New civil aviation policy offers huge tailwind to Indian air cargo

In a big push to its reform agenda, the government of India has approved the country’s first National Civil Aviation Policy for increasing air connectivity, allowing new domestic airlines to fly abroad quickly and opening up the skies for European and South Asian Association for Regional Cooperation (SAARC) countries. The new civil aviation policy offer huge tailwinds for India’s air cargo industry as well.
Reji John

India’s Ministry of Civil Aviation (MoCA) released the National Civil Aviation Policy (NCAP) recently, after incorporating feedback from the various stakeholders on the draft policy which was released on October 30, 2015. The NCAP is aimed at providing a favourable eco-system and a level playing field to various stakeholders like airlines, airports, cargo, Maintenance Repairs and Overhaul (MRO) services, and to make flying affordable for the masses.

New airlines, such as Vistara and AirAsia, will no longer have to wait for five years before starting operations on international routes. Start-up airlines can now fly abroad after operating at least 20 planes or 20 percent of their total flying capacity, whichever is higher, on domestic routes.

According to a 2004 norm, which is also known as the ‘5/20 rule’, a domestic airline is allowed to go international only after flying for five years to domestic destinations and operating at least 20 aircraft.

“Connecting the unconnected and serving the un-served is the motto of the civil aviation policy. The questionable legacy of the ‘5/20 rule’ has been thrown into the dustbin today,” Information Technology and Communications Minister Ravi Shankar Prasad said after Cabinet meeting that approved the new policy.

India will have an open-sky policy for countries beyond the 5,000-km radius from Delhi on a reciprocal basis. This means that airlines from European or South Asian Association for Regional Cooperation (SAARC) countries will have unlimited access, in terms of number of flights and seats, to Indian airports, leading to increased flight frequencies with these countries.

While India has full open-sky with US, it has a near open-sky agreement with the UK with a restriction on the frequency of flights to and from Mumbai and Delhi.

As a part of its regional connectivity scheme, passengers will be charged Rs 2,500 for an hour’s flight on regional routes by the airlines. The government will provide financial support to fund airlines’ losses on such un-served routes.

This will be done through “a small levy per departure” on all domestic routes except in remote and north-eastern States. The government has grand plans to revive 50 airports in the next two years through the regional connectivity scheme. However, it is yet to ascertain how it will mop up funds for providing the viability gap funding.

“We have attempted to create an eco-system where an ordinary Indian can start flying. India has 35 crore middle-class citizens but the number of tickets sold is only eight crore. It’s a pity that middle-class Indians with reasonable amount of disposable income are not able to fly once in four years,” said R N Choubey, India’s Civil Aviation Secretary. The government expects the number of tickets sold to go up to 30 crore by 2022.
Choubey said the ceiling on airfares will be proportionate to the flying hour. For instance, airlines will charge passengers around Rs. 1,200 for a 30-minute flight and around Rs 1,800 for a 45-minute journey.

Domestic airlines will be required to provide more flights to the north-eastern region, Jammu and Kashmir, Andaman and Nicobar Islands and Lakshadweep as the route dispersal guidelines have been amended to add six more sectors to the metro routes. As per the guidelines, on such north-eastern and other routes, airlines are mandated to fly 10 per cent of their total capacity they deploy on metro routes.

As per its earlier proposal, the government doesn’t plan to auction the international air traffic rights. A committee, headed by the Cabinet Secretary, will however recommend a method to allocate additional capacity entitlements to other countries wherever the Indian carriers have not utilised 80 per cent of their bilateral air traffic rights.

“There are many things in the policy which are growth oriented. One is 5/20 norm becoming 0/20 allows more airlines to go international which will (also) allow them to potentially consider buying more wide-bodied aircraft,” said Dinesh Keskar, Senior Vice-President (Asia Pacific and India Sales) at Boeing Commercial Airplanes. “I am not saying by tomorrow, but at least now the door is open,” he added.

Under the new civil aviation policy there is substantial support for India’s air cargo industry. It ensures that there is minimum level and standard of cargo facility in future airport developments. Given its importance from a ‘Make in India’, e-Commerce and exports perspective and the high employment potential of the segment, the policy aims at promotion of both domestic and international air cargo. The policy states that air cargo co-located with an airport will be accorded ‘infrastructure’ status.

Some of the recommendations included in the new civil aviation policy are: Dwell time of domestic air cargo to be reduced to 48 hours by December 31, 2016 and 24 hours by December 31, 2017; dwell time for exports to be reduced to 12 hours and 8 hours by December 31, 2016 and December 31, 2017, respectively; paper-less processing of air cargo; customs procedures to be simplified; Endeavour to have all relevant Central Government authorities under one roof, at the cargo terminals; single window clearance system at cargo terminals for prompt clearances; Low user charges to be levied on cargo facility so that it does not become an entry barrier; Airport operators to be encouraged to provide space on 10-year lease to operators of express cargo and freighters who may then develop dedicated infrastructure.

