100% FDI in airlines: Air India will have to shape up or ship out
The opening up of Indian Airlines to 100 percent foreign direct investment (FDI) came today after a lot of hesitation and dire warnings of compromising – what else – the nation’s security by allowing foreigners control in a sensitive sector. For years we have been paranoid about security implications of allowing foreigners in the cockpit as far as our airlines are concerned, so much so that the first such step in 2012, when FDI by foreign carriers was allowed but capped at 49 percent, was also widely seen as a government bowing to the wishes of some powerful global airlines. Today’s announcement, which allows up to 100% FDI in schedule airlines and regional carriers subject to government approval, has the potential to bring remarkable changes to India’s aviation sector in the near future. As per a government release, foreign airlines can still pick up only up to 49% equity in Indian carriers. This should not be a problem since the remaining can be bought by an entity like a sovereign fund of the country the purchasing carrier belongs to, taking effective control to 100%. That India needs FDI is a no brainer. That it will help almost all sectors including civil aviation is also obvious. So the downside to this decision of allowing up to 100% FDI in Indian airlines seems to be limited. Perhaps Air India may now find that the virtual monopoly it had over overseas routes gradually recedes as stronger, deep-pocketed foreign players may set up ventures in India (or buy out existing ones) and take over lucrative foreign routes. Air India may need to pull up its socks but for private airlines, there should be little cause for concern. Matt Duchene Jersey
Andal airport operator blames AI for ‘unilaterally’ stopping flights
Bengal Aerotropolis Projects Ltd (BAPL), promoter of the country’s first greenfield private airport at Andal near Durgapur, on Friday accused Air India of step-motherly attitude. BAPL is a joint venture with Singapore-based Changi Airports International. AI has withdrawn its thrice-a-week flight on the Kolkata-Durgapur-Delhi sector from June 16, allegedly for non-payment of viability gap funding (VGS) dues. The airport opened in December 2015. On Friday, the national carrier invoked BAPL’s ?2.25-crore bank guarantee. BAPL managing director Partha Ghosh termed the AI decision “unilateral”. The airport received the notice on June 16, a day after AI confirmed the decision to media citing “operational reasons”. Even the West Bengal government was in the dark. Load factor “AI stopped flights to Andal that offered as good a passenger load as their national average, if not better. At the same time, they are operating flights to sectors offering negligible load,” he said. According to Ghosh, in February AI operated Delhi-Tirupati flights at 19 per cent load. The Delhi-Kullu load factor was 33 per cent; Delhi-Khajuraho and Delhi-Varanasi 47 per cent each; Mumbai-Guwalior 61 per cent, and Delhi-Rajkot 67 per cent. In comparison, Durgapur offered 73 per cent capacity utilisation. Between January and April, the Kolkata-Durgapur-Delhi sector ran at 75.09 per cent load against AI’s national average of 79.05 per cent. Most passengers boarded from Durgapur. The load was not one way and, on many days the flight was full. Ghosh said: “Ticket sale maximisation depends on the pricing mechanism. Initially, AI was earning ?11-13 lakh a day against the declared ?22.5 lakh operating cost, for VGF funding. While we have no control over AI’s ticketing operations, we did our best to improve the revenue to ?18 lakh a day. “Six months is too short a time for a new route to establish. Due to flight timing, (placed between two direct Kolkata-Delhi flights), there was low traffic from Kolkata. That the flight still attracted a reasonable load proves the potential of Andal airport.” High operation cost But why was AI not paid the VGF money? BAPL says that while AI raised a demand of ?8.5 crore (?13 crore, according to AI sources), the company sought reconciliation of accounts against airport’s spending on ground handling (on behalf of AI), promotion, cost borne on passengers due to “average three to four hour daily flight delay in January-February”. BAPL alleges AI didn’t