Local airlines raise ownership concerns of new players to stall 5/20 scrapping

Ministry of Civil Aviation (MoCA) may be tilted in favour of scrapping the rule that allows domestic airlines to start international operations only after completing five years and ownership of 20 aircraft, also known as 5/20 rule, but local incumbent carriers continue to vehemently oppose any such move.

An email shot off to the government on Wednesday by Federation of Indian Airlines (FIA), which represents leading domestic airline IndiGo, Jet Airways, JetLite, SpiceJet and GoAir, makes a case for retaining the 5/20 rule by raising concerns over principles of substantial ownership and effective control (SOEC) being flouted by foreign partners of "Indian airlines".

The airline industry is split on 5/20 rule with new airlines like AirAsia and Vistara, both joint ventures of the Tata Group, proposing its removal while incumbents want it left untouched. The government has been working on draft National Civil Aviation Policy (NCAP), 2015 for over a year now and is expected to submit its final draft to the union cabinet later this month.

dna has gone through the email addressed to the minister of state for civil aviation Mahesh Sharma that says: "No major country in the world allows SOEC of its airlines to be with foreign airlines. India has permitted AirAsia and Vistara to operate despite being effectively controlled by their foreign parent".

FIA believes that even though India follows the principle SOEC by allowing 49% ownership by foreign airlines in Indian airlines, it had not clearly defined effective control or properly enforced it.

"Pending India addressing the issue of effective control, the 5/20 rule affords some protection," said a note of FIA on SOEC.

It called for the SOEC to become an integral part of the every bilateral pact that India would sign with other countries, "without exception".

"We should not allow airlines of those countries to own airlines in India that do not allow us to own airlines in their countries. The US, European Union (EU) and Middle East (25% voting share) very strictly follow the SOEC and don't allow any foreign national or organisation to run their domestic companies as we are proposing," wrote Ujjwal Dey, associate director of the lobby body of incumbent airlines.

The airline association's statement on SOEC said, "Indian policy makes it feasible for airlines from any country, including those from countries like China and Pakistan, to set up Indian airlines that are effectively owned and controlled by these foreign airlines, and in some cases by foreign governments themselves."

The FIA feels that even though India is following the principle SOEC by allowing 49% ownership by foreign airlines in Indian airlines, it has not clearly defined "effective control" or properly "enforced" it.

"Airlines such as AirAsia and Vistara that are clearly controlled by their foreign parent continue to operate in India blatantly flouting the principle of effective control," was its conclusion on the implementation of SOEC in India.

Such an anomaly, FIA believes, would lead to a situation where foreign airlines would establish "so called Indian airline", effectively owned and controlled by them.

"These Indian airlines will claim entitlement to bilateral rights to fly to overseas markets including to their home markets. In such a situation, these airlines can potentially obtain rights from their countries into India and from India into their countries, thereby establishing monopoly control over key routes to and from India," cautioned the FIA.

The concept of SOEC is followed globally and protected zealously by countries around the world. Even liberal countries such as the US and Canada allow only 25% of voting rights to foreign nationals and entities in their airlines. Europe allows 49% ownership but has codified effective control to ensure that control of European airlines is clearly with the Europeans. In other aviation markets such as the Gulf, Russia and China, ownership and control is very restricted or not allowed.