Chartering a New Path

“As an industry that contributes more than $150 billion to the US economy annually and supports more than 1.2 million American jobs, general aviation is a significant part of our transportation system…” —Pete Bunce, President, General Aviation and Manufacturing Association (GAMA) and CEO .

The Ministry of Civil Aviation’s draft civil aviation policy reveals that on an economic scale for every 100 rupees spent on air travel, the benefits would be worth Rs. 325 and for every 100 direct jobs created in aviation, there would be additional 610 jobs. This is a threefold increase in investment and a sixfold increase in employment, an undeniable indication of the positive impact and a call for the nation to pay keener attention towards growth of its aviation.

Aviation in general can be broadly classified into three verticals of scheduled commercial carriers, non-scheduled commercial carriers and private aircraft. Scheduled carriers not only have large investments including foreign direct investment (FDI), but also enjoy the commercial safety net provided through government concessions and buyouts. Meanwhile, the latter two verticals are left on the sidelines to overcome resistance to growth on its own. Compared to the United States which has approximately 2,22,520 general aviation and private aircraft and 15,079 airports, India has only 376 aircraft and 372 airports.

These numbers illustrate that the aviation industry’s potential for growth especially in the non-scheduled and private sectors is hardly being met. There are some tough questions that need to be asked. Why has India not embarked on a road map to induct more aircraft? Why are there no assembly (make in India) or manufacturing units (made in India) established here? Why are airlines going bankrupt? What has led to the retardation in the number of helicopters and private aircraft over the past few years? Despite enjoying a geographical advantage, why hasn’t India become an aviation hub?

ATTRACT INVESTMENTS

Only if the nation can show investors greener pastures, can we expect flow of investments. Investors are hesitant to enter aviation as India is not an aviation-centric market. There are impediments and we have broadly categorised them in this analysis as ownership issues and operational issues.

OWNERSHIP ISSUES

High Import Duty: In 2007, the Ministry of Finance in a bizarre move declared a 2.5 per cent import duty on charter aircraft and 20 per cent import duty on private aircraft. To circumvent this many private operators became charter operators while harbouring no intentions of doing commercial business in the aviation industry. They eventually became responsible in not only creating oversight problems for the DGCA, but promoting bad business models. Some other private operators chose to register their aircraft outside India, thereby circumventing any duties payable to the government.

Arguably, the gains that the government received from imposition of duty on private aircraft were far less than the gains the aviation sector and nation would have enjoyed had favourable aviation policies been implemented instead. It gives us the latest initiative by the government to have the duty rolled back for private aircraft to 2.5 per cent. The government having realised its folly has taken a step, albeit a short sighted one. Expectations were for a duty of zero per cent, at par with scheduled commercial operators. Even so, from a purely economic stand – it is extremely difficult to offer a seat at reasonable amount in a small plane. If compared to an Airbus 320, the per hour per seat cost is approximately Rs. 3,000, the same seat costs Rs. 6,500 for a 37-seater charter aircraft. If a chartered seat costs higher than the scheduled carrier, why should the government levy a 2.5 per cent import tax, while the scheduled aircraft comes tax free?

“The Railways brought in industrialisation in the country. Civil aviation can bring in economic supremacy.”

We need to bounce back and we could do this only by bold steps. The government’s stated policies need to gel with the Prime Minister’s call for ‘Acche Din’, or with the Finance Minister’s latest declaration where he said that the government is committed to follow non aggressive tax policies. In a recent address the Finance Minister Arun Jaitley said, “I’ve been saying unfair and aggressive taxes momentarily will give a false belief that my taxation kitty is going to be very large... None of the controversial cases based on this ultra-aggressive approach have brought a single rupee of revenue. It’s only got Indian economy a bad name.”

Infrastructure: No development is possible unless infrastructure is developed first. India needs to develop low-cost airports at Tier-II and -III cities with 24 x 7 capability on a priority basis. Further, in the PPP model, there is a need to modify the existing OMDA to have at least 30 per cent infrastructure for general aviation. An inevitable revisit is necessary of the clause on ‘airports within 150 km’, which prohibits development of new airports close to primary airports, especially since in the existing PPP model, airport operators have not catered for exclusive GA/BA infrastructure. To exploit full potential of helicopters, we need to develop rooftop helipads, night VFR operations, heliports in metros and helicopter corridors. IFR capable helicopters should be capable of carrying out satellite based approaches to fully utilize the potential of the indigenously developed space technology capabilities.

MRO and Logistics: The draft policy mentions steps that would be taken to boost MRO (maintenance, repair and overhaul) facilities. It is a positive step that will bring down sending aircraft overseas for maintenance and repair. Setting up MRO here will attract foreign investment and also bring aircraft from overseas here for major maintenance, provided our tax regime, especially customs and airport rental charges support the MROs at busy airports. Setting up of manufacturing plants and assembly lines of OEMs need to be encouraged by the government by attracting OEMs/ logistic bigwigs with special economic zones and relaxed tax and regulatory environment.

Aviation Universities: There is need for world-class, government sponsored/aided/PPP modelled universities giving a one-stop solution for all training needs of pilots, managers and technicians. While the training costs will be lower compared to what is offered overseas, such facilities will build skilled manpower base.

Cost of Certification: The news of Supertech’s Cessna Citation Jet being stranded for over six months due to paperwork exposed the DGCA’s snail paced approach at processing and finalising permits. It is normal for a newly imported aircraft to be grounded for eight months for want of regulatory clearances, thereby incurring a fixed monthly expense of Rs. 50 lakh (for midsized corporate jets). Unfortunately as the government officials are not held accountable for these expenses, the impetus to change their regulatory system is slow. Regulatory bodies are also unwittingly responsible for avoidable economic wastage –for example, in order to check competency of crew in mock drills, expensive life rafts costing Rs. 15-30 lakh each are destroyed by deploying them over land. Crew and ground staff flying same type of aircraft for six years are also made to conduct long proving flights, incurring expenditure of approximately Rs. 60 lakh on an avoidable exercise.