respond to its plea. “AI services (?22.5 lakh a day) are exorbitantly costly, when compared to private airlines (like GoAir, IndiGo, SpiceJet) proposing to operate flights at ?13.5-14.5 lakh a day. However, due to aircraft availability issues, most such offers were scheduled for later part of 2016,” the private airport said elaborating reasons behind choosing AI. AI responds An AI spokesperson said that as a national carrier the company is committed to the cause of regional connectivity and is open to discussion with BAPL. On the cost of AI operations, he said the airline is at par with other full-service airlines like Jet. Xavien Howard Womens Jersey
₹500-crore annual subsidy to fuel regional flights: Aviation Secretary
The Regional Connectivity Fund (RCF) proposed to offset the losses incurred by airlines for connecting un-served airports is likely to have a corpus of ?500 crore per annum. The Fund will be aided through a cess in order to subsidise flights connecting un-served airports under the Regional Connectivity Scheme proposed in the Civil Aviation Policy. The scheme has proposed capping air fares at ?2,500 for one-hour flights connecting un-served airports. “We will give this subsidy for three years, time enough for the airlines to know whether the route will work or not,” said Civil Aviation Secretary RN Choubey, adding that “ideally I would have liked the fiscal incentives to be in sync with the aviation policy period of 10 years, as most of the acquisition of planes happens through leasing and not outright purchase. For leasing to be successful, it normally should be for 10-12 years.” “However, we have promised that the fiscal incentive can be extended for 10 years. But, people don’t invest on promise. This is one aspect where I succeeded only partly. But, there are several aspects where the ministry succeeded quite well,” he said. Choubey told BusinessLine that the amount that will help subsidise flyers from tier-II and tier-III cities. It will be collected from all passengers except those flying to the North-East, island territories, and from flights on aircraft smaller than 80-seaters. Viability gap funding The corpus from this cess will go to the Airports Authority of India (AAI). Under the new scheme, the AAI will transfer the amount collected as Viability Gap Funding to airlines that fly to airstrips that are now un-served. “We are looking at it as a demand-driven thing,” he said, while accepting that even the government does not have a very good idea about how many of these un-served airports would come forward. Choubey also fears that the western and southern regions, which connect small airstrips well, may walk away with this scheme. “We are ensuring sufficient dispersal as well. We will have that check,” he added. India has nearly 450 airstrips, of which only 80 airports operate with scheduled commercial airlines. The scheme’s benefits are not applicable to airports where flying is currently happening. The rest — 370 un-served airports — will be eligible for the scheme. The idea is to develop these as no-frills airports. Initially, the plan is to develop 60 airports, including 10 under AAI, with government support. “If that number turns out to be more than 60, the better,” Choubey added. No additional charges Moreover, several measures have been suggested in the policy to keep the cap at ?2,500, he explained. “The excise duty on ATF sold at the un-served airports will be at 2 per cent; VAT on ATF will not be more than 1 per cent; service tax on the tickets will be at 1 per cent. Besides, there will be no landing, parking, air navigation charges on the un-served airport by the AAI,” he said. On whether States will be wiling to let go of VAT, he said: “They will be. In an airport where even one flight doesn’t come and, therefore, not a drop of ATF is sold, they don’t get one paisa of VAT. There is no revenue foregone.” While Choubey is looking at competition in the sector, he also expects the national carrier, Air India, to rejig its strategy. “Air India has done well largely due to the fall in crude prices. They have made an operational profit. They will make a net profit in 2018-19, which, as per the government’s turnaround plan, is to come in 2021-22. They will be three years ahead,” he said.
