Ratan Tata is right on flying abroad rule: High time the UPA legacy is removed once and for all

In this world, nothing can be said to be certain except death and taxes. This popular saying should include competition among the few certainties in life. Whatever a business strives to achieve, it can never really be free of competition. The sooner businessmen understand this adage, the better it will be for their businesses and also for their consumers.

Ratan Tata is right on flying abroad rule: High time the UPA legacy is removed once and for all

Over 70 international airlines operate services to India, in effect providing international airlines unfettered access to Indian markets

Accepting increased competition could be critical to the growth of India's aviation industry, where incumbent Indian airlines are scurrying to get protection through fierce lobbying against removal of the 5/20 rule. Their logic? Let new airlines serve Indian skies first before getting "profitable" rights to fly abroad. This rule bars an Indian airline from flying overseas unless it has completed five years of domestic flying first. It is clipping the wings of two new airlines, Vistara and AirAsia India - both have been set up in partnership with foreign airline companies and both want to go international.

Bringing in a false sense of nationalism into every argument has become rather fashionable these days. How is an airline set up in India, under India's rules and regulations, going to hurt national interest by flying overseas without being restricted to domestic flying for years together? Has either Vistara or AirAsia India said they will not comply with norms which stipulate that some portion of an airline's seats should be deployed on unviable domestic routes? Why is there any need for airlines set up in India to first prove their commitment to serve the country when existing rules anyway mandate connectivity to remote areas? Analysts predict India’s domestic aviation market to expand to about 300 million passengers by 2022 from just over 80 million in 2015. There is enough room for incumbents and new comers to generate business here.

The war of words which has broken out between Ratan Tata (Tata Sons has invested in two new airlines, Vistara and AirAsia India) and Ajay Singh of SpiceJet over the weekend over the 5/20 rule just goes on to prove how facile it has become to invoke 'swadeshi' sentiment in everything.

In a tweet on Sunday, Tata backed the government’s move to remove 5/20 saying “It is sad to see incumbent airlines lobbying for protection and preferential treatment for themselves against the new airlines that have been formed in full compliance with prevailing government policy and providing air transport to Indian citizens in line with the dream of a ‘new India’ promised by the new government under (Narendra) Modi’s leadership.” Vistara is 49% owned by Singapore Airlines while AirAsia India has AirAsia Bhd as its equity partner.

SpiceJet's Singh minced no words while opposing Tata. “All of us were asked to serve our great country before we got profitable rights to fly abroad. We served with great pride. What is wrong if these two foreign-controlled airlines are also asked to serve India before being allowed to fly international? Mr Tata, whom we respect greatly, should in fact urge these airlines in which his group is a shareholder, to serve India willingly before being allowed to fly international. While obtaining a licence, these two airlines had undertaken to follow the 5/20 rule, a rule they are now opposing so vehemently.”

Kapil Kaul, CEO and Director of CAPA South Asia says he sees no logic in incumbent airlines' arguments supporting 5/20. "The 5/20 rule has been a very negative policy measure which has impacted Indian consumer and economy strategically. Doing away with 5/20 is in national interests and such intense and aggressive pressure from FIA (Federation of Indian Airlines, a lobby group of incumbent airlines) will not hold in the PM’s court. Don’t see this Government continuing with the negative 5/20 rule."

The 5/20 rule was first introduced under the UPA regime in 2004, as a Diwali gift to the Indian aviation industry, at the behest of powerful airlines which then wanted protection from impending competition in Indian skies.

The rule was imposed in 2004 and immediately allowed Jet Airways and Air Sahara to benefit as it broke the monopoly of Air India and Indian Airlines to operate flights from India to international destinations. Later, Air India and Indian Airlines also benefited from the 5/20 rule as they were the sole Indian carriers allowed to operate from India to the Gulf for another five years. At that time, the Gulf routes were the most profitable ones for the two state-owned airlines.

But now, over 70 international airlines operate services to India, in effect providing international airlines unfettered access to Indian markets while simultaneously restricting new Indian airlines from going overseas. Currently only Jet Airways, Air India, SpiceJet and IndiGo fly to international destinations.

The 5/20 is an antiquated rule, with no global precedence and no justification for having existed in India for over a decade. This rule bars airlines in India from flying overseas unless they have flown domestic for five years and have a fleet of 20 aircraft. Now that the draft civil aviation policy is coming up for a decision, the incumbent airlines have all united to oppose removal of this rule. Its removal will benefit the new comers, VIstara and AirAsia India, but more than airlines it should also benefit the Indian flyer since she will get more choices to fly overseas.

In this dogfight over 5/20, there can be no justification for what SpiceJet or other incumbent airlines are saying. The 5/20 rule was brought in for misguided reasons, it has been used by incumbents to block the entry and then growth of new carriers and must be scrapped now. According to sources in the know, the Prime Minister has himself expressed his desire to see the end of this rule but has asked the ministry of civil aviation to build consensus on it before scrapping it outright. Civil Aviation Minster A Gajapathi Raju has, many times this last year, made it clear that he personally would like this rule to be consigned to the trash can.

In fact, Air India, which had been supporting incumbent airlines in opposing any move to scrap 5/20 all these years, changed its tune recently. A senior Air India official told journalists some weeks back that the airline is now not opposing any move to scrap 5/20. Lets also examine the FIA charge that instead of asking for 5/20 removal, the two Tata airlines should respond to its charge of violating "ownership and effective control" by allegedly handing over operations and key decisions to foreign partners. This is a charge which BJP MP Subramanian Swamy has also been levelling at AirAsia India and the matter has been pending in courts.

Shareholder tussle at AirAsia India - where Indian ownership is divided among Tata Sons (40% and Telestra Tradeplace (10%) is an issue which should have little bearing on the 5/20 debate. How is an allegation of foreign control a valid reason for India continuing with 5/20 restrictions? It pertains to the FDI policy of the government and should be dealt with under that head.

Kaul of CAPA says "The ownership and effective control issue is at best debatable and then not just restricted to Air Asia and Vistara alone and there are other and more visible cases as well". Nothing much has changed in over a decade. Jet Airways, SpiceJet, IndiGo, GoAir want protection even in circa 2016. At that time, wise government officials had justified the imposition of this rule by saying India could ill-afford a situation where a new startup airline from the country crashed while on a flight abroad. This would sully the name of Indian aviation.

A five-year unblemished track record would ensure more safety on international flights. Any change in the 5/20 rule – whether it is scrapped completely or watered down to 2/10 - will allow Indian flyers more options for international flights. The options could increase if smaller players such as AirCosta and easyJet also decide to operate abroad. There is not one compelling argument against what Ratan Tata said. The 5/20 rule shouldgo.

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Updated Date: Feb 22, 2016 19:39:11 IST

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