Vivek Pattnayak is one of the leading bureaucrats from Odisha who pioneered reforms in power sector as secretary energy, Odisha government. But aviation seems to be his passion. He voluntarily took retirement from Indian Administrative Service to join as member of International Civil Service. He joined as the Director of International Civil Aviation Organisation (ICAO) in 1994.

Nageshwar Patnaik spoke to Vivek Pattanayak on various issues relating to aviation. Excerpts from the Interview:

NP: India is now the seventh largest aviation market with 18.7 crore passengers in FY18 and is expected to become the third largest by 2022, according to the Vision 2040 report for the civil aviation industry released on January 15 this year at the Global Aviation Summit 2019. You were heading International Civil Aviation Organization (ICAO). How do you look at the civil aviation industry in India?

The civil aviation industry in India has tremendous potentialities for variety of reasons. First India is a growing economy. For last fifteen years the growth has been continuous almost uninterrupted in spite of the global financial crisis of 2008, rise of oil prices in 2012 and 2013, demonetization and initial turbulence in implementation of GST and occasional partial failure of Monsoon , untimely rains, floods and cyclones affecting agricultural sector and consequential distress in rural area. Secondly, the size of middle class in sheer number is growing.

These two reasons will create demand for travel. Business executives, government officials, tourists, politicians, Indian workers, Indian students and journalists are being transported either by foreign airlines or by national carriers in the international segment. In addition domestic sector travel by air has moved forward for the same reason. Thirdly, the retirees with attractive pension will travel. Aging population will travel due to better medical facilities. In 21st century the growth of economy and air transport are intrinsically interwoven.

What is doubtful is whether we can exploit this potential to the maximum extent. To cope with demand what India needs is augmenting of air transport infrastructure like modernization and expansion of airports, construction of new airports, and heliports, improving air navigational facilities, construction of air cargo complexes, improved regulatory mechanism to ensure safety and efficiency in aviation. This requires huge funding sources. There are limits to public sector funds.

The government crippled by fiscal deficit cannot allocate money for this sector. Private sector within the country is not coming forward to invest as is evident from low job opportunities. Foreign investors have not so far come forward to invest in this sector in spite of announcement of 100% FDI in civil aviation sector. Qatar airline had evinced interest but matter has not made any visible progress. Airport Authority of India will have to stretch its resources to take up new projects.

To meet the demand domestic airlines have to have more aircraft. They need funding. Before they get funding they themselves must be in good financial health. Oil prices determine to a large extent the viability of airlines. Future of oil prices are uncertain as long as there will be cut in oil production by OPEC and sanctions against Iran will operate. Even an airline which was doing well and expanding faced loss.

NP: The domestic aviation industry is bleeding with losses, with two leading airlines — Jet Airways and Air India — struggling to remain operational. Indian airline industry is expected to report a loss of about more than Rs 10,000 crore in FY2019. What is the way out?

The situation seems gloomy. Privatization effort by Air India failed. It seems the government would keep it flying by giving further doses of financial support. Whether will it be sustainable for the government is another question?

Jet is also facing problem. How will they be able to raise finance one has to watch? Their association with foreign airlines had given them much needed relief. How far can they expand their association with others will be dependent upon their business assets including their routes, equipment, human resource and other ancillary services.

Will there be takeover or merger? If it happens, this will also require regulatory support.

NP: Despite having the advantages of an ideal geographical location between the eastern and western hemisphere, a strong middle class and a rapidly growing economy, the Indian aviation sector has not achieved the position it should have. Do you see improvement in the situation?

Improvement is possible. There is no easy way out. First, the government has to allow foreign airlines to invest in domestic airlines with management control given to them where required. Regulatory hurdles should be relaxed. Experience has not been very encouraging in the past. There is too much of bureaucracy. Index of ease of doing business may go up but on the ground there should not be any paralysis in decision-making. In addition there is also lurking fear of backlash from investigating, vigilance and audit agencies .

If 100% FDI in aviation is the policy of reform why Qatar has not made progress? Will India allow cabotage rights to foreign airlines? Traffic rights should be freely given to new entrants. This requires political courage.

