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Operating environment for a civil aviation industry in India
Journal of Air Transport Management 7 (2001) 127}135
Operating environment for a civil aviation industry in India S.K. Saraswati Chhatrapati Shivaji International Airport, National Airports Division, Airports Authority of India (WR), Mumbai 400 099, India
Abstract Civil Aviation has slowly transformed itself from a mode of transportation for the elite to an essential infrastructure necessity for the society. How this important infrastructure develops and prospers in a country, depends totally on the kind of support it gets from the operating environment. This paper gives a brief history of civil aviation in India and analyses the operating environment in which civil aviation industry in the country is operating. The analysis has been carried out on the basis of articles and news items which appeared in the local/international news papers and journals. 2001 Published by Elsevier Science Ltd. Keywords: Civil aviation; Disinvestment in aviation industry; Environmental factors
1. Introduction
1.1. Present scenario
India is a vast country with a part of its geographical terrain not very easily accessible by surface transport. Hence to provide easy access to this inhospitable terrain, exploit the market for agro and #oriculture products and to support social development of the whole country, it becomes essential for India to have a very e$cient air infrastructure. Government wants civil aviation to become a core infrastructure and not to remain as a means of transportation for the elite only (Businessline, 1998b). India has been lucky to a certain extent in view of the fact that there was a massive service provision by foreign carriers. This had enabled for years together the exploitation of the political and economic options by the Government to ignore the long-term interest of Air India, the national #ag carrier for international operations. This service provided by foreign carriers had enabled Indians to #y in and out of the country even while their own national carrier had been progressively deteriorating. If one looks at a parallel situation in Philippines, one realises that the Indian civil aviation crisis had been camou#aged by a geographical advantage, which Philippines did not enjoy. Simply put Philippines is located on way to nowhere. The Philippines Airlines, one of the oldest in the region, had almost gone bankrupt causing damage to the economic infrastructure of the country (Ray Choudhury, 1999).
In India, international air tra$c is predominantly handled at the "ve designated international airports. In addition, provision has also been made to handle international air tra$c at some of the major domestic airports. During the period April 1999 to March 2000, air tra$c in terms of total aircraft movements increased by 10% where as the passenger tra$c both domestic and international put together increased by 5.4% during the same period. The cargo movement saw quite a signi"cant level of improvement at 14.1% during this year (Tra$c News, 2000). On the scheduled air lines side, in addition to the two national carriers, Air India for international operations and Indian Airlines and its subsidiary Alliance Air for domestic operations, there are two more private operators operating in the domestic sectors. They operate at 45 signi"cant airports and 36 civil enclaves (in addition there are some minor airports where also the #ights operate). Table 1 given in Appendix A gives the statistics of civil air tra$c operations in India. It also indicates the growth rate.
E-mail address: [email protected] (S.K. Saraswati).
2. History of Indian aviation Commercial aviation in India began on 18 February 1911 when Mr. Henri Pequet, a French pilot set a world record by #ying world's "rst o$cial air mail from Industrial and Agricultural Exhibition Ground, Allahabad to
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Naini, a distance of 8 miles, carrying 6500 letters and post cards (Sen, 1982; Ramamritham, 1975). On the 1st October 1915, Government of India sanctioned the setting up of a Central Flying School at Sitapur under the control of Army Headquarters (Ramamritham, 1975) and at the end of the First World War, an `Air Boarda, was formed to advise on the ways to assist and encourage civil aviation. Detailed rules governing registration of aircraft, licensing of personnel, etc. were promulgated in the years 1920 and 1924, work was initiated for the construction of civil aerodromes at Dum Dum, Calcutta, Bamrauli in Allahabad and Gilbert Hill in Bombay (Sen, 1982; Ramamritham, 1975). India has always been on the international trunk route. The "rst proving #ight of KLM to Java arrived at Karachi as early as on 9 November 1924 and passed through Ambala, Allahabad and Calcutta on its way further east. A separate Department of Civil Aviation came into being in April 1927 and Lt. Col. Shelmerdine was appointed as the "rst Director General of Civil Aviation in 1931 (Ramamritham, 1975). As early as in 1929, an entirely Indian-owned company, Tata Sons Ltd., (later known as Tata Airlines) submitted its plans to the Government to operate air services between Karachi and Bombay. The company commenced operations on the route Karachi, Ahmedabad, Bombay, Bellary, Madras on 15 October 1932. In early 1930s (1933}34) a number of airlines (Indian Trans Continental Airways, Indian National Airways, Madras Air Taxi Services, etc.) came up. Aviation activities expanded and a number of new routes like Karachi}Jodhpur}Delhi} Allahabad}Gaya}Calcutta}Akyab}Rangoon, etc. were introduced. The exigencies of war led to the exploration of possibilities for aircraft manufacture in Indian and the Hindustan Aircraft Ltd., was established in December 1940 by Mr. Walchand Hirachand in association with the then Mysore Government at Bangalore. India's "rst aircraft, the Harlow trainer, a single-engine aircraft with retractable undercarriage was rolled out for test #ight in July 1941. A number of airports were constructed as part of the war e!orts and at the time of India's independence in 1947, 44 airports were being operated by Civil Aviation Department. Inspite of large growth of aviation during the initial years after independence, the "nancial condition of many airlines was dwindling. Jupiter Airways went into liquidation in 1948 and Ambica Airlines followed in 1949 (as many as 29 registered companies were operating at that time). Rajadhyaksha Committee, which went into the a!airs of airline industry, reported that the reason for dissatisfactory condition of the airlines was mainly due to the fact that there were too many operators with multiplication of resources. This report ultimately led to the nationalization of the airlines later in August, 1953. In the meantime a joint sector airline, Air
India International, set up in 1948 at the initiative of J.R.D. Tata was also nationalized at the same time. The situation remained more or less unchanged since the nationalisation of carriers in August 1953 till late 1980s when open sky policy was adopted by Government of India. Air Asiatic started operations between Chennai (that time Madras) and Bangalore with their Boeing 737. In 1990s a number of private airlines came into the "eld, however, few survived. 2.1. Major participants Major players in the aviation scenario or the population under study (Hall, 1997) today are the "ve scheduled operators, 41 non-scheduled operators and 690 general aviation aircrafts. There are 526 "rms engaged in aviation-related activities. Some of the major participants in the aviation industry in India today are listed in Table 2 in Appendix A. In addition to the organisations mentioned in the table, there are some manufacturing, research and development organisations like Hindustan Aeronautics Ltd., Taneja Aerospace and Aviation Ltd., National Aerospace Laboratories, etc. which are engaged in the development and production of aircraft of assorted sizes.
3. Environmental issues The environment in which the civil aviation industry in India is operating can be analysed under following heads. 3.1. Economic conditions All the organisations forming aviation industry had been operating in a very protected economic environment with demand mostly exceeding the supply. The rates were decided almost unilaterally by the supplier and hence most of the organisations in the industry were making pro"t till early 1990s. In the post-liberalisation era, with the government declaring open sky policy, competition crept in, probably more in the international sector and somewhat less in the domestic sector. As a result, unsound economic policies of the organisations immediately became visible. Air India, which made a pro"t of $105.7 million in 1992}93, went into loss almost immediately thereafter. Now Air India has a loan burden of $948.05 million with $55.05 million going towards the servicing of this loan (Mhatre, 1999; Kumar, 1999). Pro"t for Indian Airlines, the domestic #ag carrier also came down from $10 million to less than $3.11 million (Kumar, 1999). Airports Authority of India earned a pro"t of Rs. 316 crores (about $70 million) (before tax) in 1997}98 (Businessline, 1999a), but then there is absolutely no competition for them till date.
