On coming to power, the Narendra Modi-led government appeared to be set to translate into reality its commitment in the election manifesto with regard to the civil aviation sector. Topping the agenda was the development of low-cost airports in Tier-II and III cities to expand air connectivity through regional aviation particularly to areas that are remote or not easily accessible.

The aim was to transform the image of the civil aviation sector from being ‘elitist’ to one ‘for the masses’. On May 29, 2014, P. Ashok Gajapathi Raju, Minister of Civil Aviation, stated “We will strive to create a level playing field for all the players and make the aviation sector more people-oriented.” In the pursuit of this objective, the Ministry of Civil Aviation (MoCA) issued a Draft Civil Aviation Policy in November 2014 that was available in the public domain and all stakeholders were invited to offer comments. Based on the inputs, a comprehensive Draft National Civil Aviation Policy (NCAP) 2015 incorporating provisions for wide-ranging reforms was unveiled on October 30, 2015. Comments have now been invited from the stakeholders and the public within three weeks after which the draft document would be submitted to the Cabinet for approval.

Currently, the NCAP 2015 covers development of airport infrastructure, enhanced regional connectivity, liberalisation in open skies regime, development of the air cargo sector, improvement in helicopter services, development of maintenance, repair and overhaul (MRO) sector, ground handling and airport security.

Focus on Regional Aviation

The major focus of the Draft NCAP 2015 is manifest in the Regional Connectivity Scheme (RCS) to be effective from April 1, 2016. It is designed to ensure the viability of regional aviation to make air travel accessible to the larger segments of society at affordable costs. The policy has reiterated the intent of the government to improve airport infrastructure through publicprivate partnership in Tier-II and III cities. However, as operations to these locations at new low-cost airports are not likely to be profitable, the scheduled commuter airlines (SCA) operating to these destinations will get financial support from the government by way of Viability Gap Funding (VGF) to compensate for losses. SCA will also benefit from lower taxes on ATF as well as waiver of airport charges. For payment of customs duty, SCA will be treated on par with scheduled carriers provided they do not undertake charter operations. An SCA can now be established with a paid-up capital of Rs. 2 crore with aircraft less than 100 seats and no limitation of the size of the fleet. SCA will be permitted to enter into code-share agreement with other airlines.

The burden of VGF will be shared between the Central and state governments in the ratio 80:20. The Central Government plans to generate resources of Rs. 1,500 crore annually for VGF through a two per cent levy on all domestic and international air tickets. This will undoubtedly make travel more expensive for passengers on legacy carriers. Other concessions proposed are for the state governments to provide land free of cost for airport development, lowering of VAT on ATF to one per cent or less, no excise duty on ATF, no service tax on tickets purchased under RCS and air fare limited to Rs. 2,500 per hour of flight.

The government has decided to retain the route dispersal guidelines (RDG) which require airlines to dedicate a certain percentage of the total number of flights undertaken to remote areas. As per the existing mandate, airlines will need to deploy at least 10 per cent of the capacity on the Category-II routes in the North-eastern region, Jammu & Kashmir, Andaman & Nicobar Islands as well as Lakshadweep.

Business and General Aviation

The Draft NCAP 2015 has unfortunately not focused adequately on business and general aviation which is a critical component of the Indian civil aviation industry. The draft policy has addressed the concerns of only the foreign air charters making it easier for them to operate to and within India. However, the Draft Policy has failed to remove the impediments the domestic charter industry is routinely confronted with. It has also overlooked the exorbitant and irrational taxation on import of business and general aviation aircraft, which has retarded growth of this sector. The government needs to understand the contribution of this segment of the industry to the national economy.

The Draft NCAP 2015 aims to unshackle helicopter operations, a step long overdue. The government will support growth of helicopters for remote area connectivity, intra-city movement, tourism, law enforcement, disaster relief and medical evacuation. As per the new policy, helicopters will be free to fly from pointto-point without prior clearance by air traffic control (ATC) when operating in airspace below 5,000 feet and outside areas under the control of the ATC and in areas that are not categorised as ‘prohibited’ and ‘restricted’. Helicopter operators will only be required to file flight plans at the nearest ATC. The government also proposes to facilitate the development of four helicopter operating hubs. A more comprehensive set of regulations exclusively for helicopter operations will be notified by April 1, 2016.

Air Cargo

The primary thrust of policy change in this sector that has not been privileged to have the healthy growth rate that matches the existing potential is to streamline cargo handling to reduce delay in the shipment and clearance of cargo transported by dedicated freighters. The Air Cargo Logistics Promotion Board (ACLPB) has been tasked to formulate an action plan to minimise dwell time of air cargo from aircraft to truck’ and introduce paperless processing. It is also proposed to develop an Advanced Cargo Information System and round-the-clock customs clearance.

Maintenance, Repair and Overhaul

The Draft NCAP 2015 has provided the much needed impetus to the Indian MRO industry through a number of reforms proposed which include tax incentives and simplified regulatory provisions. The Draft NCAP 2015 aims to alter the ‘High Tax Regime’ image of the MRO industry through abolition of service tax on MRO ‘output services’, duty waivers on tools and increasing tax-free use of spare parts from one to three years. It has also proposed easing of rules and rationalisation of royalties and levies by airports on MRO service providers. The state governments would also be encouraged to reduce VAT on MRO services. Airport royalty and additional levies on MRO service providers will be rationalised in consultation with airport operators. The provision under AIC 3 of 2010 of DGCA shall be reviewed to declare MRO as a separate category instead of clubbing it with ground handling for security procedures and remove restrictions on foreign registered aircraft for MRO.

The 5/20 Rule

One aspect in which the Draft NCAP has dithered is the 5/20 Rule that has acquired a modicum notoriety in the Indian airline industry. Apparently, the government has decided to seek further comments from stakeholders before taking a final decision. The Draft NCAP 2015 has put forth three options, i.e. abolish the norm, continue with it or link overseas flying rights with domestic flying credits. “This is one significant, archaic and regressive policy that would have unbridled the entire sector and shown optimism not only to current incumbents but also to potential future investors. It is disappointing that the draft is still where we were on this several months ago,” said Mittu Chandilya, CEO, AirAsia India.

Conclusion

The Draft NCAP 2015 has drawn a mixed response from the civil aviation industry. Described as ‘progressive’ by most, it has addressed most of the key policy challenges confronting the Indian civil aviation industry. The draft policy provides for major boost to regional aviation through enhancement of airport infrastructure, boost to MRO and air cargo sectors, regulation of air fares, rationalisation of the price of ATF, taxes and airport charges as also simplification of regulatory framework and procedures.

However, it has been disappointing for the business and general aviation segment as the Draft Policy has completely ignored the interests of this important part of the industry. Also, there will be the need to build a consensus between the Centre and the states on fiscal incentives and other responsibilities assigned to the latter. This could easily prove to be the proverbial Achilles’ heel of the policy owing to political differences between the Centre and the state governments.

Some deficiencies notwithstanding, the existing policy document has defined the long-term road map for catapulting India from the ninth to the third largest aviation market in the world by 2020.