Krishna ZP chief feels heat as airport oustees up the ante on govt
The oustees of Gannavaram airport expansion on Saturday turned the heat on Krishna Zilla Parishad chairperson Gadde Anuradha, demanding a fair deal for their properties acquired for the project. Around 400 plot owners of two different ventures convened a meeting at Allapuram near the airport by inviting the ZP chief. They made a futile attempt to involve local MLA Vallabhaneni Vamsi of the ruling TDP who did not turn up citing preoccupation with a pre-arranged assignment. Uppala Vedavati, president of the Airport Vistarana Badhitula Sangham, petitioned Anuradha on behalf of the victims with a request for allotment of plot-to-plot compensation for the victims. She said when the government is treating house plots as agricultural lands and offering compensation it would hardly do justice to plot onwers. The cost of the plots is five times more than what the government is offering for agricultural lands. For farmlands the government is offering Rs 39 lakh per acre. Steven Stamkos Womens Jersey
UP govt to directly sell intra-state flight tickets
To provide wings to its plan to start intra-state air service in Uttar Pradesh, the Akhilesh government is all set to introduce a system in which it will sell tickets directly to flyers after having already paid per-hour charges to service providers. Tourists flying to destinations like Agra, Varanasi or Kushinagar from Lucknow will have to buy tickets from the UP tourism department. According to principal secretary for tourism, Navneet Sehgal, the government will underwrite all seats and, in turn, give per-hour flying charges to airlines. Once UP tourism takes all the seats, it will sell them to passengers through UP Tour, the department’s ticketing agency. Mr Sehgal said UP Tour will have a special website and counter for booking tickets. The official said that bids will soon be invited from airlines and tenders will be allotted to the company that quotes lowest flying hour rates. The new scheme, he said, would be passenger-friendly because the promoters will not be concerned about sale of tickets. The Akhilesh government has brought in changes in policy for introducing the inter city airline services to revive its nearly dumped policy. The tourism department had introduced a scheme to launch intra-state flights two years back but it never took off since investors and owners of private airlines showed no interest on grounds of feasibility. The state government has now repackaged the scheme and will table it for approval in the next cabinet meeting. Zack Martin Jersey
Growth blips in regional connectivity radar
Come July, there will be yet another regional airline opening shop in the country. Air Carnival will not be a player connecting big cities with each other, but one that tries to make inroads into less connected and unconnected air routes. Air Carnival is only the latest entrant into the regional aviation sector. There are already players like Air Pegasus, TruJet and others that seek to tap into the short haul segment. The new National Civil Aviation Policy (NCAP), with its unarguable emphasis on regional connectivity and affordability might well foster an environment where flying becomes mainstream for thousands of the unconnected. “The regional connectivity scheme (RCS) under NCAP will connect India’s remote unconnected regions, boost tourism, create jobs and stimulate the economy in Tier 2-3 cities,” observed Amber Dubey, Partner, KPMG India and an Aerospace and Defence expert. Shyson Thomas, Managing Director, Air Pegasus says there is immense potential for anyone gutsy enough to enter the segment. “While mid-segment and large players with larger aircraft cannot get sufficient passenger load to realise profits, those with smaller aircraft of 60 to 70 seats can easily do so,” he said. Air Carnival is entering the Madurai to Chennai sector with an ATF 72 – 500, seating 70. According to sources, the route already sees 86 per cent occupancy. “We have sufficient load factors on most routes we ply. and there is space for competition,” stated Thomas. Pegasus is also planning to invest in seven or eight more aircraft and is also increasing routes it covers to 24. Joshua Garnett Womens Jersey
Big idea clears skies to connect small towns
When the new civil aviation policy takes off, it will open up flights from Delhi to Bhatinda, Jaisalmer or to the coaching hub of Kota for just 2,500, almost matching train fares. At a meeting with the civil aviation ministry officials on May 25, state representatives have proposed routes from major hubs to tier II and small towns, with the potential of drawing good traffic. These routes are within one hour flying distance or less, and are eligible to offer tickets for 2,500 or less under the regional connectivity initiative. At present, only two per cent of Indians book an airline ticket. Studies have shown that 50 per cent of the middle income group travel only once in four years on a flight. The reason: airports are too far from their homes. Officials in the Ministry of Civil Aviations said most places proposed to be connected with major hubs such as Delhi, Mumbai, Kolkata, Chennai or Kochi have infrastructure in place to accommodate smaller aircraft. Carriers, however, are reluctant to fly to these places fearing losses. Tax incentives proposed under the new policy could help in reviving airports in smaller towns. Nico Siragusa Womens Jersey
