Govt Set to Tweak 5/20 Norm for Air­lines

Move, a boost for new air­lines, will see govt do­ing away with con­di­tion of fly­ing 5 yrs on do­mes­tic routes, but 20-air­craft fleet re­quire­ment to stay

The Economic Times - - Companies - Mi­hirMishra@ times­

New Delhi: The rules for lo­cal air­lines to fly over­seas, a highly con­tested pol­icy is­sue within the in­dus­try, are set to change with the gov­ern­ment ready to abol­ish one of the cur­rent el­i­gi­bil­ity con­di­tions while keep­ing the other.

The con­di­tion of fly­ing on do­mes­tic routes for five years for an over­seas per­mit doesn’t fea­ture in a note cir­cu­lated by the civil avi­a­tion min­istry for in­ter­min­is­te­rial con­sul­ta­tions on Fri­day. But it keeps the re­quire­ment of a min­i­mum fleet of 20 air­craft. There is an ad­di­tion as well: ev­ery air­line will have to main­tain 20% of the to­tal ca­pac­ity in the do­mes­tic sec­tor all the time.

This is likely to be the fi­nal pol­icy be­cause min­is­ters have al­ready met and in­for­mally ap­proved it. “We have the con­sent of all these min­is­ters and min­istries and the cab­i­net ap­proval should come by the end of this month,” said a se­nior avi­a­tion min­istry of­fi­cial, who did not want to be named. To be­come ef­fec­tive, it still has to get the for­mal ap­proval of min­istries. The Prime Min­is­ter has been in favour of chang­ing the cur­rent rule, known as 5/20.

ET had first re­ported on the likely new for­mula last month. The min­istry had ear­lier is­sued a draft pol­icy for the sec­tor, which had given var­i­ous sug­ges­tions to re­place the 5/20 rule along with other rec­om­men­da­tions.

Vis­tara and Ai­rA­sia In­dia, launched in 2015 and 2014, re­spec­tively, will be the im­me­di­ate ben­e­fi­cia­ries of this change as they can fly in­ter­na­tional be­fore com­plet­ing five years on lo­cal routes. The two, how­ever, will have to in­crease their fleet size from nine and six air­craft at present to 20 air­craft to qual­ify.

An an­a­lyst said bring­ing in new rule would de­feat the pur­pose of com­plete lib­er­al­i­sa­tion.

“0/20 and 20% ca­pac­ity de­ploy­ment on do­mes­tic is not a pro­gres­sive re­form and de­feats the pur­pose of lib­er­al­i­sa­tion. Es­pe­cially, adding 20% ca­pac­ity de­ploy­ment on do­mes­tic is a big neg­a­tive,” said Kapil Kaul, chief ex­ec­u­tive of con­sul­tancy firm Cen­tre for Asia pa­cific Avi­a­tion in In­dia.

Other pro­pos­als in the note cir­cu­lated on Fri­day in­clude of­fer­ing con­ces­sions such as a flat 2% ex­cise duty on fuel at re­gional air­ports for three years and 1.4% ser­vice tax on re­gional flights for one year.

Ex­cise duty on avi­a­tion fuel is 14% to­day, while air­lines have to pay a 5.6% ser­vice tax on tick­ets.

It pro­poses to scrap the plan to charge 2% cess on fuel and re­place it by charg­ing .₹ 8,000 per land­ing/take off on do­mes­tic flights by planes with 80 or more seats. “This is es­ti­mated to gen­er­ate about .₹ 500 crore an­nu­ally to sub­sidise the cost of re­gional flights in the coun­try,” said a gov­ern­ment of­fi­cial.

He said the other de­tails in the fi­nal pol­icy were more or less same as the draft pol­icy. Kaul said struc­tural and in­sti­tu­tional chal­lenges, such as re­forms at the in­dus­try reg­u­la­tor, long-term air­port ca­pac­ity plan­ning, re­mov­ing neg­a­tive fis­cal regime, fu­ture of Air In­dia and Air­ports Au­thor­ity of In­dia and, more im­por­tantly, de­vel­op­ing ca­pa­bil­i­ties within the avi­a­tion min­istry to en­sure im­ple­men­ta­tion weren’t ad­dressed. “The avi­a­tion min­istry has to­tally avoided core and crit­i­cal is­sues for rea­sons best known to them,” he said.

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