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The case is not the same with the private operators particularly the airline operators. A number of air taxi operators started operations but had to pack up after di!erent periods of time. Airline operations in India is very capital-intensive with the additional requirement of huge reserves to fall back on. Fuel cost in India is one of the highest in the world (Businessline, 1999d) and accounts for about 60% of the ticket cost (Murli, 1999). The requirement of maintaining establishments at the stations where the airline is operating, regulatory requirement to #y the social routes, expensive maintenance facilities, etc. has made the survival of private operators extremely di$cult. Similar is the case with the private airports. With the requirement of heavy capital investment, long gestation period, government regulations, etc. except for Kochi International Airport, no other private airport has been able to come up. Declining exchange rate for rupee has also hit the Indian aviation industry very hard. Because of declining exchange rate for rupee, revenue in dollars per ticket has been falling (70% cost for Air India and a substantial portion for other airlines is in dollars because almost all the spares are required to be imported). The price of Delhi to New York round trip used to be Rs. 34,208 in 1993 and it is Rs. 40,331 now, an average annual increase of 2.78%. At the same time Indian rupee has declined from Rs.31.46 a dollar in 1993 to Rs. 44.7 today, a drop of 4.23% over this period and this has led to the drop in revenue for Air India and other airlines in terms of dollars (Jones, 1999). This is one of the most important economic factors, which has hit the Indian aviation industry. 3.2. Technological conditions Technological conditions available at the time of formation of an organisation set the limits for the form the organisation can take in future (Hall, 1997). The technological environment when the organisations were formed in India is no longer valid today; hence there are quite a few functions in the organisations, which are no longer relevant but the organisations are required to retain them because of the peculiar labour laws in the country. Technological advancements in the "eld of aviation in India have been in discrete steps. Till 1998}99, the air tra$c control system was tied down to 1950 technology till New ATC system in Delhi was commissioned in January 1999 and in Mumbai in October 1999. Because of very long implementation periods in India, it is not very surprising to "nd equipment belonging to di!erent generations being used simultaneously sometimes even for the same facility. At the professional level, India has shown a great enthusiasm in the adoption of new technologies. In 1962
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Air India achieved the distinction of being world's "rst all jet carrier with a #eet of six 707s (Mhatre, 1999). Once again India become one of the "rst states in the world to make airborne collision avoidance system (ACAS) compulsory in its air space from December 1999 (Businessline, 1998a). India is very rich in the technological skill of its manpower and has always been a very active partner in the implementation of technological (particularly computerbased) advancements in the "eld of civil aviation. India has made signi"cant contributions towards innovation implementations in the Asia Paci"c Region through APANPIRG (Asia Paci"c Air Navigation Planning and Implementation Regional Group) a working group created to plan and implement the new communication, navigation and surveillance facilities and the air tra$c management in the Asia Paci"c Region. In compliance with the ICAO recommendations and to take full advantage of the latest technology available in the "eld of satellite communication, Airports Authority of India has decided to link nearly 80 airports and aeronautical communication stations through a dedicated satellite communication network. The total cost of the project is estimated to be $12 million and is expected to improve the pilot to ground communication particularly in the areas where conventional VHF communication is not feasible (Rao, 1999e). 3.3. Operating conditions Despite recent economic crisis in Asia Paci"c region, growth rate of aviation was higher in this region at about 7% with China having the highest at 10% (Businessline, 1998c). India also has had its share of increase both in domestic and international air tra$c. Indian international air tra$c market has indeed grown from 11 million in 1993 to 14.73 million today, but the growth falls short of what had been expected. As a result capacity growth has been far in excess of passenger demand over the last 5 yr (Jones, 1999). Liberalization of Indian economy and open sky policy adopted in 90 s has meant more and more foreign carriers are coming into India. In the last 10 years, India signed 35 bilateral agreements as against 14 in the previous decade (Mhatre, 1999; Businessline, 1999d). This removed the protection Indian carrier was getting. India has also not focused on cargo and hence other international carriers are taking advantage of this situation (Businessline, 1999d). The biggest restricting factor in the operating conditions has been the fact that the organizations have never been permitted to operate on their own (Mhatre, 1999). In 1978, Mr. J.R.D. Tata was pushed out of Air India Board by an unsympathetic government. In 1979 a Parliamentary Committee launched an investigation on Air India and published a devastating report. `We haven't quite got over that,a says Commercial Director
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H.S. Uberoi, who has been with the Air India since last 39 yr. `People are still hesitant to take decisiona (Mhatre, 1999). Air India, till very recently had no global alliance partner, an ageing #eet and an enormous work force. With no fuel for privatisation and an unwillingness to look at the synergies between the two national carriers (Indian Airlines, Air India) (Jones, 1999), the performance of both the #ag carriers has been slipping. Decision of grounding all the Airbus A320 after the crash in Bangalore in 1988, is a typical example of bad operational decision in the industry. It is a fact that this one decision was responsible for putting Indian Airlines into red. The same aircraft, in subsequent years has proved to be very successful for domestic operations. Factors like sudden change of schedule, change of fare and delays have also made the Indian Carriers unpopular amongst the travel agents (Travel Trade Gazette Asia, 1998; Mhatre, 1998). In addition, Air India aircraft are withdrawn from services for reasons like the President/Prime Minister's trip abroad, Haj Pilgrimage, etc. This withdrawal of aircraft not only upsets the schedule but also creates a bad impression about the airline. Because of non-professional attitude at the decisions taking level, the operations of the organisations have been far from satisfactory. For example, most successful airlines make their money on Business and First Class seats. Compared to other airlines, Air India and Indian Airlines not only have smaller upper class but the standard of service provided also does not match the level of service provided by other international airlines or even the service provided by private domestic Indian carriers (Rao, 1999a). Magnitude of operations is also against the organisations in the industry. New terminal buildings the world over are being constructed to handle tra$c of more than 30 million passengers per year, but the buildings at major Indian airports like Delhi and Mumbai can handle maximum of 12 million passengers per year. Air India, not only has one of the smallest share amongst the national #ag carriers but also has the smallest share at its base, that is about 25% compared to Cathay Paci"c's share of 35% at Chep Lap Kok hub (Businessline, 1999d). India is using only 45% of its bilateral rights (Jones, 1999; Businessline, 1999d), the instrument of agreement between states for the sharing of air-tra$c. Air India has a #eet of 26 compared to British Airways with 256 and Singapore Airlines with 89 aircraft. Almost everybody agree that Air India needs #eet expansion (Phadnis, 1999a). Air India needs to purchase 12 aircraft * six small capacity (150 passenger) short range (SCSR) for Gulf operations and six small capacity long range (SCLR) for European operations (250 passengers) (Phadnis, 1999a) at a total estimated cost of $1 billion (Rao, 1999c) but nothing signi"cant has been done in this direction so far.
Even with this small #eet, Air India is operating with four di!erent types of aircraft (Mhatre, 1999). Air India's pilot strength which is 615 thus gets divided four ways resulting in low crew utilisation of around 55 h a month. Also, three simulators are required to be maintained. As far back as 1986 Air India predicted a #eet of 52 aircraft at the turn of century. It has exactly half that number (26). Age is also against Air India and Indian Airlines favour. Except for six 747-400s, Air India's #eet is old. The seven 747}200 ranges in age from 19 to 28 yr, the eight A310}300 from 10 to 13 yr, the 747}300 combi almost 12 yr and 3 A300B4s 18 yr (Mhatre, 1999; Jones, 1999; Travel Trade Gazette Asia, 1998) making the average age of the aircraft 14.1 yr (Bhushan, 2000). Similarly in Indian Airlines, A320s were inducted more than a decade back and there is no positive proposal for getting their replacement immediately. Ageing of the aircraft not only makes the maintenance of the aircraft very expensive but also increases the probability of incidents/accidents. Recent Alliance Air crash at Patna on 17 July 2000 is being attributed to the ageing by some experts in the "eld. 3.4. Government control Indian government, on di!erent occasions has accepted the fact that only democratization will enable the aviation sector to become the core sector and will help in the promotion of business (Businessline, 1998b). Government also accepts that to make the environment more dynamic, it is essential that government control over the organisations is minimised (Businessline, 1999a). Airlines need strict commercial discipline to succeed (Businessline, 1999a, 1998c), which government intervention is unable to provide. Non-pro"table operations like #ying social sectors by airlines and providing service to government and defence aircraft by Airports Authority of India should be compensated in some form to make them viable. Private sector participation will give major thrust to the civil aviation sector for promoting investment, improving quality, e$ciency and increasing competition (Phadnis, 2000; Businessline, 1998c). Whereas the private airlines like Jet Airways and Sahara continue to expand, the situation in Air India and Indian Airlines continues to be dismal. `Air India is not pro"table because government is not allowing the board to manage the airline in the right waya, a charge pointed out by former Air India Chairman Mr. Russi Modi. The longer the situation continues the more di$cult it will become to come back (Ray Choudhury, 1999]. Unless the organisations are permitted to reform their local management and invest capital in new equipment, it will be di$cult to improve the situation (Ray Choudhury, 1999). Tata, the doyen of Indian aviation industry, recommended Boeing 767 for purchase as replacement for
