Touch Base with Indian A&D Industry

The government is considering a proposal to allow foreign airlines such as Singapore Airlines, British Airways and Lufthansa to pick up equity stakes in domestic carriers, but with riders.

It is preparing the ground for a major policy shift on foreign ownership in aviation. Government sources say foreign airlines may be allowed to own a 20-25% stake in local carriers, but their role on boards and in the management would be limited.

The civil aviation ministry had, in the past, argued that allowing larger foreign airlines to own stakes in fledgling Indian carriers could cause harm to the domestic aviation sector.

“Things have changed. Earlier, only one Indian airline operated internationally. But now, three domestic carriers fly to foreign destinations. Our carriers have grown in size and scale in three to four years’ time. We don’t think the earlier concerns are relevant. If foreign telecom companies can buy stakes in Indian telecom companies, why can’t foreign airlines pick up stakes in domestic airlines?” a government official asked, on the condition of anonymity.

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India’s airport operator Airports Authority of India (AAI) was on Thursday granted Miniratna status by
the government.

A civil aviation ministry statement said the AAI has fulfilled the criteria for Miniratna title by posting continuous profit for the last three years and positive net worth.

The government has granted the Miniratna status to 55 companies so far.

The Miniratna status would allow the AAI to take up investments up to Rs.5 bn (Rs.500 crore) at any airport without seeking prior government approvals.

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State-owned carrier Air India Head Raghu Menon was censured on Wednesday by the government for his proposal to offer leave without pay
to 15,000 employees.

Highly placed sources said Oil Minister Murli Deora took exception to Menon’s proposals during a meeting of the Federation of Indian Airlines and Civil Aviation Minister Praful Patel to resolve the crisis arising out of mounting fuel bill arrears.

Deora cut Menon short when he today again talked of the need to "rationalise" the workforce to trim losses arising out of negative growth and high fuel cost. "There should not be any layoffs. Why are you raising it now," sources quoted Deora as telling Menon.

The oil minister than widened his message on ‘no-job’ cuts to the other participants-Kingfisher Chairman Vijay Mallya and Jet Airways Executive Director Saroj Dutta- present at the meeting.

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Get ready to fly out of the air pocket. The government is drawing up a whopping bailout package - to the tune of Rs 4,500 crore to Rs 5,000 crore - for all domestic carriers. Coming close on the heels of steepest ever cut in aviation turbine fuel (ATF) prices by over 16%, the relief package is expected to come as a big shot in the arm for the struggling aviation industry.

According to top government sources, the bailout package is expected to give a relief of Rs 4,500-5 ,000 crore to all domestic carriers in the coming months.

Once these measures are rolledout , it is likely to turn into celebration time for consumers too, since many leading domestic airlines , including national carrier Indian, would be forced to re-work their fares.

According to sources, the salient features of this package would be to cut airport charges for a limited period by 50%. It is estimated that all airlines together deposit Rs 2,500-3 ,000 cr annually as airport charges, and this step will come as a huge relief for the ailing carriers. The through-put charges which the airport operator charges from the oil companies would also be reduced drastically. In the last one year, these charges have shot up to Rs 1,000 per kilolitre (ATF) from Rs 60 per kilolitre. Besides, the 8% excise duty on ATF would be removed and all oil companies would be asked to rationalise the base price and bring it at par with the international ATF prices.

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The Cabinet Committee on Economic Affairs today gave its approval for implementation of GPS (Global Positioning System) Aided Geo Augmented Navigation (GAGAN) project for seamless navigation over Indian airspace at an estimated cost of Rs.774 crore.

The project involves development of indigenous technology in frontier areas. Project has numerous benefits to the aviation sector and would enable aircraft to navigate on a straight path/route instead of navigating in zig-zag path over land based stations. This system would also enable multiple approach capability.

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The picturesque Konkan coast can look forward to competing with Goa in attracting tourists. The Centre on Thursday approved a domestic airport for Sindhudurg district, which borders Goa. The proposed greenfield airport would come within just about 100 km north of Goa’s congested Dabolim airport — which is mainly for the navy.

The Centre’s decision came in response to the state government’s proposal to set up a Rs 492-crore domestic airport at Sindhudurg through the public-private-partnership route. State-run public sector undertaking Maharashtra Industrial Development Corporation has been appointed as the nodal agency responsible for selecting the PPP partners. A proposal to set up a greenfield airport in Sindhudurg was approved ‘in principle’ by the civil aviation ministry on Thursday.

