Cabinet approves the new civil aviation policy. Boost for Vistara and Air Asia.

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The Indian Union cabinet has approved the new civil aviation policy (NCAP). The press release from the Press Information Bureau (PIB) says it all. While the NCAP is definitely a step in the right direction, we will be sharing our analysis in the days to come after we glean the details.

For now, Vistara, the joint venture of Tatas and Singapore Airlines, and AirAsia India, the joint venture of the Tatas and AirAsia, are benefited by the removal of the five year requirement to fly international. The requirement of a minimum fleet of 20 aircraft remains, ostensibly to keep the incumbents happy. The ball is in the court of these two airlines on how they ramp up to take advantage.

The proposed “open skies” for airports 5,000km and above from New Delhi will open up most of Europe, Japan, Australia, New Zealand, and all of the Americas, providing those countries offer an Open Skies policy to India.

While the Rs 2,500 cap on flights up to one hour will provide great impetus to regional connectivity, it is still another case of government forcing a socialist nanny-state agenda on to private enterprise. The free market is the best way to determine efficient prices. The central government must get compensatory buy-in from the regional destinations and their respective state governments, not just foisting the compensation on the backs of already over-taxed air passengers.

Press release by the PIB on NCAP

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi has given its approval for the Civil Aviation Policy. This is the first time since Independence that an integrated Civil Aviation Policy has been brought out by the Ministry of Civil Aviation.

Highlights

The Policy aims at:

• India to become 3rd largest civil aviation market by 2022 from 9th
• Domestic ticketing to grow from 8 crore in 2015 to 30 crore by 2022
• Airports having scheduled commercial flights to increase from 77 in 2016 to 127 by 2019
• Cargo volumes to increase by 4 times to 10 million tonnes by 2027
• Taking flying to masses – Enabling Indians to fly at Rs. 2,500 per hour under Regional Connectivity Scheme at unserved airports
• Requirement of 5 years of domestic flying for starting international operations removed
• Flexible and liberalized ‘open skies’ and ‘code share’ agreements
• Incentives to MRO sector to develop as hub for South Asia
• Ensuring availability of quality certified 3.3 lakh skilled personnel by 2025
• Development of green-field airports and heliports
• Enhancing ease of doing business through deregulation, simplified procedures and e-governance
• Promoting ‘Make In India’ in Civil Aviation Sector

Areas covered in the Policy:

1. Regional connectivity
2. Safety
3. Air Transport Operations
4. Route Dispersal Guidelines
5. 5/20 Requirement for International Operations
6. Bilateral traffic rights
7. Code-share agreements
8. Fiscal Support
9. Airports developed by State Govt, Private sector or in PPP mode
10. Airports Authority of India
11. Air Navigation Services
12. Aviation security, Immigration and Customs
13. Helicopters
14. Charters
15. Maintenance, Repair and Overhaul
16. Ground handling
17. Air-cargo
18. Aeronautical ‘Make in India’
19. Aviation education and skill development
20. Sustainable aviation
21. Miscellaneous
22. Essential Services Maintenance Act, 1968

Salient features of the Policy

1. The Viability Gap Funding (VGF) will be funded by a small levy per departure on all domestic routes other than Cat II/ Cat IIA routes, RCS routes and small aircraft at a rate as decided by the Ministry from time to time. A detailed scheme will be put up in the Public domain for stakeholders consultations.
2. The 5/20 rule for commencement of international flight in operation since 2004 is replaced by a formulation which provides a level playing field and allows airlines, both new and old, to commence international operations provided they continue to meet some obligation for domestic operation. All airlines can commence international operations provided they deploy 20 aircraft or 20% of total capacity (in term of average number of seats on all departures put together), whichever is higher, for domestic operations.
3. Necessary administrative and financial flexibility will be provided to Director General of Civil Aviation (DGCA) for an effective aviation safety oversight system and for creating a transparent single-window system for all aviation safety related issues.
4. The Route Dispersal Guidelines (RDG) have been rationalised by making the criteria for declaring a route as Category I (trunk route) more transparent, while the traffic to be deployed on Cat II and IIA expressed in terms of a percentage of CAT I traffic remains the same. The criteria proposed for a Cat I route are a flying distance of more than 700 km, average seat factor of more than 70% and annual traffic of 5 lakh passengers. The percentage for CAT III will be reduced in view of the Regional Connectivity Scheme coming into operation. Uttarakhand and Himachal Pradesh have been included as part of category II routes.
5. The regime of bilateral rights and code share agreements will be liberalised leading to greater ease of doing business and wider choice to passengers. “Open skies” will be implemented on a reciprocal basis for SAARC countries and countries beyond 5000 kms from Delhi. A method will be recommended by a Committee headed by the Cabinet Secretary for the allotment of additional capacity entitlements wherever designated Indian carriers have not utilised 80% of their bilateral rights but the foreign airlines/countries have utilised their part and are pressing for increase in the capacity.
6. The Ministry will continue to encourage development of airports by the State Government or the private sector or in PPP mode and endeavour to provide regulatory certainty. Future greenfield and brownfield airports will have cost efficient functionality with no compromise on safety and security.
7. Airport Authority of India (AAI) will continue to develop and modernise its airports and upgrade quality of services. AAI will be suitably compensated in case a new greenfield airport is approved in future within 150 km radius of an existing operational AAI airport which is not yet saturated.
8. Upgradation and modernisation of Air Navigation Services will continue in line with global trends. AAI will provide a fully harmonised Air Navigation System considering International Civil Aviation Organisation (ICAO) Global Air Navigation Plan, Aviation system Block Upgrade and modern performance based technologies and procedures.
9. The Government will promote helicopter usage by issuing separate regulations for helicopters and development of four heli-hubs initially. Ministry of Civil Aviation will also coordinate with all the agencies and stakeholders concerned to facilitate Helicopter Emergency Medical Services.
10. In the budget for 2016-17, the customs duty for MRO’s has been rationalised and the procedure for clearance of goods simplified, in particular duty on tools and tool kits. Further incentives have been proposed in the policy to give a push to this sector :-
    1. MoCA will persuade State Governments to make VAT zero-rated on MRO activities
    2. Provision for adequate land for MRO service providers will be made in all future airport/heliport projects where potential for such MRO services exists.
    3. Airport royalty and additional charges will not be levied on MRO service providers for a period of five years from the date of approval of the policy.

xi. The existing ground handling policy is being replaced with a new framework to ensure fair competition. The airport operator will ensure that there will be three Ground Handling Agencies (GHA) including Air India’s subsidiary/JV at all major airports as defined in AERA Act 2008. At non-major airports, the airport operator to decide on the number of ground handling agencies, based on the traffic output, airside and terminal building capacity. All domestic scheduled airline operators including helicopter operators will be free to carry out self-handling at all airports. Hiring of employees through manpower supplier will not be permitted.