The airlines have been given six weeks time, i.e. up to December 2, 2016, to submit their initial proposals. The government will take two to three days to scrutinise the proposals and the entire process is likely to take up to ten weeks to complete. The first flight under RCS is expected in January of the new year. “The idea of the scheme is to get those who wear hawai chappals on to hawai jahaj [aeroplane],” said Jayant Sinha.
Response from Airlines
In their response to the proposals, several of the existing private carriers did not display much enthusiasm. Chief Executive Officer of Vistara Airlines, Phee Teik, reserved his comments and said: “The airline will be able to comment on whether the policy was good or bad only after going through it.” Chairman SpiceJet, Ajay Singh, felt that there were some issues with the scheme which they will raise with the government and hoped that these could be resolved. As per Ajay Singh, there was a problem with availability of operating slots at the metros and other large airports for carriers operating flights under RCS. Thus regional carriers could find it difficult to connect the smaller airports with those at Mumbai, Delhi, Bengaluru, Chennai and Hyderabad. Large airports operated by private parties are particularly difficult to handle in this regard. For effective implementation of the scheme, it would be necessary to ensure that there are a few slots reserved at the major airports for aircraft operating under RCS. The huband-spoke model on which the RCS is founded is unlikely to succeed unless this is done.
Ajay Singh was also of the view that imposing a levy on airfares on non-regional routes is not welcome news especially for regular flyers on those routes. There is no justification for imposing financial burden on air passengers that fly nonregional routes for the financial well-being of regional aviation. As the scheme is of national importance and concern, the government ought to make budgetary allocations from the existing central resources, i.e. the Consolidated Fund of India, to provide subsidy to regional carriers operating under RCS.
For airlines that are equipped with aircraft such as the Airbus A320 or Boeing 737 and would like to venture into regional aviation, it would require induction of a fleet of smaller aircraft such as those from ATR, Bombardier or Embraer to operate short haul flights from perhaps runways of smaller size make operations to regional destinations financially viable. Consequently, these carriers would then have to cope with problems associated with multiplicity of types on their inventory. Airlines have also requested the Ministry of Civil Aviation to provide them subsidy beyond the three years stipulated in the draft RCS.
Possible Legal Impediments
The Federation of Indian Airlines (FIA), whose members are IndiGo Airlines, Jet Airways, SpiceJet and GoAir, is of the view that the proposal to impose a levy on airfares for flights on non-regional routes to provide subsidy to carriers operating on regional routes, is in contravention to the Aircraft Act of 1934 and hence is unconstitutional and illegal. The FIA believes that the imposition of a regional connectivity levy would require amendment to the Aircraft Act, 1934 and not the rule. Until this is done, the draft rules would be beyond the authority of law. This has been conveyed in writing by the FIA to the Ministry of Civil Aviation. The FIA has said in a letter to the Ministry of Civil Aviation that a levy in the nature of tax can only be levied having regard to the provisions contained in the Article 265 of the Constitution of India, i.e. by authority of law. The Ministry of Civil Aviation on the other hand has obtained due clearance from the Ministry of Law in this regard and in spite of the stiff opposition from the FIA, is determined to go ahead with the imposition of the proposed levy to raise the resources required for VGF.
While the thrust on regional connectivity is a positive move by the Ministry of Civil Aviation and is in the best interest of the Indian airlines industry, by the stance adopted by some of the major stakeholders; it appears that the implementation of the RCS will be no easy task.