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Boeing 707 by Air India, but Airbus was able to convince the Ministry of Civil Aviation about A310. The decision proved to be wrong when Air India had to withdraw from Mauritius (Mhatre, 1999), because of non-suitability of the aircraft for operation on this route. The proposals for purchase of aircraft have to pass through seven stages in India (Mhatre, 1999) and are assessed on factors, which often are not technical or commercial. Similarly, privatisation is being delayed because too many commissions and government departments have a say on the structure of sell o!. Everything takes time in the world's largest democracy (Jones, 1999). When the $120 million project of Modernisation of Air Tra$c Services at Delhi and Mumbai was awarded to Raytheon, it was expected that the project will be completed in 2 yr. Various factors like administrative processes in ordering equipment; whether the control tower should be in its present place, etc. (Mhatre, 2000) delayed the completion of the project by more than 4 yr. In fact, there are many more examples to support the contention that government in#uence is making the organisations in the aviation sector to perform far below their optimum level. According to Mr. Ramakrishan Hegde, Union Minister for Commerce a sum of Rs. 1,36,000 crore (about $30 billion) is locked up because projects are not completed in time. The delay has not only resulted in a loss of Rs. 28,000 crores (about $6 billion) annually by way of interest but has also given the country a bad image. These delays are mainly due to political reasons and bureaucratic hurdles (Businessline, 1998d). The biggest problem with the present system is that there is practically no accountability for tasks assigned to any level. Hardly anybody has been pulled up for not doing his assigned job (Soman, 2000). Though Supreme Court, in its directive on 27 June 2000 has asked the government to screen the o$cials periodically to assess their usefulness but time will only tell if this directive has been taken seriously. 3.5. Disinvestment There have been proposals for dis-investment of Air India, Indian Airlines, Pawan Hans and Hotel Corporation of India, etc. (Rao, 1999c; Phadnis, 2000). In fact, advertisements putting up Hotel Corporation of India for sale has already appeared in the local news papers. Government of India is the owner of all these organisations in Aviation sector and hence the decision about disinvestment is required to be taken by the government (Phadnis, 1999b). As per the government almost all the services except the provision of air tra$c services are available for investment on date (Businessline, 1999a). But let us see the ground realities. The genesis of Devenhalli Airport project, for example was in 1991, when HAL told Karnataka Government that they wanted their air-
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port back. Global bids were invited in 1994 for the construction of airport to handle international and domestic air tra$c estimated at about 10,000}15,000 passenger and 400 tons of cargo every day. The MOU signed between Govt. of Karnataka and Tata Raytheon consortium said that HAL will not have civilian #ights at its airport. Original proposal was for Build Own and Operate (BOO) which was changed by the central Govt. to Build Operate and Transfer (BOT). Centre also communicated that HAL had shown a desire to continue to handle civilian #ights. These vacillating decisions and the associated frustrating delays completely demoralised Tata/Raytheon consortium and on June 25, the consortium "nally exited from the project o$cially (Businessline, 1998d). After Tata consortium withdrew from the "eld, the process of inviting bids for Bangalore Airport was initiated once again. About 4,200 acres of land has been identi"ed in Devanhalli. Seven eligible contenders including an Indian industrial house, Reliance Industries in association with Singapore's Changi Airport are bidding (Businessline, 1998d, 1999d,e; Rao, 1999f). No signs of progress are, however, visible, the government is absolutely unmoved and the second initiative is also moving towards a non-conclusive end. Private sector and its "nanciers will work on a cost recovery principle * that is whether the project can stand on its own. Like in power industry, independent power producers have been promised a 16% return on investment and a guaranteed o!-take. HAL earns about 15 crores ($3.3 million) and AAI about 12 crores ($2.2 million) from Bangalore Airport. Will they give up this revenue easily? Besides that, to make the operations economically viable, Tata had demanded at least 50% if not 100% more tra$c charges than what other airports charge but then this may not be acceptable to IATA (Murli, 1999). Government is considering to have strategic partners for Air India operations and Singapore Airlines, Air France, Cathay Paci"c, Malaysian Airlines, Emirates, British Airways and Lufthansa are reported to be interested in this proposal (Bhushan, 2000). It is expected that the strategic partner who will be inducted through disinvestment route will not be expected to interfere with the major strategic decisions (Rao, 1999b,e), another typical binder to make disinvestment program less acceptable. 3.6. Staw issues All the organizations forming aviation industry are over sta!ed. This oversta$ng has a number of e!ects on operations. Indian Airlines has 22,000 sta! for a #eet of 52 aircraft. The employee to aircraft ratio is 425:1 for Indian Airlines and about 700:1 (686:1 (Bhushan, 2000)) for Air India against the industry average of 200/250:1 (Businessline, 1999b, e). Though the sta! cost in India is lower than the
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sta! cost in the western countries but lower productivity compensates for the lower cost (Businessline, 1999d). British Airways, in a similar situation, had to retrench nearly 20,000 jobs in 1982}83 when it was on the verge of bankruptcy. The privatisation of British Airways in 1987 and the introduction of pro"t sharing, initiated the process of liberalisation in the entire aviation sector in Britain (Businessline, 1999a). If Tata Airlines had come up, it would have absorbed the extra fat from Air India and Indian Airlines like other private airlines did when they started (Businessline, 1998b). Similarly, Airports Authority of India with a sta! strength of about 18,000 is also very much-oversta!ed (Businessline, 2000). In an e!ort to bring down its sta! strength from its existing "gure of about 18,000 (Bhushan, 2000; Businessline, 1999b), Air India rolled back the retirement age to 58, which was increased to 60 years as per the recommendations of pay commission in 1998. Indian Airlines followed the same decision a little later. Sta! unions carry a lot of weight in the governmentowned organisations. It is believed that the Indian Airlines labour union's opposition to the entry of Tata Airlines was one of the reasons for government's indecision, which ultimately made Tatas to withdraw their proposal of Tata Airlines (Businessline, 1999e). Periodical industrial actions by the representative sta! unions/ associations have often led to total/partial collapse of services. Sometimes tough stand taken by the government/court directives has restrained these industrial actions but mostly because of political interventions, the unions have had their ways (Rao, 1999d). Airports Authority of India, to face a situation of strike threat by Air Tra$c Controllers (ATC) Guild armed itself with Essential Services Maintenance Act (ESMA) and the Suppression of Unlawful Acts against Civil Aviation act 1982. In February 1999, ATC Guild gave a work to rule call, which very drastically a!ected the movement of air tra$c in India. After the repeated pleadings and court orders totally failed to bring back the erring ATC to their senses, Airports Authority of India dismissed six ATC Guild members (including their General Secretary). Help was sought from Air Force to maintain the services provided. ATC Guild was demanding pay parity with the pilots of Indian Airlines and Air India, reduction of duty hours from 42 to 36 h a week, payment of an ATC duty allowance at the rate of 2% of the basic pay and creation of additional posts to provide growth avenues. Besides ATC was also seeking training in neighbouring countries once in two years and in West once in four years, higher conveyance, HRD and children's education allowance and free air passage in domestic sectors (Businessline, 1999c). In the past pilots and engineers both in Indian Airlines and Air India have also resorted to industrial actions on various issues but mostly for the enhancement of their emoluments.
3.7. Legal environment Air India had to absorb 4000 unskilled workers because of a court order (Mhatre, 1999). For the same reason Airports Authority of India at Mumbai had to absorb more than 2200 casual employees. Indian law does not allow outsourcing within domestic arena the jobs, which are of perennial nature. The organisations therefore have to retain sta! for a host of non-core activities like conservancy, security, etc. The organisations are not permitted to shed their domestic sta! except through retirement or voluntary schemes (Jones, 1999). Various directives like Election Commission's requirement which does not permit any policy decision to be taken after the elections are announced is being aptly used by the government in extending the adhocism (Ray Choudhury, 1999). Court intervention has often provided protection to various contractors, who have gone to the court on issues, related to their performance of contract. On the positive side, court enquiries ordered after major incidents have often been the reasons for the implementation of technological upgradations and modi"cation of procedures, etc. It has generally been observed that the magnitude of hurdle faced in the implementation of technological upgradation resulting from court of enquiry recommendations is much lesser than the hurdle faced in the implementation of upgradation proposals based on objective assessment and analysis. 3.8. Regulatory environment Director General of Civil Aviation (DGCA) is the regulatory authority for all the aviation activities in India. DGCA has been made responsible for the implementation of ICAO standards and various other regulatory requirements in the aviation industry. Various inspections and checks are part of the severe regulatory environment existing in India. This of course makes sure that the safety factors are not compromised in favour of commercial gains. Government is thinking in terms of creating an autonomous body, Civil Aviation Authority, an authority totally independent of government in#uence, to oversee the civil aviation activities, like issuing of licence, etc. in the country (Phadnis, 2000). There are, however, plenty of inconsistencies in the regulatory environment. The government is committed to indigenisation as per its declared policies. Swadeshi, the local term for indigenous, has been a part of the declared government agenda but the policies in vogue completely belie its declarations. Whereas there is no customs duty levied for import of a full aircraft, the manufacturing organisations are required to pay duty if they import some items or raw material required for the production of one. This in a way discourages domestic production, since the cost of indigenous aircraft escalates because of the custom duty (Businessline, 1998a).
