Kingfisher Air's licence may be cancelled: Ajit Singh

Passengers can expect some relief after airport development fee (ADF) is scrapped from January, said civil aviation minister Ajit Singh. He said that Airports Authority of India (AAI) has made around RS 5,000 crore in the last five years by charging ADF at Mumbai and Delhi airports.

He agreed that ADF was not integral to the bidding document when these airports came up for bids. But to make up for the financing gap, airports started charging  Rs 200 per domestic and Rs 1,300 per international passenger at Delhi airport. Mumbai airport too charged Rs 100 per domestic and Rs. 600 per international passenger.

On the ongoing crisis at Kingfisher Airlines,the minister said that there is a possibility of KFA's licence being suspended or cancelled before renewal due to the airline's inability to resume operations and even employee salaries and other dues need to be addressed.

Here is the edited transcript of the interview on CNBC-TV18.

Q: I am a little curious about this decision by the government to actually do away with the ADF starting January 2013 because in a sense this is more than an acknowledgement of what the CAG had said. The CAG had very clearly said that this was not part of the Operation, Management and Development Agreement (OMDA) and that this was actually illegal and DIAL actually benefited on account of the ADF levy. For once this government is very clearly saying that the CAG was right?

A: It was not part of OMDA that's correct, but it is not illegal because Supreme Court has said it is legal. It was imposed because more capital was needed and there were delays, construction costs had gone up, some design changes were there and Airport Authority of India said they had no money. They had 26 percent stake and to maintain that stake they had to invest some money. At that time, they said they have no money and that’s why ADF was imposed to fill that gap in funding.

Q: As far as the Delhi airport and the Mumbai airport is concerned, the gap still remains, yet you have decided to do away with the ADF and if you are talking about the Supreme Court order, it very clearly refuses to stay the levy collection and that happened on the October 13, which is why I am finding it very curious that the government has decided to actually do away with ADF and you do have the Supreme Court not willing to stay the ADF levy?

A: Yes, so I am saying it is not illegal, but we are doing it because it will be good for the aviation sector and the second thing is that Airports Authority of India (AAI) has a lot of money now. In fact, on August 30 the regulator wrote to AAI for Mumbai and they are determining the tariffs now. He wrote that there are many methods of funding, one of them is infusion of capital and tell us how much money you can infuse. Over the last five years, AAI has made about Rs 5,000 crore from just these two airports i.e. Mumbai and Delhi.

Q: How do you say that the ADF is not illegal when you have acknowledged the fact that it was not part of the bid or the OMDA (operation management and development agreement) document that was signed? The CAG has clearly said that the decision to levy the ADF after the effective due date has vitiated the sanctity of the biding process as the draft OMDA which was part of the bid document does not mention about funding of the project costs of the airport through levy of development fees. That’s exactly what you are saying as well. So, then how can you turn around and say it was not illegal?

A: We are not going to discuss CAG report here. The PAC is looking into that. Why I am saying it is illegal is because a case filed in Supreme Court which did not state, but only asked, if the revenue collected was used for development. So since the Supreme Court did not state the levy was illegal, the collection went on till recently the Delhi High Court directed the plaintiff to go to the appellate authority.

Q: What happens then to the Rs 3,415 crore that was collected by GMR as part of DIAL through the ADF, does that remain? Is there going to be any plan to actually see that money being refunded in any fashion, no changes to that?

A: That's exactly what Supreme Court said. If Airport Authority of India certifies that ADF already collected has been used for airport development there is no refund.

Q: Let me now ask you about one of the concerns that is being raised and the obvious implication to most people seems to be that because you decided to do away with ADF, automatically ticket prices will fall but the question that aviation industry experts are raising here is that what prevents the operator from hiking the UDF which is applicable and eligible at both the Delhi and Mumbai airports and the operator will actually find a way of hiking UDF. I know it has to go to the AERA but how legitimate a concern is that?

A: As you said AERA is going to decide that and they have already uploaded what they are going to do about Bombay. I think its about 150% increase but, the fact remains that it is the AERA which wanted to know the method that can be used for filling that funding gap.

They asked AAI if they can infuse capital and ofcourse, AAI has the capital that’s why we have asked the AAI to reply not only to Mumbai, Delhi also to AERA. We have asked AAI to write to them specifying that they can now infuse capital. Now it's for AERA to decide.

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Q: But do you believe that there is a possibility of operators now seeking a further upward revision as far as UDF is concerned, given the fact that ADF has been done away with?

A: I don't know what they will seek, what they will not seek but the fact remains that if ADF is abolished, there will be some relief to the passengers.

Q: Let me ask you this because while the Delhi Airport operator, DIAL has put out a plain vanilla statement last night saying that they will speak with their lenders, etc about a possible equity infusion and about other options as far as debt are concerned. It may not be too far fetched to imagine that this will perhaps go to the court as well. What will the government’s legal position be if this matter were to be challenged in the court?

A: If AERA decides it, if AERA comes up with a plan for filling that funding gap which includes infusion of equity and abolition of ADF consequently, then everybody is free to go to the court. What can I say about that? It is for the AERA to decide now.

Q: But what would the government’s position be because on one hand you are saying ADF is not illegal on the other hand you are saying that the situation today is very different because AAI is sitting on Rs 5000 crore of cash. What is the government’s legal position going to be if this were to be challenged in a court of law?

A: We will ofcourse defend what AERA says. What AERA decides, we’ll defend it and AAI is not sitting on that Rs 5000 crore. They have built two airports in Kolkata and Chennai.

Q: The argument that one has heard from the AAI in the past is they will not be able to stand up to the task of being able to fund this gap, does that argument stand today or does it not stand today?

