Ajit Singh: We need survivors, Etihad deal has helped Jet survive

As the Jet-Etihad deal is back in news, we present an interview of civil aviation minister Ajit Singh, where he answers charges that he is batting for Jet Airways

ajay

Ajay Singh | July 4, 2013


Civil aviation minister Ajit Singh
Civil aviation minister Ajit Singh

Civil aviation minister Ajit Singh has been facing flak over a recent India-UAE agreement, allowing each other’s airlines to offer 36,670 seats a week, up from 13,300. Critics say this will benefit only Jet Airways because the deal comes right at a time when Abu Dhabi’s flag carrier Etihad Airways has acquired 24% equity in Naresh Goyal’s airline. In any case, Indian airlines use only about 65% of the current entitlement.

Ajit Singh, however, is unruffled by criticism – of the agreement, or how the government is treating Air India. When a Governance Now team met the minister for a long-winding interview, he emphasised that his top priority is the traveller, and he wants to convert as many of them to air travel as possible. Here are the excerpts from the interview, edited for clarity:

To begin with, we are curious to know how the unbundling of prices would affect airfares.
Unbundling is a worldwide practice. But people get carried away by misinformation and attribute all kinds of motives, including linking it with the arrival of Air Asia. At the moment you are being charged for meals, baggage and a lot of things that you don’t use. I will give you my own example. Recently, I was on a Mumbai-Mangalore flight. It’s a one-hour flight at 11:30 am. Full breakfast was served. Why? The pricing is such that you have to pay for breakfast whether you want it or not. Similarly, whether you have luggage or not, you have to pay for it. These things escalate airfares. Now, if these things are priced separately, you don’t have to pay for things you don’t want. This will reduce the cost. For people who are price-sensitive, if they don’t want to pay for these services, then maybe you will encourage them to fly. All these things are aimed at converting more people into air travellers. Its implementation will take months. It has only just been announced.

Are you confident prices will go down as a result?
We have yet to assess as to how income of the airlines will be affected after implementation. Then only we can come to a conclusion. Prices have not come down yet. It will take months. But that’s the formula prevalent worldwide. That is the model which found acceptance in the aviation sector also.
        
But aren’t you worried that this might be actually used in the reverse? That the prices might actually go up for these services?
I do not think so. There will be intense competition as other airlines like Air Asia are also coming. Anyway, the base price will remain the same. And then the pricing would be fixed for every service. Airlines have the right to charge different prices for different services, but that is moderated by competition. As a result, prices are expected to come down. And then the DGCA [directorate general of civil aviation] is also seized of the matter and will keep a close watch on how things unfold. Our objective is to benefit air travellers and encourage air travel and if that is not happening, DGCA can always intervene on behalf of the passengers.

Do you support the continuation of DGCA in its present form and function?
No, we have already moved a note to the cabinet to turn it into the civil aviation authority (CAA) which will have more autonomy – both functional and financial. The problem with the DGCA is it has to go through the government hiring process, UPSC etc, and finding specialists at the government salary scales takes forever. So DGCA is woefully short of staff. It functions at a pace at which government organisations work. By making it an authority, we will make it financially and operationally self-sufficient. We will charge the passengers not more than Rs 5 in order to raise the corpus that can make the authority financially viable.

Will this happen within your tenure? Would you be able to push it through the cabinet and implement it?
Everybody wants it to go to the parliamentary consultative committee. We have sent it to the cabinet secretariat. So it should be brought to the cabinet very soon. Let’s hope we can move it in parliament in the next session. But if it goes to the consultative committee, it will take some more time.

Would you want that to be seen as the legacy of your tenure?
It’s not a question of legacy. This has been going on for quite some time. ICAO (International Civil Aviation Organisation) has also recommended this. It is needed. Then they can have the authority to fix pay scales for some specialised jobs which they can’t do now. They don’t get the qualified people. Right now the examiners for certifying commercial pilots are on deputation from the airlines. With the CAA in place, such jobs would be done in-house.