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3.9. Political environment Being a big democracy, all the distinct traits of a democracy are very much visible in Indian business environment (including the aviation environment). Lobbying has been playing a very important role in the Indian aviation sector. It was way back in 1994 that Tata "rst came out with the proposal to enter the civil aviation sector in association with Singapore Airlines and "led their application on February 5, 1995. By then Jet Airways, another private carrier had already heralded the entry of foreign carriers through Gulf Airways and Kuwaiti Airways. Much later, on 1 April 1997, the government came out with a new policy clearly prohibiting any foreign airline from having an equity stake in domestic carrier (Businessline, 1998e). Four years, four governments, three civil aviation ministers, a revised application and umpteen clari"cations later, the airline proposal was still under consideration till Tata decided to withdraw in frustration. This episode may be only a symptom of the main disease the overriding bureaucracy and the lobbying of the worst kind. It was a sad spectacle to see country's premier industrial group being made to run from pillar to post for the project that would do immense good to the country and its ine$cient civil aviation sector. The proposal was kept pending inspite of clear guidelines in this matter. Minister of civil aviation himself had said the policy on foreign participation and investment in domestic aviation was `very cleara (Businessline, 1998e), why then set up committees to examine the proposal. Much has been attributed to lobbying by another private airline already operating and to Indian Airlines for the government's indecision. Lobbying * using in#uence to achieve favorable outcome * is a widespread practice used by organisations to manage their environment (Robins, 1999). It is a big business in USA also. But then government has to see what is in the overall interest of the country. El Al, the Israeli Airline was about to buy planes from Airbus Industries, when Boeing lobbied with members of US Congress and top administrative o$cials, including Vice President Al Gore and Secretary of States Madeleine Albright to in#uence the Israeli government. Israeli government had to postpone the decision. Earlier this summer national security adviser Sandy Berger, US Trade Representative Charlene Barshefsky and Senator Slade Gorton sought to convince Taiwan to stop its #agship carrier from purchasing Airbus passenger planes. It is a di!erent matter that the attempt was unsuccessful (Blumental, 1999). On Capitol Hill, the lawmakers from Washington state were able to get Boeing an exemption to the trade sanctions imposed against India (after it tested nuclear device), and Indian carrier Jet Airways order of 10 B737s at about $480 million was met. The orders were "nanced by US Export Import Bank. Of course, Boeing on its part is expressing major interest
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in US political campaign. Boeing and its employees have already contributed almost $450,000 to various campaigns (Blumental, 1999). Lobbying cannot be blamed, what is to be blamed is the government's inability to look after the over all interest of the country. Where policy guidelines are clear, lobbying should have a minimum e!ect. Mr. N. Mohanti, former Secretary Industries, Government of India in his interview published on 28 January, 1997 said, `The lobby, which has worked to deter Tata-SIA venture, is an example of malignant lobbying. The lobbyists conveniently used the pretext that Indian Airlines would be a!ected. But actually they were acting on behalf of certain private airlines that did not want quality competition to be introduced in the domestic aviation sector (Businessline, 1998b)a. Union Commerce Minister, Mr. Ramakrishna Hegde alleged (on 17 June, 1998) (Businessline, 1998e) `that some persons in the previous United Front Government had sought Rs. 50 crores (about $10 million) as bribe from the Tatas to clear the proposed international airport at Devenhalli (Bangalore) and that the project was delayed as the Tatas refused to oblige. In reality, lobbying is productive only because there is a scope for such activity and it is feared that lobbying will continue to prevail as long as corruption continues to infest the entrails of the government (Ray Choudhury, 1998). Basically Swadeshi (domestic) stress has been more on display here. Competition is to be restricted to only small domestic players because the interest of Indian Airlines and Air India have to be protected, even at the cost of quality of service for the #ying public for whom the service is meant and not vice versa. Forty MPs (Times of India, 2000; Businessline, 1998b) have been drawing the attention of the government towards industrial recession which has triggered a dip in exports by 8% and 4}5% decline in business and tourist tra$c in last 2 yr. Indian Airlines had anticipated a market growth of 10% but had to be eventually satis"ed with a 3% (Businessline, 1998b). Total number of seats provided by all the three carriers put together was 16.4 million where as the actual number of seats utilized was about 11.2 million. IA's capacity utilization was only 66}67%. Pumping in more capacity into market by way of Tata Airlines will redistribute the existing tra$c and bring the load factors below the breakeven levels for both the IA and other domestic airlines, were some of the arguments put up by this group of MPs. But on the other hand, existing operators are negating this observations by committing signi"cant increase in their capacity over the next 2}3 yr (Businessline, 1998d). One of the general fears expressed by ministers is that domestic skies will be taken over by the foreign airlines. Mr. Ananth Kumar, the previous minister, on the other hand had feared that nowhere in the developed world is a domestic airline open for foreign investment (Businessline, 1998b).
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A number of justi"cations are being put forward by di!erent politicians at di!erent levels to restrict the Indian aviation industry to the local players only.
4. Conclusion
Appendix A The trends in tra$c and major participants in civil aviation in India are shown in Tables 1 and 2.
Table 2
Indian aviation environment has been and still to a large extent an all government a!air. Government is fully aware that private participation will not only bring in improvement in quality of service but will also make the organizations in the aviation sector economically viable and sound. But in reality because of various reasons, privatization has been restricted to papers only. Lobbying or politicization and govermentization of the whole industry has made the managements ine!ective in taking decisions on operational, "nancial, sta! issues, etc. Though geographical location and availability of skill are very much in favour of development of a strong aviation industry in India but lack of consistency of policies and sound management applications has led to the degeneration of basically sound organisations like Air India and Indian Airlines.
Organisation
Brief description
Air India
z National #ag carrier engaged in international operations with 26 aircrafts z Flies Boeing 747s and Airbus A300/A310 to "ve continents
Indian Airlines
z National #ag carrier engaged in domestic operations z Also operating to neighbouring countries z Flies ten Airbus A300 and 30 Airbus A320s
Alliance Air
z Subsidiary of Indian Airlines z Operates with 11 Boeing 737 s (after 17 July 2000 crash of an aircraft) and three Dornier 228s
Jet Airways
z India's largest private airline and also the most successful one z Operates 25 Boeing 737s including India's "rst B737-800 and four ATR-72-500s z Operates to over 30 destinations
Table 1
Sahara Airlines
z Operates eight Boeing 737s including one B737-700 z Also operates four helicopters
Pawan Hans Helicopters Ltd.
z Operates 30 helicopters which include 20 Dauphin AS365N, three Bell 206 L4, two Bell 407, two R44 and three MI-172 z Provides service to the o!-shore rigs belonging to Oil and Natural Gas Commission, a government organisation engaged in oil exploration
Department of Civil Aviation
z A department under the Ministry of Civil Aviation, Govt. of India z Performs the regulatory functions for the whole industry. Monitors, regulates and controls all agencies engaged in the civil aviation industry in India
Airports Authority of India
z Provides air tra$c services and passenger handling facilities at 86 international and domestic airports z Provides passenger handling facilities at additional 34 airports belonging to other agencies z Handled 37 million passengers, 689,000 tonnes of cargo and 420,00 aircraft movements in 1998}99
Tra$c category A/C movements (in numbers) International movements International airports Domestic airports Total Domestic Movements International airports Domestic airports Total Total Movements International airports Domestic airports Total Passengers (in numbers) International Passengers International airports Domestic airports Total Domestic Passengers International airports Domestic airports Total Total Passengers International airports Domestic airports Total
1999}2000
1998}1999
% Change
78777 12135 90912
80088 10982 91070
!1.6 10.5 !0.2
153388 181785 335173
137719 157916 295635
11.4 15.1 13.4
232165 193920 426085
217807 168898 386705
6.6 14.8 10.2
10780459 1303583 12084042
10774176 998888 11773064
0.1 30.5 2.6
14009184 9528803 23537987
131609184 8997186 22158147
6.4 5.9 6.2
24789643 10832386 35622029
23935137 9996074 33931211
3.6 8.4 5.0
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References Bhushan, R., 2000. Learning to #y, once again. Outlook, June 12, pp. 24}25. Blumental, L., 1999. Government helps Boeing battle Airbus Company says it's seeking to level the playing "eld. The News Tribune, October 4. Businessline, 1998a. Airlines #ying over India adopt collision avoidance system. January 30. Businessline, 1998b. Down to one last hurdle? Tata Airline project. July 9. Businessline, 1998c. India: airlines must be run on commercial lines. August 26. Businessline, 1998d. India: Tata's failure puts Ministry in a "x. August 15. Businessline, 1998e. India: will Tata airline plan take wings? August 11. Businessline, 1999a. Business Line Editorial: A policy crash. Feb 12. Businessline, 1999b. Cabinet nod for Air India to roll back retirement age to 58. June 9. Businessline, 1999c. India: Poor performance a!ecting AI. Report. January 10. Businessline, 1999d. India: Bangalore international airport in 36 months. July 10. Businessline, 1999e. India: pre-bid meet on Bangalore Airport project study. September 10. Businessline, 2000. Business Line Editorial: tactical turbulence. January 19. Hall, R.H., 1997. Organizational Environment. Organizations Structures, Processes and Outcomes, 6th Edition. Prentice-Hall of India, New Delhi. Jones, D., 1999. Good in time, shame about its problem. Air"nance Journal, 31}33. Kumar, S., 1999. India: safety audit of aircraft likely. Businessline, December 10. Mhatre, K., 1998. Mumbai Mirage. Air Transport World, March 1998, 107}108. Mhatre, K., 1999. Can Air-India Survive? Air Transport World, April 1999, 47}51. Mhatre, K., 2000. Millenium facelift for Indian ATC. Air Transport World, March 2000, pp. 99}100.
