Airlines mired in debt due to government policies

Has the government done enough to avert a meltdown in the civil aviation sector? In India, prices of aviation turbine fuel (ATF) are among the highest in the world because of heavy taxation locally.

Airlines are mired in debt but barred from seeking equity investment from foreign carriers. Domestic operations are bleeding, and on international routes, foreign carriers have cornered a bulk of the traffic due to India’s skewed bilateral traffic rights policy.

A senior official in the Ministry of Civil Aviation (MoCA) says the Centre has requested states on various occasions to rationalise sales tax on ATF, with no success. States are loath to reduce revenues, and sales tax continues to vary from 4% to 35%. “We have written again to the states to consider our plea. But unless we get ATF categorised as ‘declared goods’ — which is a lengthy process needing approval from Parliament —this problem is unlikely to get sorted out soon,” the official said. ATF prices have risen 29% between January and November this year, from Rs48.06 a litre to Rs61.99 in Mumbai.

Besides, too many aircraft are making matters worse. Speaking to DNA, Director General of Civil Aviation EK Bharatbhushan admitted that there is excess capacity. DGCA has begun a scrutiny of finances of all airlines, and vows to ban further capacity addition in case airlines are found flouting safety norms. But it cannot completely ban airlines from buying more aircraft.

But shouldn’t capacities have been studied and regulated earlier, when domestic aviation was booming till 2008?

Erstwhile civil aviation minister Praful Patel disagrees. “The government should not regulate capacity — since when did the government become a consultant on how to run an airline? Aviation is a liberalised sector and market forces should be allowed to decide… where is the need to regulate the sector? When airlines got into this business, they knew fully well what kind of fuel charges prevail in India,” Patel said.

MoCA officials point out that, barring a few for regional services, no new licences are being given out now.

On the issue of foreign carriers investing in Indian airlines, a senior minister pointed out that whenever this proposal was mooted earlier, his colleagues in the Cabinet would raise concerns about airlines from the Gulf buying into Indian carriers, and the ensuing security issues if Pakistani or Chinese airlines came in. The Cabinet is again set to consider this proposal over the next few weeks.

However, there is no clarity on whether these dissenting voices will consent this time around. The Ministry of Industry is pushing for 26% cap - which allows foreign airlines to have a board seat - against 24% recommended by the MoCA. If allowed, some foreign airlines may just be interested in picking up equity in Indian airlines, and together with foreign institutional investors, an airline may actually get up to 49% investment as foreign equity.

Aside from the domestic routes, Indian carriers are suffering even on their overseas operations, since most of these routes have been monopolised by foreign carriers. The Comptroller & Auditor General (CAG) has already castigated the MoCA for favouring Gulf carriers with bilateral flying rights, which allow them to carry onward traffic to the US and Europe. But instead of correcting the tilt towards Emirates and other Gulf airlines, the ministry has decided to virtually stop granting such rights. A senior MoCA official said that Qatar, Bahrain and Oman are among countries which want more rights to fly into India. “They all want fresh bilateral agreements but we have indicated that nothing will be done now,” he said.