- October 5, 2012
Nathan India’s study of competition in India’s civil aviation sector offers several recommendations to improve the health of the sector, but partial privatization of the troubled national carrier, Air India, is the one creating a stir. Publications such as the Hindu Business Line and the Business Standard have reported on the issue.
Resistance to Privatization
Commissioned by the Ministry of Corporate Affairs, the study says that partial privatization will improve the carrier’s operations and free government funds for other purposes. But, according to the Business Standard, resistance runs deep. For example, Civil Aviation Minister Ajit Singh has ruled out privatization because the government is already restructuring Air India. A former director of the national carrier, Jitendra Bhargava, recommends “professionalizing” Air India “because even private airlines are not doing well.” Others suggest that attracting private investment depends on a host of particulars. No one disputes that Air India needs to improve its performance—the dispute is about how to do so.
Seven Competitive Factors
In analyzing the health of the civil aviation sector, Nathan India considered the impact of seven major factors, most of them rooted in government regulation:
- Market entry requirements for fleet, capital, and experience
- Route dispersal requirements to ensure service throughout the country
- Slot allocation practices
- Airport development agreements with private operators, particularly the effect of “right of first refusal” clauses on competition
- Preferential traffic right allocation and access to government funding for Air India
- Limits on foreign investment in the sector
- Procurement practices
Five Major Recommendations
The study recommends steps to improve competition and presents the U.S. and Brazilian civil aviation frameworks as models of sector growth and reform, and those of the European Union, United Kingdom, and Australia as alternative models. In addition to recommending partial privatization of the national carrier, Nathan India recommends
- Rescinding regulations granting preferential treatment to Air India
- Reducing fleet and equity requirements for passenger air carriers in the same way that India‘s regulators reduced requirements for cargo carriers
- Introducing an incentive-based route program for servicing all airports
- Introducing market-based tools for slot distribution.
The report concludes that creating “a single civil aviation policy” reflecting these recommendations—and clearly delineating among the sector regulatory authorities to ensure predictable regulatory enforcement—would be a major advance for the competitive health of civil aviation in India.
To read the report
Nathan India’s full report, including detailed recommendations, and a responding report by the Ministry of Civil Aviation are available on the ministry website.