Aviation

Aviation

This article deals with ‘Aviation – UPSC.’ This is part of our series on ‘Economics’ which is an important pillar of the GS-3 syllabus. For more articles, you can click here.


Introduction

  • India’s domestic passengers have almost doubled in the last 5 years owing to the UDAN scheme
  • In 2020, the number of airports in India reached the 100 mark.


Potential of civil aviation sector

  • The geographical, economic and demographic conditions are such that India can be on the third-largest number of airline passengers. These favourable conditions are listed below.
    • India’s geographical situation in the middle of the Eastern and Western Hemisphere
    • India has a robust middle class of about 35 cr Indians. 
    • Rising income due to India being one of the fastest-growing economies globally
  • But strict and outdated regulations have not allowed the sector to achieve its potential, and India is ranked 10th globally wrt the number of airline passengers. 


Aviation Challenges

Aviation

1. Infrastructure constraints

  • The civil aviation infrastructure, especially in the metros such as Delhi, Mumbai etc., has been operating at saturated levels. Therefore, the government will have to attract large investments in building new and upgrading the existing infrastructure.

2. Aviation Turbine Fuel (ATF)

  • The taxation on Aviation Turbine Fuel (ATF) in India is high. Hence, ATF is priced 60% higher in India compared to the global average. Given the fact that ATF accounts for 40% of the operating costs of airlines, it puts Indian airlines under considerable pressure.

3. Lack of skilled workers

  • Given the growth of the aviation sector, India will need 0.25 skilled workers in the aviation sector over the next decade.

4. Limited Capacity of Airlines

  • 90% of traffic is concentrated in the metro cities. Although the potential consumer base is large, airlines have not been able to tap it.

5. Predatory pricing

  • Indian airlines indulge in Predatory pricing, i.e. sell their tickets at very low prices to bleed the competitors out of business. But in the process, they bleed themselves and make substantial losses.

6. Aviation Safety

  • In India, there were 440 aviation safety violations in 2016 and 340 in 2017, which are quite high compared to global standards.

7. Other challenges

  • High Airport Charges
  • High aircraft to man ratio

Airlines in India

Public Sector Air India and its subsidiaries
Private Sector Air India = owned by Tata GroupB
Jet Airways = Naresh Goyal
Spicejet = Sun group (of Kalanidhi Maran)
Interglobe Aviation (IndiGo)
Go Airlines
Cargo Airlines Deccan cargo (Deccan 360) 
Blue Aviation Express Logistics

New players in the Indian market

  • Air Asia (Tata 30%+ Malaysian Airline AirAsia 49% + Telstra 21%)
  • Air Costa
  • Quickjet Cargo Airlines

Air India

  • Air India was formed after Air India & Indian Airlines merger in 2007. 
  • It has the largest fleet in India, including new planes. It controls 17% of the Indian Market.
  • But it suffered from a debt of over ₹50,000 Crore. Hence, the government wanted to privatize it. After large discussions, the Tata group has bought the airlines. 

Pawan Hans Helicopter ltd

  • It is a government-owned company started in 1985 
  • Provides helicopter service to
    • ONGC’s offshore drilling platforms
    • Hilly and inaccessible areas
    • Amarnath Yatra
    • Emergency evacuation

Disinvestment of Air India

Timeline of Air India

1932 Tata Airlines begins offering air services in India
1946 Tata Airlines renamed as Air India (AI)
1953 Air Corporation Act passed, and Air India was nationalized along with 7 other private carriers.
1981 Vayudoot, a new carrier, established to act as a regional feeder airline
1986 To boost tourism, private air taxis were allowed to fly with riders.
1993 After suffering an annual loss of ₹200 crores, Vayudoot was merged with Indian Airlines, adding to its debt load.
1994 The Air Corporation Act was repealed, and private carriers were allowed to enter the market again.
2003 Naresh Chandra Committee report calls for the privatization of Indian Airlines and Air India but faces stiff opposition.
2005 Air India signs a purchase agreement for 50 Boeing aircraft at the cost of ₹ 33,000 crores.
2007 Indian Airlines & Air India were merged to form the National Aviation Company of India Ltd.
2010 The company was renamed Air India
2011 CAG hauls up Air India and Civil Aviation Ministry for reckless purchase of aircrafts
2017 Air India losses mounted to ₹ 50,000 crores forcing the government to move towards privatization.
2021 Tata group bought Indian Airlines from the Government of India.

Debt Causes

Air India has a debt of ₹ 50,000 crores, accumulated for various reasons spanning decades. CAG Report of 2011 too has given detailed reasons for this 

  1. Unprofessionalism in management when compared to world-class airlines. 
  2. Massive fleet expansion 
  3. Free travels by VVIPs like Ministers and Officials
  4. In early 2005, Indian Airlines inducted planes despite no demand for them. These were funded by raising high-interest loans.  
  5. Liberalized policy on international routes like nonstop flights to the US was loss-making.

Pros of disinvestment of Air India

  • Indian Airlines is loss-making. Hence, keeping it afloat under government control would be wasting taxpayers’ money 
  • The private sector has taken up, and private airlines already cater to over 85% of the air travel demand in the country.
  • It would bring professionalism in management.  
  • Government money that keeps Air India afloat would be better used to fund important social and infrastructure programs. 
  • It will help the government to spend its energy on core governance issues. 
  • The sale of Pawan Hans in 2016 revived the company owing to the infusion of professionalism and better management.

