Why it is Desperately Required in India!

Aircraft Management (‘Owner-Operator’ model, as per common parlance in India), is a widely accepted way of doing business worldwide. There are a large number of companies, such as Jet Aviation, Execujet, TAG Aviation, Lux Aviation, etc. in the world, whose business model is primarily aircraft management. These companies manage a vast number and variety of aircraft on behalf of clients and are commonly called Aircraft Management Companies (AMC).

So what is aircraft management?

Put in simple terms, it is the outsourcing of the entire functions of aircraft operations to a specialised company. These functions include hiring and training of aircrew, maintenance, dispatch of aircraft, route planning, ground handling, fuelling, safety oversight, regulatory compliances, etc. It can also include the provision of their Air Transport Operators (ATO- this is equivalent to our NSOP) permit for charters. In other words, an owner buys an aircraft which he wants to use, and after buying it, he hands over the entire operational responsibility of the aircraft to a specialised company to manage it. He continues to be responsible for ownership liabilities, such as payment of insurances and other responsibilities connected with aircraft purchase and ownership. The AMC manages all expenses on behalf of the owner, for which the owner reimburses it. The AMC, in turn, and if the owner desires, uses its ATO permit to put the aircraft on charters, and initiates a revenue stream for the owner. The owner pays the AMC a fixed monthly charge (FMC) for its services, as also a small percentage on aircraft charter as commissions.

And who all benefit from this model?

Obviously, the owner of the aircraft is largely benefited due to the reasons given below. In addition, there are a number of benefits also to the regulatory bodies and the industry. These are:

• It relieves the owner of the responsibility of aircraft operations. We all know that operating an aircraft legitimately is a complex task. Present-day regulations are complex, and it takes experts to ensure that the aircraft is in the ‘compliant zone’ at all times. Be it dispatch requirements, crew training and licensing, FDTL, etc. each and every function needs expert knowledge of the rules and the environment. For a small aircraft owner, who is not in the business of aviation, it is virtually next to impossible to keep track of such issues. If he hires staff with expertise, his costs increase tremendously, and for aircraft which do not fly that much, most of this staff is underutilised at all times, hence leading to unnecessary financial stress.
• It also leads to cost savings for the owner. The AMC, by virtue of being a large aircraft operator, is able to get huge discounts on major expense areas, such as purchase of fuel, spares, pilot training, handling, hotels and transportation for crew. All these costs are passed on to the owner. In real terms, the benefits to the owner surpasses the FMC which he pays to AMC.
• It allows the owner to bring down his costs by using the ATO permit of the AMC to charter the aircraft. It is a fact that most owners do not utilise their aircraft to its full potential and it is underutilised most of the times. By using the permit of the AMC, the owner is able to legally charter the aircraft and earn some revenue on it, especially when it is not being utilised by him. This makes aircraft ownership less expensive for him.
• The best part of the aircraft management model is that also benefits others, beside the owners. It allows the regulators to deal with experts and professionals of the AMC, rather than employees of the owner, who are not experts in aircraft operations. it also ensures that the aircraft operates safely, under the watchful eyes of the professional team of the AMC. The regulator has fewer number of operators to oversee, thus making their life simpler. It is easier to carry out oversight of fewer companies operating large number of aircraft, as compared to hundreds of operators, each operating one or two aircraft. If you remember, this was one of the reasons for US FAA (Federal Aviation Administration) downgrade of DGCA (Directorate General of Civil Aviation) a few years ago; not enough staff to oversee so many operators!
• There is also an additional benefit, as it allows international companies with best global practices to set up shop in India, to offer aircraft management services along with their Indian partners. This will bring in best global practices to the industry, besides creating jobs for our youth.

I can assure you that besides the benefits of aircraft management to the owners, it will also greatly benefit the regulator, and the industry too. It will save the government a huge amount of resources by limiting oversight to a fewer operators.

So what is stopping this in India?

A million-dollar question! Something that has been adapted by the rest of the world, recognised by ICAO, FAA, EASA, etc. is not legal or acceptable to the Indian system, despite all the benefits that it seems to pass on to everyone! Sounds familiar, doesn’t it (think Uber and surge pricing)?. To my mind, I can trace this a mindset of our regulator, and which has not allowed the aircraft management model to be legalised in India:

• The mindset of the DGCA, which has for years insisted, that anyone who buys an aircraft has to be responsible for its operations too. In many meetings with DGCA officials, I have seen shocked faces when it was told that the owner NEED NOT be responsible for operations, if he has legally handed over his operations to a recognised aircraft management company. The regulator insists that if the owner is not made responsible for operations, safety will be compromised, as the AMCs are not fully ‘responsible’ for maintaining safety of an asset which does not belong to them. From this flows the requirement of the owner hiring his own pilots, CAM, QC, safety officer, etc. By this logic, the entire outsourcing industry in India should be dismantled! Also, it is astonishing that the DGCA allows to trust a third party to carry out maintenance on an aircraft, but not the operations. This is the reason why there are a disproportionate number of operators, each with one or two aircraft each.
• Post-2007, and the introduction of the differential import duty regime between the private and non-schedule operator (NSOP), this problem has become more complex. The regulators are of the opinion that anyone who is seeking to get into an aircraft management model must be a crook, whose only motivation to do so is to avoid paying higher import duty. This is a ridiculous argument, as it nullifies all other benefits that aircraft management provides, not only to the owner, but also to the environment and the regulator. In any case, import duty is applicable on what the end use of the aircraft is; namely, will it be used under NSOP or in the private category. It doesn’t matter under whose NSOP, as long as it is used for flights which are only for remuneration.

So what needs to be done?

• First and foremost, the regulator needs to stop resisting this model which is accepted worldwide by all countries, and start understanding the benefits of it. Once that is understood, finding solutions will be easier. The problem lies with commercial airline centric thinking and mindsets, which do not understand general aviation, hence ‘out-of-the-box’ thinking seems to be asking for too much.
• Secondly, the import duty fiasco needs to be resolved once and for all. The issue of rationalisation of import duty on aircraft needs to be taken up on priority. Differential duty structure leads to confusion and misuse. It has also not benefited the government in any way, as statistics have proved. The Ministry of Civil Aviation (MoCA) needs take up a strong case with the Ministry of Finance for rollback/rationalisation of duties at a reasonable and equitable levels. This will go a long way in clearing the air.
• Pending the duty rationalisation, it is imperative that DGCA and MoCA engage with the Department of Customs and Excise and take a clear-cut ruling on how to handle such cases. It is in their own interest. If an operator approaches the DCGA and asks them permission to buy an aircraft, but hand it over to a third party, which is a recognised specialised company for aircraft management, does it violate any laws of the country? As per our opinion, it does not. But since there is ambiguity, no one in DGCA wants to put himself/herself in the crossfire. And if it does violate any laws, it needs to be clearly spelt out. The damage being done to the growth of the industry by this ambiguity is tremendous, and the some needs to resolve this.

To sum up, I can assure you that besides the benefits of aircraft management to the owners, it will also greatly benefit the regulator, and the industry too. It will save the government a huge amount of resources by limiting oversight to a fewer operators. This is an idea, whose time came a decade ago, but it is still not too late to implement something that will benefit the entire system.

Rohit Kapur is Managing Director, Arrow Aircraft and former President of Business Aircraft Operators Association.