Forget Jet, govt may even bend 5-year rule to accommodate AirAsia

The Government is being pummeled for bending backwards to help Naresh Goyal’s Jet Airways in its proposed equity deal with Etihad Airways but Jet is not the only airline it seems to be facilitating.

The Government also seems to be bending a few rules to accommodate AirAsia!

A senior official in the Ministry of Civil Aviation confirmed to Firstpost today that the Government was looking at relaxing the 5/20 rule for domestic airlines to fly abroad.

Don’t know what is 5/20? Just refer to the recent comments made by AirAsia’s Tony Fernandes during his whistlestop visit to India last week. Tony had referred to this rule, called it bizarre and even blamed Goyal for ensuring that this rule became law so that competition for his beloved Jet Airways was lessened in the previous decade.

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The 5/20 rule makes it mandatory for any domestic airline to have a fleet size of at least 20 aircraft and a record of five years of domestic operation before it can be allowed to fly overseas. Tony had termed this rule “bizarre”. But why is it being changed now, when all but one existing domestic airlines in India already have overseas operations? Our guess is, this is being done to hasten overseas operations of AirAsia India. So Mr Fernandes, who will benefit from it immediately but your own airline?

AirAsia is in the process of getting a No Objection Certificate from the ministry to set up AirAsia India, where Tata Sons and Telestra Tradeplace will together hold 51% equity while AirAsia will hold minority 49%.

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We say AirAsia may be the intended beneficiary of any change in the 5/20 rule because Air India, IndiGo, SpiceJet and of course Jet Airways have crossed the threshold and fly overseas. GoAir has also completed five years of domestic operation but has not been able to fly overseas because it still does not meet the 20 aircraft criterion. If the 5/20 policy is amended, GoAir may also benefit.

The Ministry official quoted earlier said “We are looking to rework the 5/20 rule. We are looking at reducing the number of aircraft required as well as the number of years of domestic flying. The Ministry has asked DGCA for its opinion on the matter”.

This official declined to comment on whether the ministry or the DGCA asked all domestic airlines for their comments on the matter. He also did not put a timeline by which a decision on either or both criteria would be taken.

Don’t get us wrong: the 5/20 rule should never have been there in the first place so we are not saying that amending it is wrong. There are reports that the Government may be considering 10 aircraft criterion instead of 20 and it may also be thinking of removing the five-year mandatory domestic operation clause. This is a step in the right direction - we are only questioning the timing of this move.

Meanwhile, Kapil Kaul of aviation consultancy CAPA welcomed the move to amend the 5/20 rule.

“We strongly recommend that 5 year/ 20 aircraft should be done away with as it is discriminatory policy against our own carriers. To me, India is the only country in the world that discriminates against its own airlines……but lowering the threshold will not serve any purpose except make it possible for GoAir to fly overseas. We need to allow new startup carriers to also fly overseas subject to availability of bilaterals and slots.”

Not just the undue haste in now reworking the 5/20 rule, the Government is also being criticized by some for winking at a clause in the FDI policy which allowed foreign airlines to invest in Indian carriers and was cleared in September last year.

The policy clearly stated foreign airlines can invest only in existing Indian carriers, up to 49% of the latter’s equity. But for the AirAsia venture with the Tatas and the Bhatias, this rule not been strictly adhered to. What would have gone wrong had the Tatas and the Bhatias first set up an airline and then invited AirAsia to pick up equity?

By doing this, the three partners would have stuck to the FDI policy in letter and spirit and still managed to get the same equity structure they have now proposed for the new airline.

Speaking to Firstpost earlier, a top Ministry official had confirmed that AirAsia India plans to begin operations by setting up base in Chennai, will offer ultra low fares like it does in the home market of Malaysia, will initially have a fleet of five aircraft of the Airbus 320 family but then scale up rapidly to 36 aircraft over a period of five years.

But if it can fly overseas immediately, that would improve its prospects immensely.