New aviation policy may help airline startups take wing
The new aviation policy will lead to the launch of new airlines in the country bringing in more cities on the national network, according to civil aviation secretary Rajiv Nayan Choubey. India currently has Air Costa, Air Pegasus and Trujet which fly smaller planes and command between them 1.4% of the domestic market. Air India, Jet Airways and SpiceJet also have sizeable small plane operations. Several entrepreneurs have showed interest in starting new airlines even with a small fleet of three planes while the policy was being framed, Choubey said, adding that he was expecting new launches in the months ahead. A lot of small plane manufacturers too have been in touch with the ministry, Choubey said. The ministry has told the manufacturers that while they sell their planes in India, they should also create training and aircraft maintenance facilities and offer aircraft and better aircraft leasing terms. The ministry plans to subsidize airlines that aim to connect cities that have not been connected before. A cess on most domestic flights will be levied to create a corpus that could help keep the fares on such routes at about Rs.2,500. “Since inception, Air Pegasus has positioned itself to connect with small towns and cities like Hubli, Kadapa, Belgaum and the policy announced today aims at increasing the connectivity to such smaller towns and cities by offering sops and incentives. This should motivate players like us to increase our connectivity further more with smaller towns as the policy will refund 80% of the losses incurred by airlines due to the cap of Rs.2,500 for one-hour flights between smaller towns and cities,” said Shyson Thomas, managing director, Air Pegasus. To be sure, many short-haul routes in the country like Delhi-Dehradun, Jammu-Srinagar and others are already available for as little as Rs.1,100 when booked in advance. The policy aims to take the number of such city pairs up, but experts say it’s going to be a challenging task. Ty Montgomery Jersey
Airbus Helicopters sees greater focus on military business
Airbus’s helicopter business expects to increase its focus on military aviation in the coming years, its boss said at the International Aerospace Exhibition (ILA) in Berlin on Wednesday. The business made 6.8 billion euros ($7.6 billion) in revenues in 2015, split fairly evenly between its civilian and military sides, according to its annual report. “We will become a little more military,” Airbus Helicopters Chief Executive Guillaume Faury told reporters. He said the shift was likely to take place within the next three to five years, and was simply a development he observed, not something Airbus Helicopters actively pursued. Faury said demand from the oil and gas sector had nearly halted, hit by oil companies seeking to reduce costs following a slump in the price of crude. In contrast, interest in military helicopters had risen amid heightened global security concerns and clients were increasingly looking into helicopters to quickly respond to threats, he said. Randy Bullock Jersey
Capping air fares on regional routes negative for airlines: Crisil
The new civil aviation policy has an integrated approach to take flying to the masses, but the move to cap fares for one-hour flights on unserved regional routes at Rs 2,500 is likely to be a negative for airline companies, says a report. Crisil Research also said the 5/20 rule that barred new airlines from flying abroad has been replaced with the 0/20 norm that “levels the field”. As per the 5/20 rule, only domestic airlines with at least five years of operational experience and a minimum of 20 planes were allowed to fly overseas. Unveiled by the government on Wednesday, the policy provides measures to boost regional connectivity, including imposing a small levy on domestic tickets, initiatives to develop new airports, separate regulations for helicopters and steps to boost skill development in the aviation sector. In a report, brokerage firm Motilal Oswal said the policy takes an integrated approach to take flying to masses and has set an ambitious target of 300 million domestic passengers by 2022 from 85 million in 2015-16. Under the regional connectivity scheme, which will be in place in the next quarter, fares for a one-hour flight will be capped at Rs 2,500. “… this would cap ticket prices on regional routes, which is a negative for airline companies, given the government’s intervention and price control,” Crisil Research said in its report. According to the report, further clarity is awaited in terms of whether a fare of Rs 2,500 per hour would be capped even for last-minute bookings under the regional connectivity scheme, among other factors. “The levy proposed to be charged on air tickets for regional connectivity fund would marginally increase cost. However, we expect air fares to marginally decline y-o-y in 2016-17 owing to an expected reduction in fuel prices,” Crisil Research noted. Furthermore, it said the policy does not dwell on the long-pending structural issue of high sales tax on aviation turbine fuel (ATF), which diminishes the attractiveness of the sector. Meanwhile, ICICI Securities, in a report, said the domestic aviation industry is likely to see a strong growth period with air traffic estimated to grow at 14 per cent, helped by a positive outlook for crude prices. The projection is on a compounded annual growth rate (CAGR) basis for 2016-17 to 2019-20. Kevin Durant Womens Jersey