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Murli, J., 1999. India: grounded for now, or forever. Businessline, February 10. Phadnis, A., 1999a. Air India #eet expansion likely. Businessline, November 9. Phadnis, A., 1999b. Air India not worried about lack of fresh equity infusion. Businessline, November 7. Phadnis, A., 2000. India: draft aviation policy lays stress on private investment. Businessline, January 19. Ramamritham, S., 1975. Development of civil aviation in India and its future. Ninth Nilakantan Memorial Lecture, 15 March 1975. Rao, G., 1999a. Air India planning to seek DGCA mediation. Businessline, July 9. Rao, G., 1999b. Air India to have "nal say on aircraft selection. Businessline, August 3. Rao, G., 1999c. Air India invites bids from Airbus, Boeing. Businessline, June 22, p. 1. Rao, G., 1999d. India: AAI counters campaign by ATC guild. Businessline, March 23. Rao, G., 1999e. India: AAI takes up satellite communication link. Businessline, April 2. Rao, G., 1999f. India: Bangalore airport project hits snag. Businessline, August 11. Ray Choudhury, R., 1998. India: lobbying and corruption. Businessline, August 1. Ray Choudhury, R., 1999. Indian civil aviation hasn't really taken o!. Businessline, July 3. Robins, S.P., 1999. Managing the Environment. Organization Theory Structure Design and Application. Prentice-Hall of India, New Delhi, p. 375. Sen, A., 1982. History of Indian aviation. Lecture delivered in the Annual General Meeting of Aeronautical Society of India, Madras, December 10, 1982. Soman, D.S., 2000. Govt. machinery: Rusted and inert. Businessline, January 18. The Times of India, 2000. Alliance Air re-routed Boeing to suit 30 MPs from Bihar. May 20. Tra$c News, 2000. Airports Authority of India, June 14. Travel Trade Gazette Asia, 1998. Editorial: Airlines in need of health check. October 16.
Operating environment for a civil aviation industry in India S.K. Saraswati Chhatrapati Shivaji International Airport, National Airports Division, Airports Authority of India (WR), Mumbai 400 099, India
Abstract Civil Aviation has slowly transformed itself from a mode of transportation for the elite to an essential infrastructure necessity for the society. How this important infrastructure develops and prospers in a country, depends totally on the kind of support it gets from the operating environment. This paper gives a brief history of civil aviation in India and analyses the operating environment in which civil aviation industry in the country is operating. The analysis has been carried out on the basis of articles and news items which appeared in the local/international news papers and journals. 2001 Published by Elsevier Science Ltd. Keywords: Civil aviation; Disinvestment in aviation industry; Environmental factors
1. Introduction
1.1. Present scenario
India is a vast country with a part of its geographical terrain not very easily accessible by surface transport. Hence to provide easy access to this inhospitable terrain, exploit the market for agro and #oriculture products and to support social development of the whole country, it becomes essential for India to have a very e$cient air infrastructure. Government wants civil aviation to become a core infrastructure and not to remain as a means of transportation for the elite only (Businessline, 1998b). India has been lucky to a certain extent in view of the fact that there was a massive service provision by foreign carriers. This had enabled for years together the exploitation of the political and economic options by the Government to ignore the long-term interest of Air India, the national #ag carrier for international operations. This service provided by foreign carriers had enabled Indians to #y in and out of the country even while their own national carrier had been progressively deteriorating. If one looks at a parallel situation in Philippines, one realises that the Indian civil aviation crisis had been camou#aged by a geographical advantage, which Philippines did not enjoy. Simply put Philippines is located on way to nowhere. The Philippines Airlines, one of the oldest in the region, had almost gone bankrupt causing damage to the economic infrastructure of the country (Ray Choudhury, 1999).
In India, international air tra$c is predominantly handled at the "ve designated international airports. In addition, provision has also been made to handle international air tra$c at some of the major domestic airports. During the period April 1999 to March 2000, air tra$c in terms of total aircraft movements increased by 10% where as the passenger tra$c both domestic and international put together increased by 5.4% during the same period. The cargo movement saw quite a signi"cant level of improvement at 14.1% during this year (Tra$c News, 2000). On the scheduled air lines side, in addition to the two national carriers, Air India for international operations and Indian Airlines and its subsidiary Alliance Air for domestic operations, there are two more private operators operating in the domestic sectors. They operate at 45 signi"cant airports and 36 civil enclaves (in addition there are some minor airports where also the #ights operate). Table 1 given in Appendix A gives the statistics of civil air tra$c operations in India. It also indicates the growth rate.
E-mail address: [email protected] (S.K. Saraswati).
2. History of Indian aviation Commercial aviation in India began on 18 February 1911 when Mr. Henri Pequet, a French pilot set a world record by #ying world's "rst o$cial air mail from Industrial and Agricultural Exhibition Ground, Allahabad to
0969-6997/01/$ - see front matter 2001 Published by Elsevier Science Ltd. PII: S 0 9 6 9 - 6 9 9 7 ( 0 0 ) 0 0 0 4 0 - 5
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Naini, a distance of 8 miles, carrying 6500 letters and post cards (Sen, 1982; Ramamritham, 1975). On the 1st October 1915, Government of India sanctioned the setting up of a Central Flying School at Sitapur under the control of Army Headquarters (Ramamritham, 1975) and at the end of the First World War, an `Air Boarda, was formed to advise on the ways to assist and encourage civil aviation. Detailed rules governing registration of aircraft, licensing of personnel, etc. were promulgated in the years 1920 and 1924, work was initiated for the construction of civil aerodromes at Dum Dum, Calcutta, Bamrauli in Allahabad and Gilbert Hill in Bombay (Sen, 1982; Ramamritham, 1975). India has always been on the international trunk route. The "rst proving #ight of KLM to Java arrived at Karachi as early as on 9 November 1924 and passed through Ambala, Allahabad and Calcutta on its way further east. A separate Department of Civil Aviation came into being in April 1927 and Lt. Col. Shelmerdine was appointed as the "rst Director General of Civil Aviation in 1931 (Ramamritham, 1975). As early as in 1929, an entirely Indian-owned company, Tata Sons Ltd., (later known as Tata Airlines) submitted its plans to the Government to operate air services between Karachi and Bombay. The company commenced operations on the route Karachi, Ahmedabad, Bombay, Bellary, Madras on 15 October 1932. In early 1930s (1933}34) a number of airlines (Indian Trans Continental Airways, Indian National Airways, Madras Air Taxi Services, etc.) came up. Aviation activities expanded and a number of new routes like Karachi}Jodhpur}Delhi} Allahabad}Gaya}Calcutta}Akyab}Rangoon, etc. were introduced. The exigencies of war led to the exploration of possibilities for aircraft manufacture in Indian and the Hindustan Aircraft Ltd., was established in December 1940 by Mr. Walchand Hirachand in association with the then Mysore Government at Bangalore. India's "rst aircraft, the Harlow trainer, a single-engine aircraft with retractable undercarriage was rolled out for test #ight in July 1941. A number of airports were constructed as part of the war e!orts and at the time of India's independence in 1947, 44 airports were being operated by Civil Aviation Department. Inspite of large growth of aviation during the initial years after independence, the "nancial condition of many airlines was dwindling. Jupiter Airways went into liquidation in 1948 and Ambica Airlines followed in 1949 (as many as 29 registered companies were operating at that time). Rajadhyaksha Committee, which went into the a!airs of airline industry, reported that the reason for dissatisfactory condition of the airlines was mainly due to the fact that there were too many operators with multiplication of resources. This report ultimately led to the nationalization of the airlines later in August, 1953. In the meantime a joint sector airline, Air
India International, set up in 1948 at the initiative of J.R.D. Tata was also nationalized at the same time. The situation remained more or less unchanged since the nationalisation of carriers in August 1953 till late 1980s when open sky policy was adopted by Government of India. Air Asiatic started operations between Chennai (that time Madras) and Bangalore with their Boeing 737. In 1990s a number of private airlines came into the "eld, however, few survived. 2.1. Major participants Major players in the aviation scenario or the population under study (Hall, 1997) today are the "ve scheduled operators, 41 non-scheduled operators and 690 general aviation aircrafts. There are 526 "rms engaged in aviation-related activities. Some of the major participants in the aviation industry in India today are listed in Table 2 in Appendix A. In addition to the organisations mentioned in the table, there are some manufacturing, research and development organisations like Hindustan Aeronautics Ltd., Taneja Aerospace and Aviation Ltd., National Aerospace Laboratories, etc. which are engaged in the development and production of aircraft of assorted sizes.
3. Environmental issues The environment in which the civil aviation industry in India is operating can be analysed under following heads. 3.1. Economic conditions All the organisations forming aviation industry had been operating in a very protected economic environment with demand mostly exceeding the supply. The rates were decided almost unilaterally by the supplier and hence most of the organisations in the industry were making pro"t till early 1990s. In the post-liberalisation era, with the government declaring open sky policy, competition crept in, probably more in the international sector and somewhat less in the domestic sector. As a result, unsound economic policies of the organisations immediately became visible. Air India, which made a pro"t of $105.7 million in 1992}93, went into loss almost immediately thereafter. Now Air India has a loan burden of $948.05 million with $55.05 million going towards the servicing of this loan (Mhatre, 1999; Kumar, 1999). Pro"t for Indian Airlines, the domestic #ag carrier also came down from $10 million to less than $3.11 million (Kumar, 1999). Airports Authority of India earned a pro"t of Rs. 316 crores (about $70 million) (before tax) in 1997}98 (Businessline, 1999a), but then there is absolutely no competition for them till date.