A: It doesn’t stand. They had to get 26% which is their share. Any capital infusion if it was ordered by AERA had to give 26% of that. Now, they are in a position to infuse that 26%.

Q: Let me move away from the controversy over ADF and UDF and talk to you about the latest situation as far as Kingfisher Airlines is concerned?

A: Why do you say controversy? AERA is the regulatory authority. They have asked the airport authority, there are several methods of funding the gap and they have asked whether they are in a position to infuse capital and how much they can infuse. Where is the controversy?

That was done earlier also when ADF was imposed. At that time also AAI was asked if they were in a position and how much they can infuse. Please don’t make a controversy, it’s simple, AERA is looking to fill that funding gap and of course one of the considerations is that if the air fares can be brought down, it’s good for the aviation sector.

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Q: DGCA issued Kingfisher Airlines (KFA) a show cause notice and a reply is expected by October 20. If KFA fails to pay its employees their pending salaries, will you allow the airline to fly?

A: If KFA fails to satisfy DGCA's security concerns and is unable maintain its flight schedules, then DGCA will recommend suspension or cancellation.

Q: So one of the parameters of being able to fly safely is to have employees who have been paid their salaries and are able to fly the aircraft. If KFA fails to clear pending dues will you still allow them to fly?

A: DGCA has to be satisfied that the employees are not disgruntled because that becomes a safety concern then.

Q: Is the payment of salaries one of the key parameters for DGCA?

A: DGCA has to be satisfied that planes are safe to fly and the employees, pilots and engineers are happy and satisfied and there are no safety concerns. Unless KFA replies and DGCA looks into it, I cannot say anything.

Q: Do you believe that the time has now come to make things clear as far as the future of KFA is concerned? Has the DGCA and the civil aviation ministry run out of patience with regards to KFA?

A: This is the DGCA’s domain. If the DGCA is not satisfied with KFA’s reply, it will recommend action.

Q: I understand that Kingfisher Airlines licence is up for renewal in the month of December, is there a possibility that if the DGCA is not satisfied with whatever credible roadmap or plan that Kingfisher airlines submits to it hopefully before the end of the showcause notice period that you will actually suspend its licence even ahead of December?

A: He may even cancel it ahead of December, it is up to him. It depends on what kind of reply Kingfisher gives.

Q: So you are saying that there is a possibility of a suspension or a cancellation of the Kingfisher airlines licence ahead of its renewal in December if the DGCA is not satisfied with the plan that the airline puts forward?

A: Certainly so.

Q: As far as the FDI issue is concerned and once again the criticism is that perhaps this was a measure brought in too late because you have already got Kingfisher Airlines which is beyond the ICU phase, it is beyond the ventilator phase that the decision took so long to actually fructify that most global airlines who could possibly have come on board to try and help an Indian carrier out of this financial mess are just not interested any more. So this decision is too little, too late and is going to make no difference whatsoever?

A: You are basically saying that this decision is for Kingfisher.

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Q: I am not saying that. I am saying that this is a sector that has been bleeding?

A: You clearly said that this decision has been made too late. None of the airlines can help it, that is not the issue. It is an enabling legislation and don’t forget FDI was already there, all we are doing is allowing the airlines. Yes, it could have been done earlier.

But, the point is that it is a long-term measure which will help airlines in their technical expertise, managerial experience and the reach the airlines have but any airline which wants to invest in today’s environment, not only in India globally also has to give due diligence. It is not going to happen overnight. I read in the paper that SpiceJet is talking to somebody. I saw that Jet is talking to somebody but, as I said it will take a long time.

Q: Why has the permission granted for the direct import of ATF failed to take off?

A: The problem lies in the availability or access to infrastructure and we are in discussion with the oil companies and I think very soon we will come up with some solution.

Q: Let me ask you about the plans and the efforts to actually modernise other airports. The cabinet very recently also decided to upgrade a few other airports including Tiruchirapalli, Madurai etc to international status. How do you actually try and incentivise foreign airport developers to come into India and perhaps participate in the modernization programs because we have heard from a lot of foreign operators who were not particularly happy with their experience here in India, is there a plan to try and woo foreign airport developers to be part of this process here in India?

A: The bidding process for three airports, Navi Mumbai, Goa and Kannur Airport in Kerala should start by the end of this financial year. We are preparing those documents or let me say those states are preparing the documents. Once we do that then only we will invite people to invest in that or bid for that. There are many people from many countries and they are interested in bidding. They are constantly in touch with the civil aviation ministry.

Q: You are confident that the decision to actually abolish ADF is going to mean cheaper airfares for the Indian consumer, is it going to actually result in travel becoming cheaper and any further plans on dealing with other levies which have also been something that other people including IATA have complained about, any other decisions on any of the other levies?

A: Let me assure you that we are constantly looking to help the aviation industry, help the passengers because in the last three months passenger numbers have not grown. We are concerned about it. The airport charges and high fares and high ATF prices are part of the reason. As far as ATF is concerned, AERA has the authority and they have already asked the airport authority. We do believe that ADF will be abolished but let’s wait and see what AERA does.

Q: If AERA decides to say that, no ADF should stay, what will the ministry’s position be?

A: The high court has said that this will be decided by the appellate authority. Some people are already going to appellate authority and that’s the only course available to anybody who wants to challenge AERAs decisions, whether they are airlines, IATA or anybody else.

Q: There may be a possibility that ADF will actually continue even post January 2013 if that is the decision taken by the regulator and the appellate tribunal?

A: It's a quasi judicial authority. Let’s not speculate about it, but the way AAI is proactive in this case and AERA has already asked their opinion. Let’s wait and see what they do. I do hope that ADF will be abolished.