You are under attack for enhancing UAE’s bilateral and increasing their access to our airports overflying the hubs of Delhi and Mumbai because all this will ultimately benefit Naresh Goyal of Jet Airways. How do you respond to allegations that yours is the ministry for Jet Airways?
That is way off the mark. Jet Airways was the first to oppose the FDI [foreign direct investment] in the civil aviation sector...

Yes, but only till such time as it did not suit them...
...We allowed FDI because civil aviation is a capital-intensive industry. Interestingly, in this business, tour operators, travel agents, service providers, everybody makes money except the airlines. The airlines operate on very thin margins. FDI was already there up to 49 percent (foreign airlines were not permitted to buy stakes in Indian airlines). We have just removed that condition because who else other than global airlines will be interested? So this deal (Jet-Etihad) has happened under that policy. We did it because we believe it is beneficial not only to the airlines but also to the passengers.

Now look at it from another angle. In its turnaround plan submitted to the government, Air India projected a growth rate of about 9 percent every year in international traffic. Now, how would these passengers travel? Does Air India have the capacity? With Kingfisher gone, our capacity has only gone down. So we need more passenger seats. How do we create that (without FDI and bilaterals)?

This bilateral agreement is different from all earlier bilaterals in the sense that an Indian carrier (Jet Airways) will have footprints in many cities abroad. Earlier, Indian carriers could take passengers up to UAE and their airlines would take them to further international destinations. UAE has now allowed a change of gauge (as it is called) wherein Jet will be allowed to fly passengers from across India to UAE, collect them there and then change into a bigger aircraft to fly to other international destinations. (Ed: Airlines need bigger jets for long-haul flights; Jet Airways has only short-haul planes.) This agreement allows Jet to fly to many cities in the world under its brand name. Jet has already submitted a plan to fly from 23 foreign cities as a result of this tie-up. They can buy bigger planes and fly more passengers as a result. This would have been impossible without the bilateral agreement.

Now let me answer your question about overflying the Delhi and Mumbai hubs. Why are we making so many international airports if we never intended international flights to land there? The hub-and-spoke policy is okay, but internationally also travellers prefer point-to-point travel – it is cheaper, faster and more efficient. That is so even for the airlines and it would increase international connectivity...so what are your other complaints? And, yes, we would have done this for any other airline if they had come to us, (and) not just for
Jet Airways.

In fact, when we made this policy, all of you accused us saying this was being tailor-made for Kingfisher. But let me assure you that we tailor policies according to needs of the aviation sector, not individual airlines.

Do you want to respond to the allegations that this is the ministry for Jet Airways?
But how? Why? You tell me.... I would have done this for any airline. Earlier, this was the ministry for Kingfisher Airlines. You see the reality. IndiGo already has 49 percent FDI. GoAir is too small and Air India cannot find a better deal than run on government money. And anyway getting FDI into Air India is a long-drawn process that has to go through parliament. That leaves only SpiceJet and Jet Airways for infusion of FDI. And also remember that this is a very thin-margin business with intense and cut-throat competition. This is the precise reason why every new entry is opposed and they are all opposing Air Asia. By the way, they don’t have the capacity either.

You see, earlier there was a cabinet resolution, which was also criticised by the comptroller and auditor general (CAG), that the plans and capacity of Air India would be taken on board before allotting bilateral to other Indian carriers. The minister changed that to Air India being given the first right of refusal. So they were not giving any Indian carrier any chance. Air India did not have capacity but they would not allow Jet, Kingfisher or IndiGo to the same. In the last 18 months, we have given them (Indian carriers other than Air India) 81,000 seats. So right now, except in some cases, we have allotted the same number of seats to Indian carriers as to foreign carriers.

Let us point out an asymmetry that is being talked about. Our rules prevented Indian airliners with less than five years’ experience from flying abroad. But Etihad, which has been around for less than five years, will fly to India...
Yes, that was our rule for a very long time. But by your logic Bangladesh Airlines with two aircraft can’t fly to India. Bhutan with only one is flying there. We can’t make our laws applicable to other airlines flying in their countries. DGCA can check their airworthiness and safety aspects but nothing more. Anyway, I do think the five-year rule needs a relook.

