Will the Government’s Regional Air Connectivity Plans Ever Take-off ?

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The Ministry of Civil Aviation will soon unveil the final Regional Connectivity Scheme (RCS) as envisaged in National Civil Aviation Policy 2016. It is slated to be launched by October 21, 2016.

The government had released the draft RCS in July 2016 and it hopes that the first flight under the RCS will take off from January 2017.

The Centre has proposed to cap fares at Rs 2,500 for a one-hour flight under the RCS. Airlines operating under the RCS will get Viability Gap Funding (VGF) and a host of other benefits such as lower taxes and airport charges to promote RCS. The government will exempt service tax on tickets on RCS routes, and remove excise duty on ATF drawn by airlines. The government has already notified setting up of a Regional Air Connectivity Fund for providing VGF to aircraft operators. The Centre will share 80% of the cost of VGF while the states will share the remaining 20%.

The Centre has already signed memorandum of understanding with the states which include Gujarat, Maharashtra, Chhattisgarh, and Puducherry for implementing the RCS. Uttar Pradesh has its own air plans, offers tax sops for intra-state airlines. After securing approval for setting up three new airports in Andhra Pradesh, the state government will soon sign an agreement with the Centre and the Airports Authority of India (AAI) for enhancing air connectivity under RCS. The Centre has suggested the states to provide incentives to airlines to encourage them to fly on regional routes. In Kerala, creation of airstrips in major tourist destinations that still lack last mile connectivity had figured in the maiden budget of the state government. Airstrips that will facilitate the landing of small 50-seater aircraft are being planned. Kerala Tourism has commenced steps to execute the project and improve tourism prospects while creating tourism infrastructure in Kerala during the next five years.

Airports Authority of India, which is the implementing agency for the scheme, has already shortlisted 22 underserved and unserved airports, which are suitable for RCS flights. These airports include Bikaner, Jaisalmer, Warangal, Bhatinda, Pathankot, Jamnagar, Gwalior, Agra and Allahabad among others. There are a total of 394 unserved airports and airstrips across the country.

R-N-Choubey-Civil-Aviation-Secretary
Civil aviation secretary R N Choubey.

The government plans to bid out the routes to participating airlines. It will invite bids from the participating airlines wishing to fly on regional routes, as per Civil aviation secretary Rajiv Nayan Choubey.

The bids for routes will be on “reverse auction” basis, Choubey has told media. This means an airline quoting the lowest amount of subsidy would get the right to fly on a particular route. Apart from bidding out a pair of routes, the government will auction a network of routes and also proposed a period of exclusivity on routes won by an airline during the auction. This was to ensure that the scheme is viable from a commercial viewpoint.

The civil aviation ministry has also proposed a levy on all domestic and international flights on metro routes, the collections from which will go into the RCS fund. 

Herein lies a hurdle. The government’s move to boost RCS has hit a legal obstacle. Some private airlines have termed it as “illegal”.

The Federation of Indian Airlines (FIA), comprising IndiGo, Jet Airways, SpiceJet and GoAir, has written to the Union Civil Aviation Ministry describing the proposed regional connectivity levy as “illegal” and “in contravention to the Constitution of India.” FIA members are the leading domestic airlines in the country. They have strongly opposed the proposal to charge a levy on flights on major routes to fund subsidies for regional flights and are likely to take the matter to the courts. 

As a part of its proposed RCS, the Union Civil Aviation Ministry had mooted amendments to the Aircraft Rules of 1937  to set up a regional connectivity fund to subsidise the losses of airlines that wanted to fly on regional routes. The fund was proposed to be financed by a levy on domestic flights along with contribution from states and credit proceeds from other sources. 

Rahul Bhatia of FIA
Rahul Bhatia of FIA

FIA’s views :

Levy is a burden on them.

Section 5(2) (ab) of the Aircraft Act of 1934 does empower the Centre to make rules for economic regulation of air services but it doesn’t authorise it “to introduce a levy in the nature of tax on air services.”

A levy in the nature of tax can only be levied having regard to the provisions contained in the Article 265 of the Constitution of India i.e. by authority of Law.

The government does not have the power to levy a tax on airlines to fund the regional connectivity scheme under the Aircraft Act of 1934.

The draft rules as published are therefore ultra vires the Constitution of India and would be illegal.

Imposition of a regional connectivity levy would require amendment to the Aircraft Act, 1934 and not the rule and until then the draft rules would be “beyond the authority of law and in contravention to the Constitution of India.”

“The draft rules may, therefore, tantamount to an attempt by the Central Government to usurp the powers or authority of the Parliament,”

Ministry’s stand :

Despite opposition from airlines, Civil aviation secretary R N Choubey has said, “The government is still going ahead with the move. We have got the approval of the Law Ministry. If someone wants to move the court, they are free to do so.”

The civil aviation secretary stated that it already charges levy in the form of passenger service fee on air tickets. The passenger service fee is levied to air passengers under rule 88 of the Aircraft Rules to meet the expenditure on airport security and passenger facilities at the airports.

The stage is now set for a prolonged legal battle. Both sides stick to their stands. There may be millions of willing fliers in India; but in all probability, the casualty will be the RCS because there are very few willing entrepreneurs and investors, the stories of Air Pegasus and Ventura had been very discouraging. Unless the flaws in the scheme are ironed out, RCS may not ever be realised. IATA sees with awe the emerging Indian middle-class, its diverging demographics and it does predict India’s civil aviation to become the world’s third largest by 2026, but given the constraints regarding legislation, infrastructure and investment plaguing the Indian aviation industry, one is not sure about how much of this growth will materialise. 

With major domestic players not evincing much interest so far in the ambitious RCS, the government is pinning its hopes on the wholly-owned subsidiary of Air India, Alliance Air, to make it a success. The state-owned regional airline, Alliance Air, the regional arm of Air India, is likely to sign a pact soon for leasing 10 new turbo-prop planes as the airline plans to fly to small towns under RCS. It is at the “final” stages of negotiations with lessors to lease these planes. Alliance Air currently has 10 ATRs in its fleet. Two of them are 42-seater ATRs. It operates 39 point-to-point air services daily to 34 tier-II and tier-III cities from its six base stations — Delhi, Kolkata, Mumbai, Hyderabad, Bengaluru and Bhopal.

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