 "Tatas' airlines to suffer as lobby against relaxing 5 years/20 aircraft rule intensifies")
Pressure from different airline lobbies is pulling this government in opposite directions over the 5/20 rule for domestic airlines. A powerful lobby of incumbent airlines wants the rule to stay while another comprising new entrants wants it to be scrapped. Caught in the middle of a tug of war, the Ministry of Civil Aviation has wisely decided to hold more discussions over the matter. If this rule is eased, immediate beneficiaries will be the two Tata airlines - AirAsia India and Tata-Singapore Airlines.
So even though officials in the ministry agree that there is little reason to continue with the 5/20 rule, scrapping it still does not figure in the Ministry’s list of top priorities. In fact, though 5/20 and its fate are being discussed at various levels, this matter does not form a part of the 100-day agenda of the Ministry of Civil Aviation.
The 5/20 rule mandates that every Indian airline must have completed five years of domestic operations and must have a fleet of at least 20 aircraft before it is allowed to fly abroad. At the fag end of his tenure, the previous Minister of Civil Aviation, Ajit Singh, had spoken of doing away with this rule all together. But no decision was taken, presumably because of the strong lobby of incumbent airlines which opposed its scrapping. Their argument is: Why should things be made easier for new entrants when they have had to wait for five years before being allowed to fly abroad?
The 5/20 rule is unique to India and has historically been seen as a needless restriction on Indian airlines. When startups such as Air Arabia and AirAsia BhD were allowed to fly into India by their respective governments, it obviously put our airlines at a disadvantage because of the five year domestic operation clause. These airlines were not restricted by any such conditions by their respective governments. But incumbents opposing the lifting of 5/20 say they were made to work under such ridiculous restrictions and the government would be moving away from providing a level playing field to all if it were to lift restrictions for new airlines now.
Tata-Singapore Airlines is expected to commence flying from this year’s winter schedule while AirAsia India has begun domestic flights last month. Both these airlines will derive immense synergies and other benefits if they were allowed to fly abroad without waiting for five years of domestic operations to be concluded.
The only existing airline which is yet to get permission to mount overseas flights is GoAir but it will anyway become eligible later this year in both respects.
Earlier, the ministries of finance and corporate affairs as well as the Planning Commission have repeatedly stated that there is no logic to the 5/20 policy and that the barriers to international operations were anti-competitive. Besides, fleet size requirements incur a large start-up cost for domestic airlines which are already in a precarious financial state.
Aviation consultancy CAPA and other aviation experts have also repeatedly condemned the 5/20 rule. CAPA had said earlier that such a policy has enabled foreign airlines to capture a larger share of the international market at the expense of home carriers. International operations are crucial for airlines which are looking for ways to rationalise their cost base. India already has one of the highest costs of operation for airlines, thanks to a heavily taxed jet fuel, so that airlines are compelled to pick up cheaper fuel abroad to manage costs.
Also, this way their aircraft are better utilised, again bringing in gains. Like we said earlier, the biggest losers in case this rule is not scrapped would be AirAsia India and Tata-SIA. In fact, officials at Tata-SIA had said earlier that they would apply for permission to fly abroad the minute the 5/20 rule is relaxed. And AirAsia’s Tony Fernandes also expressed much the same sentiment recently.
The Ministry of Civil Aviation should listen to reason, not lobbies, and scrap this useless rule. It serves no purpose.
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