The Indian aviation industry is up in arms against the continuance of the 5/20 rule that discriminates against new airlines, forcing them to have at least five years of domestic operation experience and 20 aircraft before being allowed to fly abroad. The industry wants the rule scrapped in the forthcoming national civil aviation policy, the draft of which was released a few days ago for stakeholder comments. The government’s neutral stand on such a rule in the draft policy has perturbed the industry further. “The 5/20 rule is obnoxious. It has been framed with malafide intent by Praful Patel to favour a particular airline,” says Jitender Bhargava, former executive director, Air-India and author of The Descent of Air-India. As it has become a contentious issue with many existing airlines opposing its abolition, the government should take a call on it keeping in view what best serves our national interests, adds Bhargava.
The draft policy invites suggestions on three possible policy options on the 5/20 rule. The options asked for include continuing with the rule or to abolish it immediately or to still put some restrictions thus, capping the new airlines’ wish to fly abroad. “This suggests that a firm decision has not been taken on the 5/20 rule as it has been left for further consultations,” says Centre for Aviation (CAPA). Many agree that the “Open Sky” policy being espoused in the draft policy is inconsistent with the 5/20 rule which denies certain carriers to operate international operations. CAPA says that “we have consistently and repeatedly termed the rule as the most negative and discriminatory regulation that has been imposed on the sector.” It expects the government to abolish the rule unconditionally following the public consultation process.
While the industry welcomes the focus on regional connectivity proposed in the draft policy but “capping of fares at Rs 2,500 for one hour flights may not be economically feasible,” says Binit Somaia, CAPA. The viability of this fare level cannot be achieved across all types of aircraft. Aircraft in the 9-30 commuter categories have different economics compared to the 50-100 seater aircraft. Moreover, having smaller aircraft — for regional routes — have higher capital requirements. CAPA estimates that a start-up airline would need to have Rs15,000-20,000 crore. And for this level of risk, capping of fares to that level would dampen the interest of many investors.
Beside these issues, the industry also wants a complete overhaul of sector’s regulator — Director General of Civil Aviation. The government’s intent as of now does not move the regulator towards the structural change that is required. The proposed Civil Aviation Authority which was to be an independent and professionally-managed regulator for the sector does not find mention in the draft policy.