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The case is not the same with the private operators particularly the airline operators. A number of air taxi operators started operations but had to pack up after di!erent periods of time. Airline operations in India is very capital-intensive with the additional requirement of huge reserves to fall back on. Fuel cost in India is one of the highest in the world (Businessline, 1999d) and accounts for about 60% of the ticket cost (Murli, 1999). The requirement of maintaining establishments at the stations where the airline is operating, regulatory requirement to #y the social routes, expensive maintenance facilities, etc. has made the survival of private operators extremely di$cult. Similar is the case with the private airports. With the requirement of heavy capital investment, long gestation period, government regulations, etc. except for Kochi International Airport, no other private airport has been able to come up. Declining exchange rate for rupee has also hit the Indian aviation industry very hard. Because of declining exchange rate for rupee, revenue in dollars per ticket has been falling (70% cost for Air India and a substantial portion for other airlines is in dollars because almost all the spares are required to be imported). The price of Delhi to New York round trip used to be Rs. 34,208 in 1993 and it is Rs. 40,331 now, an average annual increase of 2.78%. At the same time Indian rupee has declined from Rs.31.46 a dollar in 1993 to Rs. 44.7 today, a drop of 4.23% over this period and this has led to the drop in revenue for Air India and other airlines in terms of dollars (Jones, 1999). This is one of the most important economic factors, which has hit the Indian aviation industry. 3.2. Technological conditions Technological conditions available at the time of formation of an organisation set the limits for the form the organisation can take in future (Hall, 1997). The technological environment when the organisations were formed in India is no longer valid today; hence there are quite a few functions in the organisations, which are no longer relevant but the organisations are required to retain them because of the peculiar labour laws in the country. Technological advancements in the "eld of aviation in India have been in discrete steps. Till 1998}99, the air tra$c control system was tied down to 1950 technology till New ATC system in Delhi was commissioned in January 1999 and in Mumbai in October 1999. Because of very long implementation periods in India, it is not very surprising to "nd equipment belonging to di!erent generations being used simultaneously sometimes even for the same facility. At the professional level, India has shown a great enthusiasm in the adoption of new technologies. In 1962
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Air India achieved the distinction of being world's "rst all jet carrier with a #eet of six 707s (Mhatre, 1999). Once again India become one of the "rst states in the world to make airborne collision avoidance system (ACAS) compulsory in its air space from December 1999 (Businessline, 1998a). India is very rich in the technological skill of its manpower and has always been a very active partner in the implementation of technological (particularly computerbased) advancements in the "eld of civil aviation. India has made signi"cant contributions towards innovation implementations in the Asia Paci"c Region through APANPIRG (Asia Paci"c Air Navigation Planning and Implementation Regional Group) a working group created to plan and implement the new communication, navigation and surveillance facilities and the air tra$c management in the Asia Paci"c Region. In compliance with the ICAO recommendations and to take full advantage of the latest technology available in the "eld of satellite communication, Airports Authority of India has decided to link nearly 80 airports and aeronautical communication stations through a dedicated satellite communication network. The total cost of the project is estimated to be $12 million and is expected to improve the pilot to ground communication particularly in the areas where conventional VHF communication is not feasible (Rao, 1999e). 3.3. Operating conditions Despite recent economic crisis in Asia Paci"c region, growth rate of aviation was higher in this region at about 7% with China having the highest at 10% (Businessline, 1998c). India also has had its share of increase both in domestic and international air tra$c. Indian international air tra$c market has indeed grown from 11 million in 1993 to 14.73 million today, but the growth falls short of what had been expected. As a result capacity growth has been far in excess of passenger demand over the last 5 yr (Jones, 1999). Liberalization of Indian economy and open sky policy adopted in 90 s has meant more and more foreign carriers are coming into India. In the last 10 years, India signed 35 bilateral agreements as against 14 in the previous decade (Mhatre, 1999; Businessline, 1999d). This removed the protection Indian carrier was getting. India has also not focused on cargo and hence other international carriers are taking advantage of this situation (Businessline, 1999d). The biggest restricting factor in the operating conditions has been the fact that the organizations have never been permitted to operate on their own (Mhatre, 1999). In 1978, Mr. J.R.D. Tata was pushed out of Air India Board by an unsympathetic government. In 1979 a Parliamentary Committee launched an investigation on Air India and published a devastating report. `We haven't quite got over that,a says Commercial Director
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H.S. Uberoi, who has been with the Air India since last 39 yr. `People are still hesitant to take decisiona (Mhatre, 1999). Air India, till very recently had no global alliance partner, an ageing #eet and an enormous work force. With no fuel for privatisation and an unwillingness to look at the synergies between the two national carriers (Indian Airlines, Air India) (Jones, 1999), the performance of both the #ag carriers has been slipping. Decision of grounding all the Airbus A320 after the crash in Bangalore in 1988, is a typical example of bad operational decision in the industry. It is a fact that this one decision was responsible for putting Indian Airlines into red. The same aircraft, in subsequent years has proved to be very successful for domestic operations. Factors like sudden change of schedule, change of fare and delays have also made the Indian Carriers unpopular amongst the travel agents (Travel Trade Gazette Asia, 1998; Mhatre, 1998). In addition, Air India aircraft are withdrawn from services for reasons like the President/Prime Minister's trip abroad, Haj Pilgrimage, etc. This withdrawal of aircraft not only upsets the schedule but also creates a bad impression about the airline. Because of non-professional attitude at the decisions taking level, the operations of the organisations have been far from satisfactory. For example, most successful airlines make their money on Business and First Class seats. Compared to other airlines, Air India and Indian Airlines not only have smaller upper class but the standard of service provided also does not match the level of service provided by other international airlines or even the service provided by private domestic Indian carriers (Rao, 1999a). Magnitude of operations is also against the organisations in the industry. New terminal buildings the world over are being constructed to handle tra$c of more than 30 million passengers per year, but the buildings at major Indian airports like Delhi and Mumbai can handle maximum of 12 million passengers per year. Air India, not only has one of the smallest share amongst the national #ag carriers but also has the smallest share at its base, that is about 25% compared to Cathay Paci"c's share of 35% at Chep Lap Kok hub (Businessline, 1999d). India is using only 45% of its bilateral rights (Jones, 1999; Businessline, 1999d), the instrument of agreement between states for the sharing of air-tra$c. Air India has a #eet of 26 compared to British Airways with 256 and Singapore Airlines with 89 aircraft. Almost everybody agree that Air India needs #eet expansion (Phadnis, 1999a). Air India needs to purchase 12 aircraft * six small capacity (150 passenger) short range (SCSR) for Gulf operations and six small capacity long range (SCLR) for European operations (250 passengers) (Phadnis, 1999a) at a total estimated cost of $1 billion (Rao, 1999c) but nothing signi"cant has been done in this direction so far.