Cons of disinvestment of Air India

  • Many sectors and routes that private airlines may not find economical to operate are handled by Air India. E.g., Private Airlines give limited services to North East. 
  • Air India, which is a sovereign airline, is used by Government in emergency evacuations of Indian nationals from warzones.  

National Civil Aviation Policy, 2016

Key highlights of  Aviation Policy-2016 are as follows

1. 5/20 rule Scrapped

  • 5/20 rule, i.e. 5 years of operation and a fleet of 20 aircraft before handling international flights, has been scrapped. 
  • But airlines will have to operate at least 20 aeroplanes or 20% of their planes (whichever is higher) on domestic routes. 

2. Improve Air connectivity to smaller cities 

  • The policy wants to improve air connectivity with smaller cities. 

3. Subsidized Tickets

  • Under the regional connectivity scheme, the maximum price that can be charged is Rs 2500 per hour.
  • A 2% levy is to be charged on all domestic and overseas tickets to subsidize airlines’ losses.

4. Infrastructure

  • Airports in Tier 2 and 3 cities will be operationalized on the ‘No Frills Model’. 

5. Open Skies Policy

  • Under the ‘Open Skies Policy’, foreign airlines can operate unrestricted and unlimited flights in and out of India. It will help India become a regional hub like Dubai and Hong Kong. 

6. Other important

  • Maintenance, Repair & Overhaul (MRO) don’t have to pay a royalty to airports where they operate, which will help make India an MRO hub. Royalty is up to 20% presently.  

Side Topic: No Frills Airport

  • No Frill Airports are the airports with lesser facilities like no escalators, no AC Lounges etc.
  • These Airports are made in small cities because airports providing high-end facilities are not feasible in Tier II & III Cities.
No Frills Airport

UDAN Scheme

Timeline

2017 Aviation Ministry announced a scheme named UDAN (Ude Desh ka Aam Naagrik) to increase air traffic to Tier II & Tier III cities. 
2018 Second phase of UDAN scheme announced.
2019 UDAN (International) scheme launched, under which Guwahati Airport will be connected to Bangkok and Dhaka shortly. 

Under Scheme

  • Capping the fare
    1. Airfare for an hour’s journey of about 500km is capped at ₹2,500. 
    2. In the case of helicopter operations, fares are capped at ₹2,500 for a 30-minute flight.
    3. Seaplanes have also been included in the scheme in the subsequent phases. 
  • Capping of airfare is applicable on half of the flight’s seats.
  • Centre provides subsidy support to airlines via a Viability Gap Fund (VGF), which obtains money by levying cess on non-regional routes. 
  • Airlines get three-year exclusive rights to operate regional flights. 
  • No airport charges for airlines as airline operators complain that airport expenses constitute 25% to 30% of operating costs.
  • The scheme will be operational for a period of 10 years. 

Importance

  • The scheme has brought Tier 2 and Tier 3 cities into the country’s aviation network. 
  • Positive Spillover Effect on Economy: The scheme will make businesses and trade more efficient, enable medical services and promote tourism.
  • Employment Generation: As per the International Civil Aviation Organisation, each job created in the aviation sector creates 6.1 jobs in the economy. 
  • This scheme can help in improving the health of the ailing Aviation Sector. Even if 1 middle-class family buy 1 air trip per year, the Aviation sector can sell 35 crore tickets. 

Issues

  • Misdirection of Subsidy 
    • Even without the subsidy, there was an increase in air flyers.  
    • The subsidy is given to Middle Class when it could better serve some Social Schemes aimed at Lower Class.
  • Against Laisse – Faire: Airlines are given exclusive rights for 3 years, and other airlines cant operate there even if they want to. 
  • Another levy for creating the Viability Gap Fund will impact the already overtaxed Aviation Sector. Taxes on ATF is already among the highest in the world.

NABH (Nextgen Airports for Bharat) Nirman initiative

Aim: Capacity augmentation of the airport because 25 busiest airports of India are operating beyond their capacity.  

What it will do?

  • Expansion of the airport capacity to handle a billion trips a year.  
  • Establish about 100 new airports in the next 15 years at an estimated Rs 4 lakh crore investment. 
  • Increase the economic and tourism activities in the smaller cities by connecting them with airline services.

FDI in Aviation

FDI in Aviation

Bodies related to Aviation Sector

Ministry of Civil Aviation

  • Ministry of Civil Aviation mainly looks after the Aviation sector in India 

Airport Authority of India

  • AAI is a PSU of Miniratna category. 
  • Sovereign Air traffic controller of India.
  • It manages international airports, domestic airports, and custom airports.

Directorate General of Civil Aviation (DGCA)

  • DGCA is the regulatory body of Civil Aviation. 
  • Its functions include 
    • Registrar of civil aircrafts
    • Laying down airworthiness requirement 
    • Gives license to pilots
    • Investigates of minor accidents 
    • Implements Chicago Convention

Bureau of Civil Aviation Security (BCAS)

  • Initially, it was a cell in DGCA setup in 1976 on the recommendation of the Pandey Committee after an aircraft hijack in 1976. It has been restructured now an independent department under the Ministry of civil aviation, after Kanishka Tragedy in 1985
  • BCAS is the regulator of the security of civil aviation. 

International Civil Aviation Organization (ICAO)

  • ICAO is a specialized agency of the UN and was set up under the provisions of the Chicago Convention of 1944.
  • It is headquartered in Montreal, Canada and India is a member of ICAO since its inception.
  • ICAO ensures the operation of airlines between different countries.

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