Oct. 14--MUMBAI -- The Indian government is set to scrap by November a rule requiring airlines to fly on domestic routes for five years and to possess a fleet of at least 20 planes before launching overseas operations.
Even new airlines will be allowed to fly abroad after the so-called 5/20 rule is done away with. The proposal comes at a time when Tata Sons Ltd and Singapore Airlines Ltd have proposed to start a premium Indian airline, and Tata Sons teamed up with AirAsia Bhd to start a low-cost carrier.
"I personally believe there is no logic in this rule and we are preparing a cabinet note to scrap this rule after consultation with the Directorate General of Civil Aviation (DGCA)," civil aviation minister Ajit Singh said on Saturday in a phone interview.
"We are looking at making this happen by November end. There could be some technical consultations that the ministry requires to scrap this rule, but we are moving ahead with this decision," Singh said.
If indeed the 5/20 rule is scrapped, it will be the second big move to open up the aviation industry since September 2012, when the government allowed foreign airlines to invest up to 49% in local ones, a move that allowed Abu Dhabi-based Etihad Airways PJSC to buy a 24% stake in Jet Airways (India) Ltd for $379 million.
Singh said that if an industrial house can fly on international routes with newly bought planes and a new foreign airline can fly to India, he sees no rationale for rules barring airlines to operate overseas flights.
Last month, Tata Sons and Singapore Airlines teamed up to start a full-service airline based out of New Delhi with an initial investment of $100 million, with the Tata group holding company owning 51% and Singapore Airlines the remainder.
Tata Sons also has a 30% stake in the venture with AirAsia. The Malaysia-based airline has a 49% stake and Arun Bhatia of Telestra Tradeplace Pvt. Ltd the remainder.
Both AirAsia India and the Tata-Singapore Airlines venture had publicly expressed interest in flying on international routes apart from serving Indian routes.
GoAir, run by Go Airlines (India) Ltd, has applied for international traffic rights requesting a waiver of the 5/20 rule.
Singh said the civil aviation ministry is keen to scrap the rule requiring a five-year domestic track record of operations and may dilute the fleet requirement. "Fleet requirement, if at all needed, will be finalized after consulting with DGCA," the minister said.
On 6 October, consulting firm CAPA Centre for Aviation in its report said the 5/20 rule has been one of the most damaging and discriminatory regulations in India.
"This regulation has enabled foreign airlines to capture a larger share of the international market at the expense of home carriers. The financials of several Indian carriers would likely have been stronger if they had been allowed to launch international routes earlier as this would have reduced excess capacity in the domestic market and improved aircraft utilization," CAPA said.
The 5/20 rule doesn't apply to foreign airlines operating in India, CAPA noted.
Several foreign airlines operating in India, such as Air Arabia, Etihad Airways, flydubai, Mihin Lanka, RAK Airways and Tigerair, entered the market well before they had been in operation for five years, it said.
CAPA said the removal of the 5/20 rule would allow AirAsia to establish a base at Kochi in Kerala and operate high-traffic routes to West Asia, posing tough competition to Air India Ltd's low-fare international unit Air India Express.
Copyright 2013 - Mint, New Delhi
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