Draft aviation policy intent right; execution key: Experts

Civil aviation experts have lauded the draft civil aviation policy on its intent and comprehensiveness. At the same time, they said feasibility and implementation will be critical for the success of the new policy.Speaking to CNBC-TV18, Jitendra Bhargava, former Air India Executive Director says the stance on 5:20 rule for international flights would any which way be contentious. That is because older carriers would be unhappy about the new entrants having it easy on international flying.“There is a need to abolish it (5:20 rule), there is no denying the fact,” he says.“But the question is, since existing players have to gone through it, should new players benefit,” he says.Kapil Kaul of CAPA sees infrastructure as a major challenge, though the direction of the policy is right.“We clearly have a challenge in the next few years in terms of the infrastructure, it is almost a crisis that you would see in the next 5-6 years,” he says.“As long as the thrust is primarily in terms of ensuring that the critical elements of the policy structures are implemented both in terms of fiscal regime, infrastructure and structural issues like the reforms at Directorate General of Civil Aviation (DGCA) and there is a realistic sort of a plan to achieve that, in the long-term it will be good for everyone. But we will have to see what is behind the headlines,” he says.Aviation expert Rajan Mehra feels the tax concessions on maintenance, repair and overhaul is direly needed.“It does not take rocket science to see that India is losing large amounts in MRO business,” Mehra tells CNBC-TV18.“We are in a geographical position where we could be, we should be handling MRO activities from other countries and what is really happening is that this activity is going out of the country even for Indian carriers,” he says._PAGEBREAK_Below is the transcript of Jitendra Bhargava, Rajan Mehra and Kapil Kaul’s interview with Sonia Shenoy and Ekta on CNBC-TV18.Anuj: Your first thoughts on what you have heard so far?Bhargava: I would say it is a policy that deserves 100 percent marks. It is a very detailed policy and everything has been very minutely gone through. Some things that one can say would be wish list for the airports, for the maintenance, repair and operations (MRO) for the airlines and the entire aviation industry. A very impressive policy.Ekta: Your thoughts on the 5:20 and the options which have been listed with regards to the domestic flying credit option which would make the playing field more even?Bhargava: It has been a contentious issue with the existing players not wanting abolition of 5:20 and new players wanting. So, what they have put in public domain for stakeholders to comment is, A] retain the 5:20 policy, B] abolish it and, C] replace it with a policy on domestic credits. Now, which will find acceptability will be go along further on it. But, what they have done is to have to have got this participation of stakeholders before taking a decision because this is a very contentious issue. So, therefore, there is a need to abolish it, there is not denying the fact. But the question is, since existing players have to gone through it, should new players benefit. That has been an issue and I am sure it is going to be resolved with a final option that they have given of replacing with domestic credits.Sonia: I wanted your thoughts on this to increase connectivity to the masses. This Rs 2,500 per passenger on one hour flights. How realistic do you think this objective is because the balance of the cost over and above Rs 2,500 will be paid 1] through a viability gap funding process and 2] through a cess on national and international flights that will be levied by the government? How viable do you think this entire process is?Kaul: Regional connectivity has two critical aspects. One is what you should term it as a commuter operation. This is roughly 9-30 seats. And then when you get into scheduled part of our operations which is roughly closer to 50 seats and could go right up to 100 seats which largely uses a turboprop or a regional jet. So, the first part which is a commuter operation, the 9-30 seater, if you look at the technology available in terms of aircraft technology available in between 9-30 seater is almost 1970’s and 1980’s technology.We have not seen any investment in any new aircraft from 9-30 seater. We will have to see which, frankly speaking I have not had the chance to go through the policy, but the thinking behind regional connectivity is extremely positive, there is no denying the fact. One has to basically see what is the model that is being used, how feasible is the model, what is the implementation, who is going to do those implementations. But largely for me, 50 seater plus is a different ball-game, 9-30 seater is a different ball-game. You possibly cannot put Rs 2,500 fare right across 9-seater to about 100-seater; I do not see how that will work. But I will be happy to assess it when it comes to us, but as of now, the thrust towards regional connectivity is what is required to be done.But to make it more practical and feasible, one has to wait and watch as to what is the model that the government is adopting in terms of ensuring that the regional connectivity is practical and implementable.Sonia: You must have heard the entire policy or the draft policy. For the listed players or for the likes of SpiceJet, Jet Airways, IndiGo, etc. what is the most positive take-away from the policy in your mind?Kaul: First of all, my sense would be that the physical incentives that they are likely to provide whether it is with respect to pushing the state governments for a sales tax on aviation turbine fuel (ATF) for ensuring the maintenance repair and overall, the entire tax structure on those MROs is listed. And more importantly, the focus on building infrastructure, we clearly have a challenge in the next few years in terms of the infrastructure, it is almost a crisis that you would see in the next 5-6 years.As long as the thrust is primarily in terms of ensuring that the critical elements of the policy structures are implemented both in terms of fiscal regime, infrastructure and structural issues like the reforms at Directorate General of Civil Aviation (DGCA) -- as long as that is presented properly and implemented and there is a realistic sort of a plan to achieve that, in the long-term it will be good for everyone. But we will have to see what is behind the headlines. I have not seen the draft. I had to go and see what is behind the headlines and the kind of depth that the policy has draft that it has.But broadly, the overall content of regional connectivity, fiscal regime, reforms in helicopters, overall, those are things that are required to be addressed. The only thing is that, you need to move behind those statements and see what are the models that you are going to use for implementations and how feasible that is. But overall, I think the sense that the government is talking about a policy in the public domain, it is going to be positive for every listed stock. I do not see anything negative for the listed companies at all. But the policy is at a draft stage. It has to go through various consultations, we will see what the outcome is.Ekta: While the draft policy looks very intricate and detailed, the aviation industry is dependent on a lot of factors, say even the volatility in Brent crude prices, though they are stable at this point in time. So, do you think that execution might be difficult even though the details are very comprehensive?Mehra: Execution is never difficult if there is intent. For the first time, I feel that this government has a positive intent. They have been through the draft of the policy on priority, they have come up with them in almost a month of when they announced it will be brought up. So, I think on the whole, it does seem that there is a sense of urgency as far as the government is concerned to bring aviation reforms in focus. That I think is the most encouraging part.How they implement it and how fast they can do it is something we all have to see, but till now, it does seems that they have the industry in mind, they have taken most of the issues that the industry placed before them in this draft and I would like to think that we should take it positively and hope that we can see a lot of these put into place in the next couple of months.Sonia: I had one question with regards to some of these taxes and costs that many of the aviation companies have to incur. There is some solution being brought in this policy where they say that service tax on MRO will be zero, storage period will be made tax free for three years and we all know how these companies have been reeling under these heavy costs for a very long time. Has enough been done or do you think more needs to be done on that accord?Mehra: Something has been done and that something I think is a lot. It does not take rocket science to see that India is losing large amounts in MRO business. We are in a geographical position where we could be, we should be handling MRO activities from other countries and what is really happening is that this activity is going out of the country even for Indian carriers.So, for the first time, one has seen a positive outlook in this area and the rationalisation of taxes is an important step. Other encouraging initiatives have been placed before in the draft. So, I think they seem to have got their act right finally in understanding the importance of MRO activity in the country.For entire discussion, watch accompanying video...