With the government planning to have a firm aviation policy next year, the civil aviation minister indicated that the concept is to try and make Indian skies more vibrant and get maximum number of people to fly. Besides this, he also stressed that the aviation industry will also cater to cargo and other activities that would generate employment within the country. Below is the verbatim transcript of Ashok Gajapathi Raju’s interview with Sindhu Bhattacharya on CNBC-TV18. Q: I must say that the policy has been very long in the making, the draft is finally out. How long did it take for this policy to come to the form that it has come out in the public domain and how long will it take from here for the draft to become a policy? A: The draft to some extent or rather to a large extent reflects the government’s thinking otherwise it cannot be a draft policy. So governmental thinking to some extent has got reflected there and their stakeholders and everyone who has not already commented – for those who have already commented also can comment again and we will take this to its logical end. I think we will start the New Year with a firm aviation policy but policies by nature there will be a three-five years’ time-limit on it. Then the government of that day will have to decide how to take it forward. The concept is to try and make Indian skies vibrant, get people to fly and aviation should not only cater to passengers, it should cater to cargo also and other activities that generate employment around should be generating employment within the country. So we are trying all those things and I think that the direction is good. As it is we have had quite a bit of discussion, we have interacted with the state governments, we have interacted with all the airlines. We have interacted with everybody who we could think need to be interacted with. Q: You are saying that a lot of people already are on board, the state governments, stakeholders are already on board? The policy is a good beginning but it seems to lack in one critical area at least which is suggesting fiscal incentives for airlines, the airlines have been complaining that in India working in the aviation sector, their operating costs are extremely high especially because of aviation turbine fuel (ATF). There is very little mention of a general tax rationalisation on ATF, why is that? A: We are a federal country. Excise revenues, yes government of India comes in, value added tax (VAT), the state governments come in. We have aviation-friendly states, aviation unfriendly states and partially friendly in certain places and partially unfriendly in certain places. So we have an unusual mix. Now, the states don’t want ATF to be part of the goods and services tax (GST). They didn’t want liquor and petroleum products to come in there. So, that way it stayed out. However, states which have brought down the taxes, they have seen activity increasing in that states and this might contribute to states coming down with their ATF taxes; VAT on ATF. Q: The Centre can actually also contribute to reducing taxation on ATF? A: If you have read that document, you would understand that obviously there have been some discussions. Now, the thing is that what the ultimate thing will be, will be now after we get the feedback again and we formulate this thing and inter-ministerial considerations do take place. I think it will get its finality and then it will be out. So, we expect it to come out in the near-future as a policy. However, as a draft policy, it is there. In case we have missed out on something, then anybody is free to point it out because when you take a thing for finality and it is going to be a policy for say a three to five year period, you can’t have changes after that. If you don’t have a policy the industry, they cannot plan. So, the idea is that they should plan, we should be able to harness our potential and go ahead. By and large, I think this draft has been fairly well received. I have seen most of the comments in the press yesterday; I don’t see much of a problem. By and large it has been accepted well and of course there will always be scope for improvement. Q: So the airline’s cost of doing business is not really expected to get any improvement as far as draft policy is concerned would you like to work outside the policy to persuade state governments to reduce taxation? What about the center, what about declared goods? A: Declared goods, GST what has happened, petroleum and intoxicants have been kept out of GST, it was a conscious decision, we are a federal country. Our polity is federal, constitution is federal, so in that sense. Some states have brought down the taxes, some states don’t, some states have brought down taxes in particular airports, so all types of things are there. Now what is it that we are trying to do, we are tying our rural and regional connectivity, we are trying to incentivize travel. And there what happens, everybody has to come out with something, otherwise it is not going to work there. Now those who come out with something there and it works there, the moment those benefits are perceived by others, slowly everyone will fall in line. Q: Are states already on board because a lot of what has been proposed in terms of regional connectivity hinges on the states. The states are supposed to provide free water and electricity, they are supposed provide almost a zero tax ATF at certain airports, they are also expected to provide 80 percent of the viability gap funding; they are supposed to contribute to that. Are the states already on board because the implementation will start from April 1. A: Next year, so that everyone has time to plan, nobody is taken by surprise. If the states want it, they see an advantage in it, they will come on board. If they do not see an advantage it, they will not come on board. Q: Have some states indicated their willingness? A: That we will know in a few days time. They are also free to respond. Everything is in the public domain, so we will have an idea. Q: Airlines and even some fliers are a little upset at the capping that you seem to have done on the Rs 2,500 per hour regional flying. Now the airlines say that instead of the government deciding how much they should charge passengers even for these regional routes, let them decide. The other view is that this particular fare has been arrived at in an ideal situation where the cost is a certain amount of money, the viability gap funding will actually help bridge the gap