Despite the Niti Aayog raising objections over what is essentially cross-subsidisation, the government is determined to conquer the white elephants it has been saddled with.
New Delhi: The Civil Aviation Ministry last week made public the Modi government’s plan to drastically boost regional air connectivity, an attempt that if successful will revive wasting and abandoned aviation infrastructure while proving to be a major shot in the arm for regional tourism and commerce.
While the decision to cap regional air-fares is being sold and viewed in some quarters as a populist or aam-aadmi measure, according to experts and industry insiders The Wire spoke with, it will also be a test of how well the Modi government will be able to conquer the white elephants it has been saddled with and ultimately a test of the prime minister’s infrastructure-driven growth strategy.
From 2009, by a number of estimates, the country’s central governments have spent over $50 million on eight airports that currently do not receive scheduled flights. The most well-known case is the Jaisalmer airport, which cost over $17 million to build but never operated any scheduled flights.
“Across India, it’s easy to see the end results of the previous government’s plan to open 200 no-frill airports as a means of boosting regional connectivity. They [the airports] are all, for the most part, in various states of disuse. They were opened up due to political pressures, with various local parties thinking if you opened up an airport in a town, flights would automatically follow,” one aviation analyst who helped in drafting the document told The Wire.
The failure of the UPA government’s no-frill attempts are indeed quite visible: In a written reply in the Lok Sabha a few months ago, Civil Aviation Ministry A Gajapathi Raju pointed out that the a little over Rs. 600 crore had been spent over the last two years on 25 airports that were “technically operational” but in reality had not handled a single, scheduled flight.
“Even if no or very few flights pass through these airports, some amount of maintenance needs to be carried out and the staff and employees still need to be paid,” the analyst said.
Ironically, on the day the government unveiled a reformed and new civil aviation policy — which did away with archaic regulation while outlining the new regional connectivity plan — the Kazi Nasrul Islam Airport in West Bengal’s Durgapur said that only airline operating a flight through its airport (Air India) would be withdrawing operations, making it a ghost airport until another airline steps in.
What does the new regional connectivity plan plan on doing to revive ghost airports and boost intra-state flying?
The 42-page draft regional connectivity scheme (RGS) document starts with a simple premise: In order to roughly fix the the prices of specific regional flights and assign the routes into certain categories (a flight that covers 476 km to 525 km will be set at Rs. 2,500), the civil aviation ministry will levy a charge on more popular routes between metros to subsidise regional flights.
This levy is one major component of the overall ‘viability gap funding’ (VGF), which the draft policy defines as the financial support the Centre will offer “to meet the gap, if any, between the cost of airline operations and expected revenues on such [regional] routes”. The government is yet to officially notify how much the levy on airlines for more popular routes will be; though speculation places it at around Rs. 8,000 per flight, resulting in a ticket price hike by a minimal Rs. 50-60 in the worst case scenario.
The Niti Aayog is reportedly against such a levy, with officials pointing out that such a cross-subsidy would tamper with the way the market worked. People with second-hand knowledge of the matter confirmed the same to The Wire and claimed that many of the conditions that were later inserted into the draft — such as a clause for an eventual tapering of VGF based on passenger load factor — were put in based on the Niti Aayog’s objections.
“The policy was tempered in the month before it was announced. The exclusivity period, which is offered to airline operators after they submit a proposal and bid for a specific RCS route complicates matters. You can’t provide VGF for up to ten years and give one operator exclusivity for a substantial portion of that ten years,” said one person who was part of the drafting the document. The VGF as it currently stands now will be tapered off after three years and the exclusivity period for airline operators will eventually range from 1-3 years — which will be decided based on further consultation.
While most big airlines have already counted themselves out, mostly because they don’t have enough smaller aircraft that are suitable to fly on regional routes, smaller airline operators such as Air Pegasus, Air Costa and TruJet amongst others are the clear target audience here.
A senior executive of an Andhra Pradesh-based airline told The Wire that they would be interested but feared whether it would be viable after the subsidies and incentives wear off.
“There are a host of incentives that come with this including the waiver of landing, parking and terminal navigation charges for RCS airports. Also, excise duty for ATF (aviation turbine fuel) will be lowered to 2% when bought at an RCS airport. These are all extremely attractive. We will do our calculations, but this being a wafer-thin margin business, I wonder if all these subsidies and incentives will feed a beast that can’t be tapered off easily,” the executive said.
A fair plan
Other experts within the industry, however, believe since this plan is very much “opt-in”, there’s no fears of creating a subsidy burden that can’t be weaned off.
“I believe it has the right mix of fiscal and monetary incentives. Only 50% of the seats on a RCS flight will be supported by VGF. Other than that, 20% of the VGF support will have to come from the states themselves, so all parties here have to decide whether this is worth it and equally will have a stake in this process. It’s not as if this automatically applies… let’s see if airline operators come and make proposals. If they don’t, then the government can go back and tweak the policy some more,” said Amber Dubey, KPMG India Head- Aviation.
The dream of regional connectivity for the BJP stretches back to its 2014 Lok Sabha election manifesto. More recently, in the run-up to the Bihar elections in 2015, Modi announced the construction of a new airport at Putna as well as proposed projects at the smaller cities of Raxaul, Purnea and Gaya.
However, it is far more important for Modi to focus on reviving airports rather than building airports far-flung regions in hopes of chasing regional connectivity, according to industry insiders The Wire spoke with. In interactions with the press, civil aviation minister Ashok Gajapathi Raju and civil aviation secretary R N Choubey admitted as much. Raju and Choubey pointed out that they had a list of 30 unused and inactive airports that were “low-hanging fruit” which could be tackled first.
“It’s important that Modi realises that regional connectivity and rural aviation infrastructure can be encouraged but has to grow organically. If he has any doubts, all he has to do is look at Jaisalmer airport to remind himself,” said one former AAI official told The Wire.