Even with this small #eet, Air India is operating with four di!erent types of aircraft (Mhatre, 1999). Air India's pilot strength which is 615 thus gets divided four ways resulting in low crew utilisation of around 55 h a month. Also, three simulators are required to be maintained. As far back as 1986 Air India predicted a #eet of 52 aircraft at the turn of century. It has exactly half that number (26). Age is also against Air India and Indian Airlines favour. Except for six 747-400s, Air India's #eet is old. The seven 747}200 ranges in age from 19 to 28 yr, the eight A310}300 from 10 to 13 yr, the 747}300 combi almost 12 yr and 3 A300B4s 18 yr (Mhatre, 1999; Jones, 1999; Travel Trade Gazette Asia, 1998) making the average age of the aircraft 14.1 yr (Bhushan, 2000). Similarly in Indian Airlines, A320s were inducted more than a decade back and there is no positive proposal for getting their replacement immediately. Ageing of the aircraft not only makes the maintenance of the aircraft very expensive but also increases the probability of incidents/accidents. Recent Alliance Air crash at Patna on 17 July 2000 is being attributed to the ageing by some experts in the "eld. 3.4. Government control Indian government, on di!erent occasions has accepted the fact that only democratization will enable the aviation sector to become the core sector and will help in the promotion of business (Businessline, 1998b). Government also accepts that to make the environment more dynamic, it is essential that government control over the organisations is minimised (Businessline, 1999a). Airlines need strict commercial discipline to succeed (Businessline, 1999a, 1998c), which government intervention is unable to provide. Non-pro"table operations like #ying social sectors by airlines and providing service to government and defence aircraft by Airports Authority of India should be compensated in some form to make them viable. Private sector participation will give major thrust to the civil aviation sector for promoting investment, improving quality, e$ciency and increasing competition (Phadnis, 2000; Businessline, 1998c). Whereas the private airlines like Jet Airways and Sahara continue to expand, the situation in Air India and Indian Airlines continues to be dismal. `Air India is not pro"table because government is not allowing the board to manage the airline in the right waya, a charge pointed out by former Air India Chairman Mr. Russi Modi. The longer the situation continues the more di$cult it will become to come back (Ray Choudhury, 1999]. Unless the organisations are permitted to reform their local management and invest capital in new equipment, it will be di$cult to improve the situation (Ray Choudhury, 1999). Tata, the doyen of Indian aviation industry, recommended Boeing 767 for purchase as replacement for
S.K. Saraswati / Journal of Air Transport Management 7 (2001) 127}135
Boeing 707 by Air India, but Airbus was able to convince the Ministry of Civil Aviation about A310. The decision proved to be wrong when Air India had to withdraw from Mauritius (Mhatre, 1999), because of non-suitability of the aircraft for operation on this route. The proposals for purchase of aircraft have to pass through seven stages in India (Mhatre, 1999) and are assessed on factors, which often are not technical or commercial. Similarly, privatisation is being delayed because too many commissions and government departments have a say on the structure of sell o!. Everything takes time in the world's largest democracy (Jones, 1999). When the $120 million project of Modernisation of Air Tra$c Services at Delhi and Mumbai was awarded to Raytheon, it was expected that the project will be completed in 2 yr. Various factors like administrative processes in ordering equipment; whether the control tower should be in its present place, etc. (Mhatre, 2000) delayed the completion of the project by more than 4 yr. In fact, there are many more examples to support the contention that government in#uence is making the organisations in the aviation sector to perform far below their optimum level. According to Mr. Ramakrishan Hegde, Union Minister for Commerce a sum of Rs. 1,36,000 crore (about $30 billion) is locked up because projects are not completed in time. The delay has not only resulted in a loss of Rs. 28,000 crores (about $6 billion) annually by way of interest but has also given the country a bad image. These delays are mainly due to political reasons and bureaucratic hurdles (Businessline, 1998d). The biggest problem with the present system is that there is practically no accountability for tasks assigned to any level. Hardly anybody has been pulled up for not doing his assigned job (Soman, 2000). Though Supreme Court, in its directive on 27 June 2000 has asked the government to screen the o$cials periodically to assess their usefulness but time will only tell if this directive has been taken seriously. 3.5. Disinvestment There have been proposals for dis-investment of Air India, Indian Airlines, Pawan Hans and Hotel Corporation of India, etc. (Rao, 1999c; Phadnis, 2000). In fact, advertisements putting up Hotel Corporation of India for sale has already appeared in the local news papers. Government of India is the owner of all these organisations in Aviation sector and hence the decision about disinvestment is required to be taken by the government (Phadnis, 1999b). As per the government almost all the services except the provision of air tra$c services are available for investment on date (Businessline, 1999a). But let us see the ground realities. The genesis of Devenhalli Airport project, for example was in 1991, when HAL told Karnataka Government that they wanted their air-
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port back. Global bids were invited in 1994 for the construction of airport to handle international and domestic air tra$c estimated at about 10,000}15,000 passenger and 400 tons of cargo every day. The MOU signed between Govt. of Karnataka and Tata Raytheon consortium said that HAL will not have civilian #ights at its airport. Original proposal was for Build Own and Operate (BOO) which was changed by the central Govt. to Build Operate and Transfer (BOT). Centre also communicated that HAL had shown a desire to continue to handle civilian #ights. These vacillating decisions and the associated frustrating delays completely demoralised Tata/Raytheon consortium and on June 25, the consortium "nally exited from the project o$cially (Businessline, 1998d). After Tata consortium withdrew from the "eld, the process of inviting bids for Bangalore Airport was initiated once again. About 4,200 acres of land has been identi"ed in Devanhalli. Seven eligible contenders including an Indian industrial house, Reliance Industries in association with Singapore's Changi Airport are bidding (Businessline, 1998d, 1999d,e; Rao, 1999f). No signs of progress are, however, visible, the government is absolutely unmoved and the second initiative is also moving towards a non-conclusive end. Private sector and its "nanciers will work on a cost recovery principle * that is whether the project can stand on its own. Like in power industry, independent power producers have been promised a 16% return on investment and a guaranteed o!-take. HAL earns about 15 crores ($3.3 million) and AAI about 12 crores ($2.2 million) from Bangalore Airport. Will they give up this revenue easily? Besides that, to make the operations economically viable, Tata had demanded at least 50% if not 100% more tra$c charges than what other airports charge but then this may not be acceptable to IATA (Murli, 1999). Government is considering to have strategic partners for Air India operations and Singapore Airlines, Air France, Cathay Paci"c, Malaysian Airlines, Emirates, British Airways and Lufthansa are reported to be interested in this proposal (Bhushan, 2000). It is expected that the strategic partner who will be inducted through disinvestment route will not be expected to interfere with the major strategic decisions (Rao, 1999b,e), another typical binder to make disinvestment program less acceptable. 3.6. Staw issues All the organizations forming aviation industry are over sta!ed. This oversta$ng has a number of e!ects on operations. Indian Airlines has 22,000 sta! for a #eet of 52 aircraft. The employee to aircraft ratio is 425:1 for Indian Airlines and about 700:1 (686:1 (Bhushan, 2000)) for Air India against the industry average of 200/250:1 (Businessline, 1999b, e). Though the sta! cost in India is lower than the
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sta! cost in the western countries but lower productivity compensates for the lower cost (Businessline, 1999d). British Airways, in a similar situation, had to retrench nearly 20,000 jobs in 1982}83 when it was on the verge of bankruptcy. The privatisation of British Airways in 1987 and the introduction of pro"t sharing, initiated the process of liberalisation in the entire aviation sector in Britain (Businessline, 1999a). If Tata Airlines had come up, it would have absorbed the extra fat from Air India and Indian Airlines like other private airlines did when they started (Businessline, 1998b). Similarly, Airports Authority of India with a sta! strength of about 18,000 is also very much-oversta!ed (Businessline, 2000). In an e!ort to bring down its sta! strength from its existing "gure of about 18,000 (Bhushan, 2000; Businessline, 1999b), Air India rolled back the retirement age to 58, which was increased to 60 years as per the recommendations of pay commission in 1998. Indian Airlines followed the same decision a little later. Sta! unions carry a lot of weight in the governmentowned organisations. It is believed that the Indian Airlines labour union's opposition to the entry of Tata Airlines was one of the reasons for government's indecision, which ultimately made Tatas to withdraw their proposal of Tata Airlines (Businessline, 1999e). Periodical industrial actions by the representative sta! unions/ associations have often led to total/partial collapse of services. Sometimes tough stand taken by the government/court directives has restrained these industrial actions but mostly because of political interventions, the unions have had their ways (Rao, 1999d). Airports Authority of India, to face a situation of strike threat by Air Tra$c Controllers (ATC) Guild armed itself with Essential Services Maintenance Act (ESMA) and the Suppression of Unlawful Acts against Civil Aviation act 1982. In February 1999, ATC Guild gave a work to rule call, which very drastically a!ected the movement of air tra$c in India. After the repeated pleadings and court orders totally failed to bring back the erring ATC to their senses, Airports Authority of India dismissed six ATC Guild members (including their General Secretary). Help was sought from Air Force to maintain the services provided. ATC Guild was demanding pay parity with the pilots of Indian Airlines and Air India, reduction of duty hours from 42 to 36 h a week, payment of an ATC duty allowance at the rate of 2% of the basic pay and creation of additional posts to provide growth avenues. Besides ATC was also seeking training in neighbouring countries once in two years and in West once in four years, higher conveyance, HRD and children's education allowance and free air passage in domestic sectors (Businessline, 1999c). In the past pilots and engineers both in Indian Airlines and Air India have also resorted to industrial actions on various issues but mostly for the enhancement of their emoluments.
3.7. Legal environment Air India had to absorb 4000 unskilled workers because of a court order (Mhatre, 1999). For the same reason Airports Authority of India at Mumbai had to absorb more than 2200 casual employees. Indian law does not allow outsourcing within domestic arena the jobs, which are of perennial nature. The organisations therefore have to retain sta! for a host of non-core activities like conservancy, security, etc. The organisations are not permitted to shed their domestic sta! except through retirement or voluntary schemes (Jones, 1999). Various directives like Election Commission's requirement which does not permit any policy decision to be taken after the elections are announced is being aptly used by the government in extending the adhocism (Ray Choudhury, 1999). Court intervention has often provided protection to various contractors, who have gone to the court on issues, related to their performance of contract. On the positive side, court enquiries ordered after major incidents have often been the reasons for the implementation of technological upgradations and modi"cation of procedures, etc. It has generally been observed that the magnitude of hurdle faced in the implementation of technological upgradation resulting from court of enquiry recommendations is much lesser than the hurdle faced in the implementation of upgradation proposals based on objective assessment and analysis. 3.8. Regulatory environment Director General of Civil Aviation (DGCA) is the regulatory authority for all the aviation activities in India. DGCA has been made responsible for the implementation of ICAO standards and various other regulatory requirements in the aviation industry. Various inspections and checks are part of the severe regulatory environment existing in India. This of course makes sure that the safety factors are not compromised in favour of commercial gains. Government is thinking in terms of creating an autonomous body, Civil Aviation Authority, an authority totally independent of government in#uence, to oversee the civil aviation activities, like issuing of licence, etc. in the country (Phadnis, 2000). There are, however, plenty of inconsistencies in the regulatory environment. The government is committed to indigenisation as per its declared policies. Swadeshi, the local term for indigenous, has been a part of the declared government agenda but the policies in vogue completely belie its declarations. Whereas there is no customs duty levied for import of a full aircraft, the manufacturing organisations are required to pay duty if they import some items or raw material required for the production of one. This in a way discourages domestic production, since the cost of indigenous aircraft escalates because of the custom duty (Businessline, 1998a).
