India’s aviation ministry ready to do away with international flights rule

AirAsia and Tata Group are teaming up to start a new carrier in India, which under the new rules could start international flights sooner. Tomohiro Ohsumi / Bloomberg News

The Indian government is expected this month to ease regulations on domestic carriers flying abroad, in a move that would boost the country's aviation sector, analysts say.

The current rule is that Indian carriers must have been operating for at least five years and have 20 aircraft before they can commence international operations.

Ajit Singh, India’s aviation minister, said the cabinet’s approval for scrapping the rule would be sought by this month.

The change to the policy would mean new entrants to the market would be able to fly abroad without having to wait five years or more.

Tata Group has teamed up with AirAsia to launch a budget carrier, AirAsia India, while Singapore Airlines (SIA) is partnering Tata to start a full-service airline, with both ventures announced last year after New Delhi relaxed rules in September 2012 on investment in the aviation sector to allow foreign carriers to buy stakes of up to 49 per cent in Indian airlines.

“The five-year/20 aircraft rule is just another one of many inane Indian aviation policies that hinder growth,” says Saj Ahmad, the chief analyst at StrategicAero Research.

“It’s utterly ridiculous – and what is more farcical in my view is that it’s taken the Indian authorities so long to work out that it needs rescinding. How can you expect an airline to compete with agile, efficient international rivals if you relegate its status to a domestic player and strangle its growth options?”

The aviation analyst Capa India said abolishing the rule would “bring to an end a very negative regulation which has seriously hurt the industry”.

It says new entrants to the market and existing carriers alike would benefit, including the planned Tata Group and SIA full-service airline.

“The expected abolition of the five-year/20 aircraft rule will expedite the launch of the carrier’s international operations. Certain interests are likely to try and ensure that a qualification period of at least one or two years remains but the regulation looks set to be abolished entirely,” Capa adds.

It adds the move would be welcomed by many others

“After several years of no serious new entrants, several regional and national carriers are still lining up to enter the market after AirAsia India, Air Costa and Tata-SIA,” Capa says. “Several new start-up carriers are waiting in the wings. AirOne and Easy Air are seeking national licences, which may be awarded in a matter of weeks, while Air Pegasus is preparing to launch a regional airline.”

GoAir, an Indian budget carrier, would also stand to benefit.

“The carrier is interested in launching international services but will either have to wait until its fleet size reaches 20 aircraft in mid-2014, or the five-year/20 aircraft regulation is lifted, whichever is sooner,” Capa says.

Tony Fernandes, the group chief executive of AirAsia, is among those who have criticised the rule.

"It makes sense for us to fly people from Malaysia to south India and fly them to [the Arabian] Gulf and Africa on a new flight," he was quoted by the Times of India as saying last year.

“As a low-cost carrier, I do not favour very long flights at a stretch. India’s location is perfect. But there are bizarre rules ... that you can’t fly abroad before five years and 20 aircraft. That rule makes no sense. It is a negative for the Indian airlines.”

The rule, which only applies to Indian airlines, was initially expected to be abolished in November but that did not happen.

Overseas carriers, meanwhile, have managed to capitalise on the regulations.

“The impact of this discriminatory regulation has been extremely damaging for Indian aviation,” Capa says. “Not only has it ceded a larger share of international traffic to foreign carriers, but it contributed to over-capacity and losses in the domestic market during market downturns because some Indian airlines were unable to re-deploy aircraft to overseas routes.

“And Kingfisher’s demise can in part be attributed to the challenges of integrating Air Deccan, an acquisition that was motivated by the desire to circumvent the five/20 rule. By leveraging Air Deccan’s longer history of operations, Kingfisher was able to launch international services almost two years earlier than it would have been able to in its own right. But that decision marked the start of the carrier’s problems which eventually led to its closure.”