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The Civil Aviation Ministry has given the nod to Deccan Aviation to fly overseas effective Aug. 26, a government statement said on Tuesday.

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Passengers flying out from the newly-commissioned Hyderabad airport to domestic destinations would soon have to pay Rs 375 as user development fee (UDF). The government has cleared the UDF for the new airport and issued draft guidelines for fixing user fee at upcoming greenfield airports.

The civil aviation ministry has received a proposal from Bengaluru International airport (BIAL) for fixing a user fee for the new Bangalore airport. It is understood that a decision on the UDF for Bangalore would be finalised soon.

“We have finalised a UDF of Rs 375 for Hyderabad airport with immediate effect. We have also received proposal from BIAL and would take a call on that shortly,” an official in the ministry of civil aviation said. The ministry can take three months to decide on BIAL’s application.

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The government on Thursday approved modernisation of the Chennai and Kolkata airports. Expansion of the two airports is estimated to cost over Rs 3,750 crore and these projects are to be completed within three years. The entire modernisation work would be taken up by the Airports Authority of India (AAI) beginning September this year. AAI will invest 80% of the required capital through internal resources, and the remaining 20% would be borrowed.

While the Kolkata airport would be developed at an estimated cost of Rs 1,942.51 crore, modernisation of the Chennai airport would cost Rs 1,808 crore. The Kolkata project would be completed within 30 months of awarding the contract, while the Chennai project would have a lower implementation period of 26 months.

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The Government on Thursday gave its approval to the modernization or expansion of Netaji Subhash Chandra Bose (NSCBI) International Airport, Kolkata at an estimated cost of Rs.1942.51 crores.

The work, which is expected to be completed within 30 months of award, will result in an additional passengers handling capacity of 20 mn passengers Per Annum (MPPA).

The airport will be upgraded to international standards, the secondary runway will be extended and made suitable for operations of large commercial aircrafts; the navigation facilities at the airport will also be upgraded, additional parking space and taxiways to facilitate parking and movement of aircraft will be created and the road or rail connectivity of the airport with the city will be improved.

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The Ministry of Civil Aviation has allowed the promoters of the new Hyderabad airport to levy a User Development fee of Rs 375 on every departing domestic passenger. The airport handles between 15,500 and 17,500 domestic passengers daily.

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Speedier acquisition of armaments, systems and platforms while ensuring greater transparency in the procurement process are some of the hallmarks of the Defence Procurement Procedure – 2008, which was unveiled by the Defence Minister Shri AK Antony, here today.

The 248 page document will be operational from September 01, 2008. The DPP – 2008 aims at giving a boost to indigenous Defence industry, encourage competition by broadening the vendor base, puts more thrust on quality and reliability and enhancement in the delegation of financial powers to the Services.

Unveiling the document at a crowded Press Conference, Shri Antony said ‘the present document is the outcome of the experience and feedback gained in the implementation of the existing procedure’.

Outlining the background to DPP – 2008, Shri Antony said, ‘Armed Forces all over the world are in a process of speedy modernization and restructuring. India cannot lag behind in this trend. We want a highly modern Armed Force, which will be able to respond quickly and which will be able to meet any challenges.’

Shri Antony said we have a vibrant democracy and therefore, we have to follow a set of procedures for acquisition of systems and platforms, which must be transparent. Sometimes, the system of acquisition has created delays or it has created controversies. ‘We have learnt a lot of lessons from the past and we don’t want to repeat the mistakes. That is why every now and then, we are trying to improve the Defence Procurement Policies.’

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Rationalization of licensing condition, introduction of offset banking listing of defence products and exemption from offset of acquisitions under fast track procedures are some of the salient features of the New Defence Offset Policy as envisaged in the Defence Procurement Procedure (DPP) - 2008 released here today.

Under the existing offset guidelines, a private industry was necessarily required to have an industrial license for being entitled to participate in the offset programmes. In the revised guidelines a private industry will be required to have an industrial license only if so stipulated under the guidelines/licensing requirements for the defence industry issued by the Department of Industrial Policy and Promotion.

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In 2001, private Indian manufacturers were first allowed into the defence sector, subject to licences.

Since then, private industries, as well as the government’s licensing authority, have faced a conundrum: nowhere did the government lay out what constituted "defence equipment".