between the cost and the fare. There is this model that you proposed, which is scheduled commuter airlines. Why get this particular cap at all? Why not let the airlines decide what prices will make the whole operation viable? A: We have as it is 31-32 airports where there is no activity and in a lot of places they want new airports. So, we will work on it. Now this is not a floor or a cap because if airlines do not want to opt, they will not opt for it at all. If they want to opt, if you see an advantage, you opt for it. Q: But why not leave it to the airline? A: Why should we? They have not done the connectivity anyway. Q: But there are guidelines which according to officials are already being followed. A: Our problem is that we have so many airports which are unutilized as of now. How do you make them vibrant? They do not have those length of airstrips, so obviously that would mean smaller aircraft. The whole ball game is different. If we do not want those areas to ever be connected, fine. Nobody is stopping competition, nobody is saying you cap at this level or this is your floor. If you want to come in the scheme, you come in. if you do not want to come in, you do not come in. Q: We are saying the incentives of the state, the central government and the airports are together going to offer will make Rs 2,500 per hour of regional flying viable? A: I think so, that is why we brought it there. If you think it is not going to be viable, please tell us how you think it is not going to be viable. Q: So airlines are free to suggest a certain amount of cap but still there would be a cap? A: You see this is not a cap or a floor. What we feel is that at that price a lot of Indians will be able to afford it, and they would like to fly if they can get a ticket from those areas. Then we are concerned with the areas that have no connectivity. Where the areas are doing well anyway, the competition is taking care of it, so we are not looking at a say viability gap funding gap for say New Delhi-Chennai, you are definitely not thinking of it there, it is ridiculous to think that these major routes will be in that scheme at all. Q: So, you are airlines are free to suggest what is the price at which these routes will be viable as part of their comments and that Rs 2,500 per hour is not sacrosanct? A: It is indicative because everyone feels that Rs 2,500 for an hour of flying excites the Indian mind and it will help us in connecting the places which are not connected or which are under connected. Q: What about the two percent cess? A: That comes from the category one area. Q: On the one hand the government wants to make it affordable to everyone, on the other, people flying on primary or metro routes are expected to bear the two percent burden. How do you reconcile both the costs? A: Well there is nothing to reconcile there. This is a resource in which competition has pushed the prices low already, so there is no problem there. The problem is the connectivity, so we are addressing ourselves to that. Q: How much do you hope to mop up if the two percent cess is levied from January as it is being proposed? A: We will get about between Rs 1,000- 1,500 crore and as per the scheme if we are able to utilise it properly, as intended, then connectivity will come. Q: How will you define these new rules and what is this idea of scheduled commuter airlines? You have created a new category of airlines altogether. Are existing airlines or new ones, do you have some proposal? A: Anybody can opt. Q: But do you have some proposals? A: We cannot say it is compulsory that you opt for this. But any airline can opt for it. If they see an advantage, they can opt for it. If they see a disadvantage, they will not opt for it. Nobody is forcing anybody to opt for anything. Q: So, are there proposals that are already pending with the ministry? A: We will get proposals now informal interactions with people. We feel that this type of thing will make our skies vibrant and we are going ahead with it. That is the idea. Q: Regional connectivity hinges almost entirely on existence of infrastructure, specifically airport infrastructure. Now, in the draft policy, we have noticed that just about 8-10 of the 125 airports under Airports Authority of India (AAI) are profitable. And it is the AAI which is expected to create additional infrastructure by upgrading or modernising or working on existing airports with an investment of Rs 50 crore for each airport to make it no-frills airport for regional connectivity. Where is the plan for AAI? Earlier there were discussions on AAI getting listed, its expansion. What is the idea? I mean the policy seems to lack as far as the vision for AAI is concerned. A: AAI is charged with maintaining these airports or running those airports. Now, there are a lot of airports that even airports sites that are inactive and plus more to come. So, we cannot afford to have inactive airports. Now, on the economic side if you look at it, most airlines are standardising. It makes sense. The economic plan will make sense because one, standardising in aircraft, they gain in training, they gain in maintenance, things like that. But Indian airports are very varied. So, you need all types of aircrafts. So, aircrafts that connect those places, they need support. Q: But how is AAI actually going to work forward when there is really no plan as far as beefing its revenues, its profitability and its future is concerned. A: AAI is supposed to take those steps. So, they will take those steps in that direction. Q: Is listing at all on the agenda now or has it been dropped? A: Listing we can keep away. We can list it anytime we think it is necessary. So, that option is never ruled out. So, that is okay. But it also has a purpose, it has to perform, so we want it to perform. Q: So, when is it going to generate the funds to invest Rs 50 crore in each airport where we are envisaging a huge perk in regional flying? A: AAI is not a loss making concern. Q: Not as of now. A: And we do not hope it will ever be a loss making concern. But it also has a social obligation of connectivity and it has to perform. And it will definitely perform. Q: Let us come to overseas flying. The policy states very grandly that immediate open skies as far as South Asian Association for Regional Cooperation (SAARC) and countries beyond 5,000 km radius is concerned. Now, SAARC, as far as I know, is already allowed. A: So, we are reiterating that. Q: We are just reiterating that. Countries beyond 