All about National Civil Aviation Policy, 2016

The Minister of Civil Aviation Shri P. Ashok Gajapathi Raju released the  National Civil Aviation Policy 2016. This is the first time since  independence that an integrated Civil Aviation Policy has been  brought out by the Ministry.

The centre-piece of the policy is to make regional air connectivity a reality.

• The policy aims to
  •  take flying to the masses by making it affordable and convenient,
  • establish an integrated eco-system which will lead to significant growth of  the civil aviation sector  to promote tourism, employment and balanced regional growth,
  • enhance regional connectivity through fiscal support and infrastructure development and
  • enhance ease of doing business through deregulation, simplified procedures and e-governance.
•    The policy is very comprehensive, covering 22 areas of the Civil Aviation sector.

Its salient features are as follows :

1. Regional Connectivity Scheme

• This scheme will come into effect in the second quarter of  2016-17.
• An airline signing up for the scheme will connect small towns in flights of about 1hour with ticket charges capped at Rs 2,500. Only airlines under the scheme will need to cap fares at Rs 2,500. It doesn’t mean all airlines operating one hour flights levy fares as low as Rs 2,500.

• This will be implemented by way of:

1. Revival of airstrips/airports as No-Frills Airports at an indicative cost of Rs.50 crore  to Rs100 crore. Demand driven selection of Airports/airstrips for revival in consultation with State Govts and airlines
2. As the fares are low and wouldn’t cover costs Viability Gap Funding(VGF) will be provided to airline operators
   • Creation of Regional Connectivity fund for VGF through a small levy per departure flights of scheduled carriers operating in trunk routes such as Delhi-Mumbai.
   • VGF to be shared between MoCA and State Governments in the ratio of 80:20.  For the North Eastern States, the ratio is 90:10
3. RCS only in those states which reduce VAT on ATF to 1% or  less, provide other  support services and 20% of VGF

• Concessions to airlines signing up for the scheme will include

1. There will be no airport charges
2. Reduced Service tax on tickets (on 10% of the taxable value) for 1 year initially
3. Reduced Excise duty at 2%  on ATF picked at RCS airports
4. State government will provide police and fire services free of cost.  Power, water and   other utilities at  concessional rates

Analysis

• The government’s new regional connectivity scheme will likely attract air charter companies and other non-scheduled operators to launch regional operations.
• But its implementation will be difficult and subsidising operators may lead to higher ticket prices between metro cities
• The implementation and monitoring of the viability gap funding will be difficult
• Also the levy on airlines is likely to be passed on to passengers

2.Route Dispersal Guidelines (RDG)

What is RDG?

• The core philosophy behind the route dispersal guidelines is that via these, the government makes the airline operators accept the social obligation to fly to the northeast and other remote parts of the country. The route dispersal guidelines mandate the airlines to fly unviable routes connecting cities in the north-eastern region, Jammu & Kashmir, Andaman & Nicobar Islands and Lakshadweep.

Route Categorization

• The DGCA had first framed and issued the guidelines in 1994, whereby, all routes were divided into three categories viz. Category – I, II and III.
• Route categorization was based on
  • Category – I – traditionally surplus generating routes ,ie. routes were largely inter-metro routes and generated surplus that cross subsidized losses largely on Category – II routes
  • Category – II – loss making routes,ie. connecting airports in North-Eastern region, Jammu and Kashmir, Andaman & Nicobar and Lakshadweep.
  • Category – III – the remaining routes other than those included in Category – I and Category – II.
• It was obligatory on the part of scheduled airlines to deploy on Category – II, IIA and III routes, a specified percentage of capacity deployed in Category – I routes
  • On Category – II routes, at least 10% of the capacity deployed on routes in Category – I.
  • On Category – IIA routes, at least 10% of the capacity deployed on routes in Category – II.
  • On Category – III routes, at least 50% of the capacity deployed on routes in Category – I.

The new policy says

• Category I to be rationalized based on a transparent criteria, i.e., flying distance of more than 700km, average seat factor of 70% and above and annual traffic of 5 lakh passengers
• The percentage of Cat.I traffic to be deployed on Cat.II, and IIA will remain the same while for CATIII it will be 35%.
• Routes to Uttarakhand and Himachal Pradesh included in Category II
• Revised categorization to apply from winter schedule of 2017
• There view of routes will be done by MoCA once every 5 years
• Withdrawal or revision of domestic operations to and within North East Region etc, subject to full compliance of RDG, can be done under prior intimation to MoCA at least three months before withdrawal or revision of the service

3. 5/20 Requirement

What is  5/20 rule?

