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The Union Cabinet today gave its approval to the following proposals :
For strengthening Air India
For establishing the improved operational synergy between Air India and Indian Airlines.
For allowing eligible Indian Scheduled carriers to operate on international routes.
To discontinue the practice of mandating commercial agreements on all new services, to review the existing commercial agreements and phase them out over the next five years.
These decisions are taken to ensure greater choice for international travel for passengers. This will also improve utilization of traffic rights on international routes. Tariffs on international routes are likely to become more reasonable and affordable. Air India and Indian Airlines would both gain by synergising their operations.
Air India’s main constraint in utilizing all its traffic rights is its inadequate fleet size. It presently consists of only 31 aircraft, out of which 16 are owned and 15 are leased. The average age of the fleet is around 15 years. The last induction of aircraft in India by way of purchase was in the 1996. Since then Air India has been depending on lease of aircraft for its network expansion. However, leasing of aircraft is neither a permanent nor the most cost effective solution in the long run. Air India is planning to acquire new aircraft through outright purchase. Presently, the Air India management is in the process of finalizing the techno-economic proposal for acquisition of aircraft and will be approaching the Government in due course with its project report. This would include additional infusion of equity and provision of Government guarantee to the borrowings related to fleet acquisition. The proposal will be considered by Government on merit.
To allow growth of its network, it is decided that Government may reserve traffic rights for Air India in accordance with its operational plans for the next two years. Similarly, the existing compensation being received by Air India by way of Government mandated commercial agreements with foreign airlines be allowed to continue subject to review over the next five years.
It is decided that appropriate measures be formulated and implemented by Ministry of Civil Aviation for establishing improved operation synergy between the two airlines for their mutual benefit.
A calibrated approach may be adopted so that the national carriers get time to adjust to the new competitive environment. It is, therefore, proposed that operations to the Gulf countries of UAE, Qatar, Oman, Bahrain and Kuwait as well as Saudi Arabia may be kept reserved for Air India and Indian Airlines and their subsidiaries for the next three years as most of their operational revenue and profits on international routes accrue from these routes. Other Indian scheduled carriers be allowed to operate on all other international routes.
It is also felt that designation of Indian Scheduled Carriers for operations on international routes may be subject to proven credentials of the airlines in the domestic sector. This is particularly important as airlines, in a way, are symbols of a nation’s prestige and no "non-serious" operators should be permitted to operate on international routes. Accordingly, it is decided that only Indian Scheduled Carriers with a minimum of five years continuous operations and having minimum of 20 aircraft in their fleet be allowed to operate on international routes.
It is also decided that the request of all eligible airlines for additional entitlements may henceforth be taken into account in bilateral negotiations. Efforts will be made to obtain traffic entitlements commensurate to the requirements of all eligible airlines. However, in case the total entitlements fall short of the requirements projected by the eligible airlines, inter-se allocation of entitlements amongst the eligible airlines will be in the ratio of Available Seat Per Kilometre (ASKM) deployed by them on domestic routes over the last five years. Due consideration will be given to the operational plan of Air India / Indian Airlines while allotting entitlements to Indian Scheduled Carriers. The entitlements given to Indian Scheduled Carriers may be reviewed in the event any of them reduces domestic operations after obtaining traffic rights on international routes. Ministry of Civil Aviation will draw detailed guidelines in this regard based on the broad principles mentioned in this and the preceding paragraphs.
With a view to encouraging greater connectivity, creating a level playing field, reducing passenger tariffs and ensuring viability of operations, it is decided that the practice of demanding compensation from foreign airlines by way of commercial agreements mandated by Government may henceforth be discontinued. All new operations by foreign carriers, both on new destinations as well as on existing routes, would be free from the obligations of mandated commercial agreements. All existing Government mandated commercial agreements would be reviewed and phased out over the next five years. However, the airlines would be free to enter into such co-operative marketing arrangements as are mutually agreed upon between them.
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