OPERATIONAL ISSUES

Fuel is undoubtedly expensive in India but is not the only reason for the financial mess of many operators. The four major reasons for higher costs are 1) taxes, 2) unprecedented airport charges, 3) training costs and 4) unexplained high salaries of endorsed AMEs and pilots in command.

Taxes and unprecedented airport charges: Subsidies and promotions are required to boost growth and to keep the operational costs down rather than promoting decision that would invariably lead to transferring of costs to end-users. In addition, the government needs to include policies that promote competition and check monopolistic approaches by handlers and outsourced agencies working at the airport. Further, integration of maximum agencies at the airport and single window clearances/payments will also bring down operational costs.

High training costs and salaries: In India, crew salaries and training costs are far in excess of published costs for the same aircraft as given in Conklin and Decker (C&D).

Before we analyse these two components, let us also study the cost of living in India, compared to the rest of the world.

COMPARISON: COST OF LIVING

In a clear conclusion from the above figures, all operational costs in India in all sectors, including aviation, should ideally be lesser than the world. That is perhaps the reason why in India, medical tourism is blossoming at the rate of 15 per cent. One of the reasons why this is not so in the aviation sector is the high salaries of qualified commanders and endorsed AMEs. Majority of the endorsed AMEs have multiple endorsements because non-endorsed AMEs need ‘on the job training (OJT)’ which is refused by endorsed AMEs so as to maintain the deficiency of skill in the country as this suits their demands for higher salaries. The Government needs to address this monopolist move by compulsory ‘OJTs’ by endorsed AMEs. Another way to rationalise this excess in salary is to understand that our regulatory system unnecessarily demands higher skill levels thereby creating a shortage and resultant higher salaries. The world over, a pilot with more than 1,500 hours experience can fly an aircraft with all up weight over 5,700 kg as a Captain, immediately after simulator training. However, in India he has to fly 100 hours under supervision before flying as Captain. Two years back, one pilot of Indian origin, who was having FAA licence endorsed with Citation XLS, was inducted by an Indian operator on FATA (Foreign Airlines Temporary Authorisation). This pilot flew close to 1,000 hours on the aircraft. Two years later, when he applied for an Indian licence, DGCA made the pilot undergo 100 hours of co-pilot experience on the same aircraft before he started flying as pilot under the Indian licence!

The world over, pilots undergo ‘proficiency checks’ once a year whereas Indian pilots undergo checks twice a year. Also route checks are conducted during their yearly simulator sessions, while Indian pilots have to undergo two such checks on the aircraft annually. Likewise, there are innumerable requirements / restrictions imposed on Indian pilots which are not applicable in other countries. If one were to press any regulatory official for a reason, it would not be surprising to hear “Indian conditions” as the prompt response. As for what these ‘conditions’ are, the question is left unanswered. This lack of clarification results in escalating costs on training, grounded aircraft, experienced pilots becoming deficient, and an abundance of newly trained and jobless co-pilots.

REGULATORY OVERHAUL

The government can immediately roll back taxes and reduce import duties or regulated airport/navigation charges. The difficult part is changing the culture and the manner of functioning of the executives. The DGCA’s age-old culture of being overregulated, disorganized and unfriendly only adds to the woes of private/charter aircraft owners and operators. If and when the DGCA realises its role is to facilitate operations and not to stop it, cultural change will come about and things will fall in place.

The worse the government has been doing for the aviation sector is to change the Director General every few months. A DG who has five years for his retirement (may even consider extension if the official is a true patriot), who is also a technocrat in the field of aviation or has worked in Ministry of Civil Aviation before, should be carefully chosen. Infrastructure, technology, trained manpower, finances and power should be given to facilitate him—only then can the DGCA change for good.

Other Ministries: Other ministries need to treat aviation business on priority, because they need to realise that growth of aviation will contribute immensely to the growth of their own industry. Custom clearances need to be made 24 x 7 with provision for express clearances. Likewise, Ministries of Home Affairs, Finance, External Affairs, Telecommunication and Defence, all play a significant role in the functioning of aviation and could immensely contribute by addressing aviation concerns on priority.

Media: The aviation industry has been speaking the above language over the past many years, but, it is alone. The nation has not joined in yet—or perhaps the more commonly interacted—with scheduled operators blind it. Many people may not know that outside the scope of scheduled airlines lies the vast segment of general aviation, a segment that includes business jets and small fixed- and rotary-wing aircraft. Many among those who do know about general aviation view this segment as an indulgence, mostly consisting of aircraft owned by rich businessmen/industrialists. The media needs to clear the ill-conceived perception of luxury of private jets by highlighting other uses of general aviation like remote area connectivity, medical evacuation, geographical surveys, oil exploration and fighting national calamities and terrorism.

revolutionary push is required to boost the “Charter Industry” and media needs to take the lead. “The Railways brought in industrialisation in the country. Civil aviation can bring in economic supremacy.”

Col Sanjay Julka (Retd) currently holds position of Director Operations at India Fly Safe Aviation Limited( IFSAL). After a successful tenure spaning 24 years in the Indian Army, he took premature retirement in January 2012 and soon entered into civil aviation sector. With his vast knowledge and experience of serving in Army Aviation, he is now leading India’s largest NSOP with great expertise.