• The so called 5/20 rule is prevalent in civil aviation in India only and not other countries. This rule says that before an airline is allowed to fly abroad, it must be at least 5-year-old and must have at least 20 aircraft in its fleet. This implies that a domestic airline needs to have a fleet of 20 aircraft and operational experience of 5 years to start international operations.

Implications of the rule

• The rule had pushed down the Indian players.  This is because of this policy that the government allows any foreign carrier to offer services here while younger domestic carriers are denied permission to fly overseas. Thus, it does not allow to create a genuinely competitive environment within the country.
• Despite having bilateral air services agreements with more than 100 countries, India was unable to utilize its full potential. So there has been a demand from new players to scrap this rule.
• However, the incumbent airlines had supported this rule to avoid competition from new players.

What does the new policy say?

• Replaced with a scheme which provides a level playing field
• All airlines can now commence international operations provided that 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

Impact

• The biggest beneficiaries of the rule change will be New airlines, such as Vistara and AirAsia

4. Bilateral Traffic Rights

• SAARC countries and countries located beyond 5000 km from Delhi – GoI will enter into ‘Open Sky’ Air Service Agreements on a reciprocal basis.
• • where the Indian carriers have not utilised 80% of their capacity entitlements but foreign carriers /countries have utilised their bilateral rights, a method will be recommended by a Committee headed by Cabinet Secretary for the allotment of additional capacity entitlements
  • Whenever designated carriers of India have utilised 80% their capacity entitlements, the same will be renegotiated in the usual manner.

Impact

•  This means that airlines from European or Saarc countries will have unlimited access, in terms of number of flights and seats, to Indian airports, leading to increased flight frequencies with these countries. While India has full open-sky with U.S., it has a near open-sky agreement with the U.K. with a restriction on the frequency of flights to and from Mumbai and Delhi.

5. Ground Handling Policy

The Ground Handling Policy/ Instructions/Regulations will be replaced by a new framework:

• 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
• 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 through their regular employees
• Hiring of employees through manpower supplier or contract workers will not be permitted for security reasons

6. Airport PPP/AAI

• Encourage development of airports by AAI, State  Governments, the private sector or in PPP mode
• Future tariffs at all airports will be calculated on a ‘hybrid till’ basis, unless specified otherwise in concession agreements.30% of non-aeronautical revenue will be used to cross- subsidise aeronautical charges
• Increase non-aeronautical revenue by better utilisation of commercial opportunities of city side land
• AAI to be compensated in case a new greenfield airport is approved in future within a 150 km radius of an existing unsaturated operational AAI airport (not applicable to civil enclaves)

7. Aviation Security, Immigration and customs

• MoCA will develop ‘service delivery modules’ for aviation security, Immigration, Customs, quarantine officers etc in consultations with respective Ministries/Departments
• Allow Indian carriers to provide security services to other domestic airlines subject to approval of BCAS
• Encourage use of private security agencies at airports for non- core security functions to be decided in consultation with MHA
• Such agencies should be registered under the Private Security Agencies (Regulation) Act, 2005 and will also be separately accredited by BCAS
• Subject to minimum benchmarks being met, security architecture at the different airports will be proportionate to the threat classification and traffic volume.

8. Helicopters and Charters

• Separate regulations for helicopters will be notified by DGCA after due stakeholder consultation
• Helicopters will be free to fly from point to point without prior ATC clearance in airspace below 5000 feet and areas other than controlled or prohibited or restricted airspace.Airport charges for helicopter operations will be suitably rationalized
• The existing policy of allowing Inclusive tour package charters will be further reviewed to include more categories of passenger charter flights recognised globally.

9. Maintenance, Repair and Overhaul

• The MRO business of Indian carriers is around Rs 5000 crore, 90% of which is currently spent  outside India.
• In the budget for 2016-17, customs duty has been rationalised and the procedure for clearance of goods simplified.
• Further incentives proposed in the policy to give a push to this sector:
  • MoCA will persuade State Governments to make VAT zero- rated on MRO activities
  • Provision for adequate land for MRO service providers will be made in all future airport/heliport projects where potential for such MRO services exists
  • 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

10. Aviation Education and Skill Building

•  Estimated direct additional employment requirement of the Civil Aviation Sector by 2025 is about 3.3 lakh .
• All training in non licensed category will conform to National Skill Qualification Framework standards.
• MoCA will provide full support to the Aviation Sector Skill Council and other similar organisations/agencies for imparting skills for the growing aviation industry .
• There are nearly 8000 pilots holding CPL but who have not found any regular employment. MoCA will develop a scheme with budgetary support for Type- rating of Pilots.