5,000 km, we already have open skies with the United States, we already have I think partial open skies with UK, except probably Heathrow. The European carriers are already not utilising fully their entitlements as far as flying to India are concerned. So, this really is a status quo as far as open skies is concerned. It is good on the intent, but does it really help Indian carriers? A: I hope it does because any carrier who wishes to go, ultimately those countries will also have a reciprocal thing. So, those that wish it will take it. You see, you are enabling certain things to happen. And I think they will happen. Q: Why keep countries within 5,000 km radius for the next five years. What are we protecting our airlines from? A: We are not protecting our airlines from anything. They have to perform, they already have bilaterals unutilised and we hope they will utilise them. Q: The increase in foreign direct investment (FDI) limit to beyond 50 percent with opening up of the skies to countries within 5,000 km range. First of all, why this decision and can this be expedited? A: You see, let the policy come out, the draft will get finalised, then it will get its final shape. This is indicative, this gives an outer thinking and it is okay. The pros and cons of a policy can always be discussed. Why is one for a thing, why is one against it. Let us understand it, there is nothing wrong with that. Q: Now let us come to the contentious 5/20 rule. The 5/20 restriction which restricts a domestic airline from flying overseas unless it has completed five years of domestic operations and has a fleet of 20 aircrafts. You have been very vocal in the past yourself saying that this is a rule which needs to go. There are indications that even the Prime Minister and other high ranking officials of the government want it to go. So, why have three options been given in the policy instead of the 5/20 actually, instead of the government actually suggesting that the 5/20 should be abolished? A: 5/20 is a type of regulation which is nowhere in the world. In the Indian context only it is there. No country has it. So, I would feel there is no scientific basis on that for having such a rule nor is there an economic basis. It is a decision that has come out from the Cabinet sometime back and it needs to get back to the Cabinet. Now, what is it that we are interested in? We are interested in regional and rural connectivity, so we want to keep that going. So, we have given options. Q: But it is already well-known, the stakeholders view points are already well-known. A: There are lots of things that are well-known. You see the thing is a lot of things will be well-known, but that does not mean that it should not be put in a structured form, should not get approvals wherever necessary and go ahead. Q: But the governments will not, one; in terms of 5/20 are there varied opinions within the government? Is that why the options have been given? A: There is a varied opinion outside. There is a varied opinion. You mean to say there is no varied opinion? Q: Which is well-known. The line on which airlines stand is well-known. A: My thinking is also well-known. Varied opinion also well-known. They are well-known and it has to come to a finality so, let it come to a finality, what is there. Q: The other thing which is a little surprising in the draft is absolutely no mention of Air India. In the earlier draft, there was some indication of where Air India’s future is going. Why keep Air India out of the policy draft and what are the plans for Air India right now? A: Air India is a nice airline. It is owned by the Government of India. Its books are bad, it is known to everybody and it needs to pull up its socks. It has turnaround plan, a financial reconstruction plan which it has to perform by. Q: I believe the turnaround plan, the targets are being brought forward, the profitability targets, the turnaround targets are being brought forward. Is that already finalised? Why not get this also in the public domain? A: They are working well. They have started working well. They have been aided like all the airlines have been aided by ATF prices coming down. Air India has also benefitted by that. So, whatever it is and they have the most. In India, their reach is the highest in rural connectivity for which the government is. Q: Are there profitability targets being brought forward now that they are doing will the performance will be improved? A: All these targets have been fixed long time back and there have been slippages in the past at least we are happy that the slippages are not alarming now. Q: Any thoughts on privatisation of Air India? A: From the beginning, I do not know. If you can get a private party willing to pay with books like that. Q: There was a suggestion earlier that subsidiaries which already been hived off from Air India, should be actually privatized first. Is there hope for Air India in the future? A: Whatever suggestions we have, there is a lot more hope for Air India, it is a lovely airline. The problem with Air India is that its indiscipline is a bit high, but where they have work discipline and work as a team, they have delivered. They have done the nation proud. So I do not think Air India bashing should be, which I find very easy and I do not know for what reason people do get attracted to Air India bashing. But Air India is a nice airline, let it work. Q: So you are not ruling out privatisation. A: Why should I rule out anything? I am not here to rule out anything. Q: That is not something that is on the agenda immediately. A: It can simultaneously go about. If tomorrow you find a person willing to buy and willing to put the money in where the talk is, inside of the talk, we are willing to look at it. Q: You have been clear on two-three things, the airlines can actually suggest a floor if they are not happy with the Rs 2,500 per hour of regional flying floor that is being suggested. A: No. Rs 2,500 for an hour of flying is suggested because we feel that is one area where it will help the Indian people to fly and those areas are not open everywhere, all round the country. So, that is an indicative thing, let us work. Suppose the airlines that come there are willing to fly at a lesser cost, with lesser viability gap funding also, why not? So let us not say this is sacrosanct, that is sacrosanct. Let us look forward to whatever suggestions we get and ultimately it is going to be the vibrancy of the skies that are going to decide all this.