India’s Express Industry is turning out to be a pivotal segment for enhancing the exports, especially in the SME segment, in view of expansion of e-commerce and other new age industries. With the emphasis of the government on “Make In India”, ‘Ease of doing business’ and enhancement of exports, it is all the more important that EDS is recognised and facilitated with adequate infrastructure at the airports with rational lease tenures and rentals to provide efficient services in India.

“In accordance with Express Industry Council of India’s (EICI) long term advocacy on behalf of the express industry, the Policy takes cognizance of the distinctiveness of the Express Delivery Services and the potential it offers. The policy recognises Express Delivery Services as a separate segment within air cargo owing to its distinctive nature and processes,” said Vijay Kumar, Chief Operating Officer, EICI.

The new policy claims that according infrastructure status will help speedy movement of cargo on the back of single-window clearance. Secondly, increased revenues from air cargo will help airlines subsidise the cost of passenger tickets and thus take flying to masses.

Promotion of both domestic and international air cargo and express delivery services is a key objective of the government, given its importance from a ‘Make in India’, e-Commerce and exports perspective. Revenue from air cargo helps airlines subsidise the cost of passenger tickets and take flying to the masses. Air cargo, particularly domestic, has a high employment potential, especially for semi-skilled workers. Currently, air cargo volumes in India are very low as compared to other leading countries due to high charges and high turnaround time. Within the air cargo ecosystem, Express Delivery Services (EDS) has a distinct operational nature and is becoming pivotal especially in the light of double digit growth in e-commerce. The new civil aviation policy has put the following framework which is expected to ensure growth of air cargo business:
1. Cargo facilities co-located at an airport are covered under the ‘Harmonised List of Infrastructure’ and will get the benefit of ‘infrastructure’ sector.
2. The Air Cargo Logistics Promotion Board (ACLPB) has been constituted to promote growth in air cargo by way of cost reduction, efficiency improvement and better inter-ministerial coordination. The Board and the industry will submit a detailed action plan after stakeholder consultation, with the objective of reducing dwell time of air cargo from ‘aircraft to truck’to below 48 hours by 31 December 2016 and to24 hours by 31 December 2017by reduction in free time and other measures. For exports, Dwell Time will be reduced to 12 hours by 31st December, 2016 and 8 hours by 31st December, 2017.The action plan proposed by ACLPB will be forwarded to Central Customs Coordination Committee (CCFC) to achieve the stated objectives.
3. The government will streamline and simplify Customs procedures and ensure a shift to paper-less air-cargo processing through use of digital signatures for transmission of messages. ACLPB will chalk out an action plan for this by 1 April 2017. Customs will also facilitate Risk Management System (RMS) for exports and will consider outsourcing some of their activities to Cargo Terminal Operators as the latter are appointed by Customs.
4. ACLPB will developnon-legal and indicative Service Delivery Modules after extensive consultations with stakeholders for all elements of the air cargo express cargo value chain such as – airlines, airports, terminal operators, Customs House Agents (CHA), freight forwarders, and government agencies like Customs, CISF, quarantine officers etc. An Air Cargo Community System will also be developed to avoid delays.
5. BCAS will continuously review and simplify security procedures for air cargo in light of the changing business dynamics and evolving technology, while ensuring adequate checks and balances, in consultation with stakeholders.
6. Advance Cargo Information (ACI) system will be implemented in a phased manner after a universally accepted international template has emerged. This will help in faster processing.
7. MoCA plans to leverage the untapped trans-shipment opportunity. The ACLPB will propose specific action steps to promote trans-shipment at Indian airports and the same will be monitored by MoCA. Free Trade and Warehousing Zones will be set up to facilitate transhipment cargo.
8. The space allocated for cargo on the air-side and city side at most Indian airports is inadequate. ACLPB will recommend norms for space allocation for air-cargo, including express cargo for all Greenfield airports. The action plan for space-augmentation at existing airports will be developed by ACLPB on a case by case basis in consultation with stakeholders.
9. The government will endeavour that all relevant central government authorities are available through a single window at the cargo terminals. These include Customs, wild life clearance, Drug Controller, Plant and Animal Quarantine, FSSAI, Archaeological Survey of India, DGCI etc. Clearances will be given promptly and online after necessary checks through a Single Window System.
10. The government has commenced 24×7 Customs operations at several airports. However, it has not been utilised optimally by industry. ACLPB will work closely with industry and propose action steps to spread out cargo handling round the clock including provision of adequate manpower. The suggestions /recommendations of ACLPB will be placed before the Central CCFC for appropriate action.
11. ACLPB will promote global good practices like Free-Trade Warehousing Zones (FTWZ), Air Freight Stations, Bonded trucking, dedicated cargo airports etc.
12. Freighter aircraft suffer from low priority accorded in terms of time slots and parking bays. ACLPB will recommend norms to address the issue.
13. ACLPB will work with AERA and Airport operators and recommend user charges which are competitive vis-a-vis competing aviation hubs. In particular for the non-metro airports, the lease and other fixed charges levied by AAI on cargo facility will be kept low so that it does not become an entry barrier.
14. Airport operators will be encouraged to provide space for at least a10-year lease to operators of express cargo freighters who may then develop dedicated infrastructure to improve their operational efficiency.
15. MoCA will encourage development of cargo-villages near airports.