Indian aviation has witnessed one of the fastest phases of its growth in the last three years. With the government’s policy reviving the regional aviation market,India has become the third-largest market globally in terms of domestic traffic. However, the market continues to face a massive infrastructure crunch. Jayant Sinha, minister of state for civil aviation, speaks to Arindam Majumder on a wide range of issues -- from regional aviation to infrastructure and bilateral rights. Edited excerpts of the interview: I would begin with an anecdote. Close to your media address announcing the guidelines for the UDAN scheme, which aims to boost regional air connectivity, a regional airline was grounded. It is yet to get off the ground. Isn't there a dichotomy here? This is about the airline business as a whole. I thought you wanted to know what we have done through Ude Desh ka Aam Nagrik (UDAN) scheme to make regional aviation successful, even as people had not succeeded in the past. We have done four things to reduce the cost but make regional aviation profitable and attractive. One is through a cut in taxes on aviation turbine fuel from over 20 per cent to 3 per cent. Two, we have eliminated all airport navigation and landing charges for Regional Connectivity Scheme (RCS) flights from both the origin and destination airports. Three, we have given exclusivity for three years. For instance, Alliance Air won the bid for Delhi-Shimla. They will be the only one to operate on that route for three years. And four, we have put in place a number of steps for lessors that makes it easier for them to repossess a plane if an airline defaults. As a result, leasing cost has come down. Lessors are now charging you less because their risks have come down. Additionally, we are giving viability gap funding (VGF). The first three things are themselves so attractive that we have many routes awarded at zero VGF. In the first round of bidding, we have put 1. 3 million seats into the regional aviation with a total subsidy of Rs 205 crore. That’s how well designed the scheme is, as this money will be recovered from passengers flying in national markets. There has been an opposition to this part as passengers on trunk routes are being charged for this. This is cross-subsidy which is common in a network business. Today, when you purchase a telecom minute, you pay five per cent charge as USOP. In such a business, one has to look if the network is profitable, and not universal routes. To build a large aviation network in India, it is necessary to cross-subsidise the most profitable routes as it will be an advantage for everyone in the long run. There is a very famous law, the Metcalf’s Law, which says the power of network grows exponentially as you add more nodes to it. So, clearly, UDAN has been the largest achievement of the civil aviation ministry? Well, we can talk about three years of achievements and then last year’s achievement. If we talk about the former, we have the national civil aviation policy, affordable flying, no-fly list, Digi Yatra and Air Sewa. In the past year, the single biggest thing that has happened is UDAN. We had a situation where in the 75 years since independence, we had only 75 airports. In one year, at a cost of Rs 205 crore cross-subsidy, we have added 33 more. At the speed with which UDAN is going and the bet that IndiGo has taken to add 50 ATRs, we are going to rapidly add airports and we will hopefully have 200 airports in near future. So the government’s policy has nudged a reluctant operator to make a strategy shift? No. It’s not about a reluctant operator. Every company wants to run a profitable business. The role of the government is to create a framework that makes it attractive and viable for a company to run its business.
The latent demand was already there. You have to know how to create a policy that will unleash the market.If an airline like IndiGo, which is one of the best in the world in terms of operating performance, is taking a Rs 10,000-crore bet on UDAN, it is doing so because it believes there is a potential in the market. It is going to create a hub and a model that India needs for passenger traffic to take off. With big players present in UDAN and a three-year exclusivity model, has it become difficult for new operators now? In these situations, you have to balance things like consumer interest and company interest. I think we have got a good balance right now. Sharp growth in passenger numbers and regional aviation taking off are positive signs. However, it seems we have a bottleneck in terms of infrastructure. Airport in Mumbai has saturated and Delhi is hitting a tipping point. Do we have the facility to handle this growth? That’s a complicated issue that you are bringing up. There are ways in which we are tackling that. In Mumbai, which is a single-runway airport, we are looking to add another airport in Navi Mumbai. We are looking at an efficient use of airspace. In Delhi, we have three runways, so we are looking at improving utilisation there and looking at the prospect of a new airport in western Uttar Pradesh. At present, we have 450 planes in the sky at any given time, It is going to triple over the next 15 years. Besides this, we are looking at what can be done in terms of better air traffic management across the entire airspace and how to utilise the restricted airspace to accommodate more planes in the sky. Then, we are also looking at improving ground infrastructure in terms of radar and train our people better. It requires multi-dimensional work over a long period of time so that we can improve efficiency of our entire aviation system. How much of that has been achieved? A lot of work has been done. Look at the fact that Mumbai is one of the most efficiently managed airports in the world. Look at how we are expanding the number of slots Delhi has, even as we hit a bottleneck. Look at the fast growth of airports and the number of air traffic controllers that we have recruited. What steps have you taken to attract investors to Indian airports? We have just started the process of issuing management contracts and operation & maintenance (O&M) contracts for the Jaipur and Ahmedabad airports. We have 12 bidders for Ahmedabad and eight for Jaipur and it includes all the best airport operators in the world. This is because we have set up the bidding criteria in such a way that they will find it attractive. We would see how these bids work out. In terms of greenfield airports, the rules are well established. The operations, management and development agreement (OMDA) model is tested and tried. Navi Mumbai and Goa have been bid out that way. We are continuously looking at what we can do to strengthen the OMDA agreements to make them more predictable and attractive for all types of players. Basically, the notion is to make it very predictable and stable so that there is less uncertainty for investors. What are your plans regarding Air India? We have a robust transformation plan for Air India which includes a winning strategy for improving operational performance, corporate governance and management performance. With successive governments, this answer has become repetitive now, isn't it? The incredible debt burden that Air India has is a tremendous difficulty for the company to bear. It has done a tremendous job in terms of coming back to operating profitability, but ultimately we will have to restructure the debt for them to become competitive and a world-class option. But banks are reluctant to restructure the debt... We are considering a range of alternatives. Is privatisation an option? We are considering a range of alternatives. Indian airlines have been opposing a change in norms for foreign direct investment (FDI) rules. What is the government’s take on this? I think for any government, we really want to make sure that we maximise our national interest and strengthen our aviation industry. We are already the third-largest market in terms of domestic traffic. We are going to be one of the most important aviation markets in the world. As a government protecting the national interest, we need to make sure that we take the right decision; that also includes how we think about our bilateral rights.