NP: India is still one of the most under-penetrated aviation markets in the world. The loss-making Indian government owned Air India with largest fleet of air carrier is estimated to have a debt burden of over Rs 48,000 crore and the government’s efforts for strategic disinvestment of the carrier failed in May last year. How do you look at this impasse?

Air India has reached such a level of financial sickness that the government has limited option. In a democracy government decision is subject to scrutiny by opposition, audit, judiciary, media and then civil society. Trade unions also have a say. In spite of these constraints, government must take a call. It can negotiate with financially viable foreign airlines to sell 49% of its shares and hand over management. Alternatively, it must list the company in the stock-exchange and offer shares in stages to test the market. It can resort to IPO and FPO.

NP: What are the strengths of Civil Aviation Industry in India?

The Indian aviation has institutional infrastructure like Airport Authority of India, DGCA, CATC, IGRUA, and in-house training facilities with Air India and other airlines. The sector has huge number of trained and experienced pilots, air traffic controllers, ground engineers and aircraft maintenance engineers and ground support staff and cabin crew etc. In addition it has physical aviation infrastructure like airports, air navigational facilities and MRO. Aviation security infrastructure is robust.

NP: What are the weaknesses of Civil Aviation Industry in India?

Safety oversight mechanism is under scrutiny by ICAO during audits. They have not always given favourable reports. FAA has also its reservations. Airlines must have their own safety audit mechanism. DGCA should train its own staff in matters of safety audit.

NP: What are the Opportunities in the Aviation Industry in India?

Scope of business aviation can be expanded due to flourishing private sector in the country. More airports can be constructed through private sector initiative, with State government initiative, and also under PPP model. There are many business houses that can get into the aviation sector. If TATA could join hands with Singapore to start Vistara and with Air Asia to start Air Asia India, why cannot others get into the sector? First they can begin with budget airlines.

NP: The union government has come out with a comprehensive civil aviation policy. Is it forward looking? What is your take on it?

The civil aviation policy consists of many past practices and some new initiative. UDAN is undoubtedly a new initiative. The sky is not sufficiently liberal. Both Silk Air and Fly Dubai wanted to fly to Bhubaneswar since 2013.Traffic rights could not be given. Similarly, Sri Lankan Airline has evinced interest to fly to Bhubaneswar. Traffic rights cover third freedom to tenth freedom. India still remains between third and fifth freedom. With long range airliners fifth freedom is hardly relevant. Concept of metal neutrality has not been envisioned in the policy. More over when airports get ready for international operation marketing the new airport internationally is a must.

NP: The Policy talks of an eco-system to make flying affordable for the masses and to enable 30 crore domestic ticketing by 2022 and 50 crore by 2027, and international ticketing to increase to 20 crore by 2027. Similarly, cargo volumes should increase to 10 million tonnes by 2027. Is it possible?

There can be yawning gap between what is in the target and what is realizable. Masses would fly provided the tariff is affordable. Ticket price is dependent on oil price which is not under the control of airlines or not even the government. 40% of cost of airline is accounted for fuel cost. The government can provide subsidy or give tax reliefs or exemptions. This would again depend upon the national budget. Fiscal deficit will haunt the government.

Cargo volume will depend upon again tariff and also facilities at the airports. Unless investment is done at the airport on cargo handling there will be a bottleneck.

Everything depends upon the vibrancy of the economy. Now with fiscal deficit, trade deficit and current account deficit, falling export and continued heavy import of oil, weak rupee outflow of capital as indicated net negative FII and distress in the rural sector with job losses and no employment opportunity the target envisioned needs a serious review.

NP: The union government has also launched Regional Connectivity Scheme ‘Ude Desh ka Aam Naagrik’ (UDAN) to connect more towns by air. Odisha now has got two additional airports – Veer Surendra Sai Airport in Jharsuguda and SAIL airport at Rourkela. Two more airports under the UDAN scheme at Jeypore in Koraput and Utkela in Kalahandi are also on the cards. What is the future of civil aviation in Odisha?

UDAN is a novel initiative. Jharsuguda airport was constructed. Air Odisha flew for days. It has stopped. Even if Rourkela and Jeypore or even if Utkela are added to the list it will have no meaning unless airlines come forward to fly. Where are the airlines who are the willing to fly? Although UDAN has been introduced since two years progress has not been satisfactory.