There are also questions on why A380 is not being allowed to come to India. But Jet Airways, because of its deal with Etihad, might bring in A380 (because Etihad has the largest fleet of A380 in the world). What should we make of this?
You are too focused on Jet Airways. Here is a guy (Naresh Goyal of Jet) who has been doing it for 20 years while so many have fallen by the wayside. East-West Airways, ModiLuft, Damania, Kingfisher, Paramount, Deccan, MDLR and many others. So Naresh Goyal and Jet Airways must be doing something right to have survived through all this turbulence for 20 years. Look at it from that point of view. We also need survivors in this business.

So far as A380 is concerned, its capacity is 550 or 600. The problem that I envisage is that because of the sheer size of the plane, our security and ground-handling infrastructure would be overstretched. Because so many passengers will disembark from one flight, no other flight will be able to land; and if they do, there will be huge queues and chaos at our airports. We also have to look at the impact on bilaterals because of the big plane’s carrying capacity. But the basic problem is infrastructure at our airports. We have to take all these into consideration before we take a decision on this.

Moving away from Jet Airways, as civil aviation minister, you are the custodian of Air India and you have to set policy and make decisions for the entire industry. How do you reconcile these two conflicting duties?
You can just judge that by the fact that many of our decisions have been opposed by Air India. Air India opposed giving the bilateral rights to other carriers. They opposed FDI; they don’t want other airlines also to come here. That is the proof that we are working for the aviation sector and not for Air India alone. For us, passengers’ convenience is the first priority. Now let me go back to the airlines. Many of these airlines – Singapore Airlines and others – want to fly directly to most of our cities. Pune, for example – Singapore Airlines and many others want to fly there. How long can we hold on because none of the Indian airlines wants to fly from there (Pune to Singapore and vice versa)? Now, shouldn't I give the facility to citizens of Pune to be able to fly directly to and from Singapore? Indian carriers still do not have the capacity to use all the rights we have given them. As I said, this is a very capital-intensive industry and Indian banks are over-exposed to this sector and they are not even willing to extend working capital anymore. So those questions are there and one should not jump to conclusions. We are trying our best. Earlier, other airlines criticised me, saying that I was working for Air India, now Air India is criticising me saying that I am working for Jet Airways. I suppose the best measure of fairness is when each side criticises you for favouring the other.

Tough as it is, what is the outlook for this industry?
The problems that I face – and every other civil aviation minister has faced and will face – is that it is very difficult for the government to work in the service industry. In this industry, the main point is how you treat your customers. The airlines are flying the same A320s or 737s. The difference is in how the cabin crew serves you during flight and how the ground crew handles you. Here the customer is king. But in government companies, everybody is king himself. So it becomes very difficult for them to adjust to this kind of an environment and compete. That becomes a problem. The second thing is it is a highly competitive industry and things are changing very fast. Now to deal with that and to make Air India competitive while working at the pace of the government and its procedures is very difficult. Another thing is it is a very high-profile industry and even if the passengers face a small problem, a lot of noise will be created. But these are exciting and challenging times for the industry.

Two questions arise out of what you have just said. One, would the government then consider freeing Air India from its public service commitments like flying to under-served and unprofitable destinations?
The government does that as there are route dispersal guidelines. For example, 10 percent of the flights are to go to the northeast, etc. The focus now for this sector is on connectivity. There are many flights connecting metro cities but now the focus is on connecting tier-2 and tier-3 cities. Environment and physical conditions differ from region to region. To service all regions, airlines will need to have more than one kind of aircraft. They need to have multiple fleets. That spikes costs. All cost, such as inventory, training and maintenance costs, go up. So airlines normally prefer not to have different types of fleet.
So we are coming out with new route dispersal guidelines. A committee was formed when Mr Rohit Nandan was the joint secretary. He gave a report and then we hired Deloitte. I have invited Mr Naresh Chandra because he made the initial policy. I have also invited Deepak Parekh to this committee. The idea is to incentivise them by giving them tax concessions. We also intend to allow seat trading like we do carbon trading. Suppose an airline does not want to fly some area, they can assign it another.