S.K. Saraswati / Journal of Air Transport Management 7 (2001) 127}135
3.9. Political environment Being a big democracy, all the distinct traits of a democracy are very much visible in Indian business environment (including the aviation environment). Lobbying has been playing a very important role in the Indian aviation sector. It was way back in 1994 that Tata "rst came out with the proposal to enter the civil aviation sector in association with Singapore Airlines and "led their application on February 5, 1995. By then Jet Airways, another private carrier had already heralded the entry of foreign carriers through Gulf Airways and Kuwaiti Airways. Much later, on 1 April 1997, the government came out with a new policy clearly prohibiting any foreign airline from having an equity stake in domestic carrier (Businessline, 1998e). Four years, four governments, three civil aviation ministers, a revised application and umpteen clari"cations later, the airline proposal was still under consideration till Tata decided to withdraw in frustration. This episode may be only a symptom of the main disease the overriding bureaucracy and the lobbying of the worst kind. It was a sad spectacle to see country's premier industrial group being made to run from pillar to post for the project that would do immense good to the country and its ine$cient civil aviation sector. The proposal was kept pending inspite of clear guidelines in this matter. Minister of civil aviation himself had said the policy on foreign participation and investment in domestic aviation was `very cleara (Businessline, 1998e), why then set up committees to examine the proposal. Much has been attributed to lobbying by another private airline already operating and to Indian Airlines for the government's indecision. Lobbying * using in#uence to achieve favorable outcome * is a widespread practice used by organisations to manage their environment (Robins, 1999). It is a big business in USA also. But then government has to see what is in the overall interest of the country. El Al, the Israeli Airline was about to buy planes from Airbus Industries, when Boeing lobbied with members of US Congress and top administrative o$cials, including Vice President Al Gore and Secretary of States Madeleine Albright to in#uence the Israeli government. Israeli government had to postpone the decision. Earlier this summer national security adviser Sandy Berger, US Trade Representative Charlene Barshefsky and Senator Slade Gorton sought to convince Taiwan to stop its #agship carrier from purchasing Airbus passenger planes. It is a di!erent matter that the attempt was unsuccessful (Blumental, 1999). On Capitol Hill, the lawmakers from Washington state were able to get Boeing an exemption to the trade sanctions imposed against India (after it tested nuclear device), and Indian carrier Jet Airways order of 10 B737s at about $480 million was met. The orders were "nanced by US Export Import Bank. Of course, Boeing on its part is expressing major interest
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in US political campaign. Boeing and its employees have already contributed almost $450,000 to various campaigns (Blumental, 1999). Lobbying cannot be blamed, what is to be blamed is the government's inability to look after the over all interest of the country. Where policy guidelines are clear, lobbying should have a minimum e!ect. Mr. N. Mohanti, former Secretary Industries, Government of India in his interview published on 28 January, 1997 said, `The lobby, which has worked to deter Tata-SIA venture, is an example of malignant lobbying. The lobbyists conveniently used the pretext that Indian Airlines would be a!ected. But actually they were acting on behalf of certain private airlines that did not want quality competition to be introduced in the domestic aviation sector (Businessline, 1998b)a. Union Commerce Minister, Mr. Ramakrishna Hegde alleged (on 17 June, 1998) (Businessline, 1998e) `that some persons in the previous United Front Government had sought Rs. 50 crores (about $10 million) as bribe from the Tatas to clear the proposed international airport at Devenhalli (Bangalore) and that the project was delayed as the Tatas refused to oblige. In reality, lobbying is productive only because there is a scope for such activity and it is feared that lobbying will continue to prevail as long as corruption continues to infest the entrails of the government (Ray Choudhury, 1998). Basically Swadeshi (domestic) stress has been more on display here. Competition is to be restricted to only small domestic players because the interest of Indian Airlines and Air India have to be protected, even at the cost of quality of service for the #ying public for whom the service is meant and not vice versa. Forty MPs (Times of India, 2000; Businessline, 1998b) have been drawing the attention of the government towards industrial recession which has triggered a dip in exports by 8% and 4}5% decline in business and tourist tra$c in last 2 yr. Indian Airlines had anticipated a market growth of 10% but had to be eventually satis"ed with a 3% (Businessline, 1998b). Total number of seats provided by all the three carriers put together was 16.4 million where as the actual number of seats utilized was about 11.2 million. IA's capacity utilization was only 66}67%. Pumping in more capacity into market by way of Tata Airlines will redistribute the existing tra$c and bring the load factors below the breakeven levels for both the IA and other domestic airlines, were some of the arguments put up by this group of MPs. But on the other hand, existing operators are negating this observations by committing signi"cant increase in their capacity over the next 2}3 yr (Businessline, 1998d). One of the general fears expressed by ministers is that domestic skies will be taken over by the foreign airlines. Mr. Ananth Kumar, the previous minister, on the other hand had feared that nowhere in the developed world is a domestic airline open for foreign investment (Businessline, 1998b).
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A number of justi"cations are being put forward by di!erent politicians at di!erent levels to restrict the Indian aviation industry to the local players only.
4. Conclusion
Appendix A The trends in tra$c and major participants in civil aviation in India are shown in Tables 1 and 2.
Table 2
Indian aviation environment has been and still to a large extent an all government a!air. Government is fully aware that private participation will not only bring in improvement in quality of service but will also make the organizations in the aviation sector economically viable and sound. But in reality because of various reasons, privatization has been restricted to papers only. Lobbying or politicization and govermentization of the whole industry has made the managements ine!ective in taking decisions on operational, "nancial, sta! issues, etc. Though geographical location and availability of skill are very much in favour of development of a strong aviation industry in India but lack of consistency of policies and sound management applications has led to the degeneration of basically sound organisations like Air India and Indian Airlines.
Organisation
Brief description
Air India
z National #ag carrier engaged in international operations with 26 aircrafts z Flies Boeing 747s and Airbus A300/A310 to "ve continents
Indian Airlines
z National #ag carrier engaged in domestic operations z Also operating to neighbouring countries z Flies ten Airbus A300 and 30 Airbus A320s
Alliance Air
z Subsidiary of Indian Airlines z Operates with 11 Boeing 737 s (after 17 July 2000 crash of an aircraft) and three Dornier 228s
Jet Airways
z India's largest private airline and also the most successful one z Operates 25 Boeing 737s including India's "rst B737-800 and four ATR-72-500s z Operates to over 30 destinations
Table 1
Sahara Airlines
z Operates eight Boeing 737s including one B737-700 z Also operates four helicopters
Pawan Hans Helicopters Ltd.
z Operates 30 helicopters which include 20 Dauphin AS365N, three Bell 206 L4, two Bell 407, two R44 and three MI-172 z Provides service to the o!-shore rigs belonging to Oil and Natural Gas Commission, a government organisation engaged in oil exploration
Department of Civil Aviation
z A department under the Ministry of Civil Aviation, Govt. of India z Performs the regulatory functions for the whole industry. Monitors, regulates and controls all agencies engaged in the civil aviation industry in India
Airports Authority of India
z Provides air tra$c services and passenger handling facilities at 86 international and domestic airports z Provides passenger handling facilities at additional 34 airports belonging to other agencies z Handled 37 million passengers, 689,000 tonnes of cargo and 420,00 aircraft movements in 1998}99
Tra$c category A/C movements (in numbers) International movements International airports Domestic airports Total Domestic Movements International airports Domestic airports Total Total Movements International airports Domestic airports Total Passengers (in numbers) International Passengers International airports Domestic airports Total Domestic Passengers International airports Domestic airports Total Total Passengers International airports Domestic airports Total
1999}2000
1998}1999
% Change
78777 12135 90912
80088 10982 91070
!1.6 10.5 !0.2
153388 181785 335173
137719 157916 295635
11.4 15.1 13.4
232165 193920 426085
217807 168898 386705
6.6 14.8 10.2
10780459 1303583 12084042
10774176 998888 11773064
0.1 30.5 2.6
14009184 9528803 23537987
131609184 8997186 22158147
6.4 5.9 6.2
24789643 10832386 35622029
23935137 9996074 33931211
3.6 8.4 5.0
S.K. Saraswati / Journal of Air Transport Management 7 (2001) 127}135
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