In many cases, there is no ambiguity. Warships, fighters, tanks and machine guns are clearly defence equipment. The confusion lies where an item has both military and civilian usage.

Explosives like gelatine are extensively used in road construction; radio sets are used by the police, security guards, civilian corporations; software, with its flexible applications, is even more difficult to categorise as either "civilian" or "military".

The Defence Procurement Policy of 2008 (DPP-2008), unveiled on Friday by Defence Minister AK Antony, tries for the first time to lay down a list of defence products. A single page annexure (Annexure VI to Appendix D of DPP-2008) specifies 13 generic categories that will be treated as defence products for offset purposes.

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The Competition Commission of India (CCI) is studying whether a particular airline has a dominant market share on various routes or city pairs which might lead to anti-competitive practices.

“We have commissioned a study on the various competition issues in the civil aviation sector in India. Among other things, the study will look at performance of airlines in various city pairs as well as the time slots allotted to various airlines,” said Amitabha Kumar, Director General, CCI.

Industry experts said that sector and slot-specific domination would be a better way to look at market domination of a particular airline which could lead to anti- competitive practices rather than total market share of passengers carried across the country.

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Indian airlines are set to get an improved access to European destinations. A liberal aviation pact between India and the European Union (EU) is on the cards, which will enable this as well as give EU carriers better access to India. In a way, the pact will work like an ‘open skies’ agreement between India and the EU.

According to civil aviation ministry sources, Indian carriers will get to operate a virtually unrestricted number of flights to European destinations like London, Paris and Frankfurt.

They can also enter into code-share pacts with European carriers without seeking government approval. On a reciprocal basis, European carriers will also get similar market access to India and be able to ink pacts with Indian counterparts without going through elaborate government clearances.

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The government is expecting to complete the bidding for the proposed Navi Mumbai International Airport by March next year.

“We hope that the bidding of the proposed Navi Mumbai airport will be completed by March, 2009,” a top Civil Aviation Ministry source said.

The new airport, which is to come up at Kopra-Panvel area, is being built through PPP route, with private sector partner getting 74 per cent equity while Airports Authority of India and Govt of Maharashtra through City and Industrial Development Corporation holding 13 per cent each.

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In a setback to airlines which are struggling to survive, the finance ministry has said it would neither notify aviation turbine fuel (ATF) as ‘declared good’ nor compensate states partly if they cut sales tax on jet fuel. The empowered committee of state finance ministers had earlier said states could consider reduction in sales tax on ATF only if the Centre shares burden of revenue foregone and airlines passed on the benefit to passengers.

There was no possibility of either ATF being notified as a ‘declared goods’ or the Centre compensating states for revenue foregone, finance secretary D Subbarao said. “We don’t think there is case for subsidising air travel in the country by sharing revenue burden if states bring down sales tax on ATF,” he had told ET recently.

The ‘declared goods’ status means jet fuel would attract a uniform sales tax of 4%.

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Following is the text of the speech delivered by the Defence Minister Shri A K Antony at the inauguration of the “International Technology Seminar on Future Infantry Combat Vehicle and Future Main Battle Tank” here today.

“I am happy to note that representatives from Defence Public Sector Units, leading companies from the Private Sector both International and National engaged in Defence Production, senior representatives from the Armed Forces, DRDO and the Ministry of Defence are participating in this Seminar. The cross section of delegates present, exhibits the enormous interest this Seminar evokes.

Technology is advancing at an exceptionally fast pace and is emerging as a dominant factor in warfare. Countries that can exploit emerging technologies and synergize the same with innovative operational doctrine and organizational structures will achieve a higher level of military effectiveness. With the Revolution in Military Affairs, future wars, whether conventional or against a nuclear backdrop will be technology driven. Some of the technology denial regimes who possess critical technologies need to be offset, since they are liable to deny such technologies at crucial junctures. Therefore it is imperative that the country is self reliant.

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GMR Hyderabad International Airport Ltd (GHIAL), which promotes the Rajiv Gandhi International Airport at Shamshabad, has got an extension of VAT exemption up to December 31, 2008. Appealing for an extension, the GMR group company had argued that though the “airport commences operations, it should not be treated as completion of the project as the project would be complete only after installation of all the facilities envisaged in it.” “Hence, we need the extension,” the letter, written on March 6, 2008, said. Acting on the representation, the Revenue Department issued a new order (No. 589) on April 10, 2008, extending the VAT refund provision till December 31, 2008.

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