Wasn’t that conceptually there in the earlier guidelines as well? You could trade your seat with each other.
In earlier guidelines, there is a loophole. What they did was seat kilometres or SKMs. Now Bagdogra is not in the northeast. But because for going to Bhutan and Sikkim there was no other way, they included it in the northeast. So from here (New Delhi) if an airline flies to Guwahati and Bagdogra, their SKM ratio of 10 percent is achieved. They don’t have to fly anywhere else in the northeast. Air India is doing a lot of that. Now they are flying to some other cities. So we are also looking at that. Let’s see how we get around that. There were no penalties earlier. The bigger problem now is how to connect Gorakhpur and Muzaffarnagar.

Will that responsibility now be shared by everybody – not just AI?
To Air India, we have made it very clear, no more government money. They have to compete and employees are beginning to realise that. Air India has improved a lot in the last six months. Look at their performance. Last year EBIDTA – they lost Rs 2,300 crore. This year they made a profit of Rs 65 crore and next year that will go up to Rs 1,000 crore. We are determined to make AI competitive. We appointed the Prof Dholakia committee to suggest cost cuts. They gave 47 recommendations and we are going to implement them. In fact, reducing checking baggage from 20 kg to 15 kg was their recommendation, it had nothing to do with the unbundling policy. So AI is going to be a combination of low-cost carrier (LCC) and full service. In business class, they will serve meals, otherwise they will charge.

There is no threat of AI being privatised?
Why do you call it a threat? What we have done are two things. We have formed ground handling operations and engineering into separate subsidiaries. So now for the engineering subsidiary to prosper they have to service other airlines. In this business you need all kinds of certificates and tests. So they have to get these certificates from the US, EU, China and Japan and provide those services to other airlines. They are good engineers, but we plan to hire an outsider with marketing and management acumen in that line so they can get more business.

How will things improve or change when Air Asia enters the scene?
I think there is more of hoopla here. We must not underestimate the entrepreneurship of Indians. The tough environment of the industry and the DGCA rules are not going to be relaxed for one player. Let me tell you that I was always in favour of acquiring smaller aircraft to increase connectivity. But even Air India does not have it. Of 11 smaller planes they have, only three can fly. The problem with Air India is its over-bureaucratisation like the government. Earlier, they resorted to the strikes at the drop of a hat.

Is there a larger game that is being played out with regard to the Jet-Etihad deal which the frogs-in-the-well can’t see clearly?
First, I believe that the Jet-Etihad deal is good for Indian aviation because of the kind of deal it is. As I said they will get access to more global airports, they will get cheaper fuel, they will have joint training, etc. So it’s a good deal not just for Jet but for Indian aviation. Because if Jet Airways goes under, what will happen to the aviation industry? Jet would have gone under because of its over-leveraged debt of $1.1 billion. This deal is $900 million dollar, not just $279 million. Imagine what would have happened to this sector if this deal didn’t go through. If Jet had gone down it would have been a disaster for air travel in India. Yes, the number of seats that have been increased is little high. When we told all the airlines, total demand was 54,000; 40,000 Jet and about 14,000 for other airlines. And we have given them about 36,000 for over next three years; it will take them at least five years as they haven’t started yet.

Is there any move to change the security arrangement at the airport given threat perceptions and the sensibility of travellers?
There is a proposal to bring in civil aviation security for airports. Gun-toting police personnel manning internal security at airports is a bizarre idea. We have to train our own security personnel while intensive security duties can be performed at the perimeter by the central police organisations (CPOs). This proposal is obviously not acceptable to the home ministry. But I think airport security is not like handling law and order.

(This interview appeared in the June 1-15 issue of Governance Now magazine.)

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