Of open skies, headwinds and a private airport: 1991-2002
India’s aviation sector was at a tipping point. The monopoly of start-run Air India and Indian Airlines existed when the Indian government introduced the Open Skies Policy in 1991 and opened the sector to private participants. However, the writing was on the wall. During the post-liberalisation period, private airlines were allowed to run charter and non-scheduled services under the air taxi scheme due to deregulation. These may seem like baby steps today, but the operators got operational freedom in many ways. For instance, they were allowed to decide their own flight schedules, as well as cargo and passenger fares.
Nevertheless, it was a limited market at the time. Overseas tours were out of reach for most Indians. There were too few cities on the air map and the number of fliers was abysmally low—7.27 million passengers even in 1994-95. That didn’t prevent P.V. Narasimha Rao from starting some much-needed development work when he assumed the Prime Minister’s Office in May 1991. Led by him, the government was developing more airports across the country and pushing for international connectivity. India also started doling out bilateral seat allotments to expand business and attract foreign carriers. For the first time in over four decades, market forces were coming into play.
The big change came in 1994 when the government repealed the Air Corporations Act, allowing private entities to operate scheduled services. The benefits immediately came to the fore. Any carrier had unrestricted access to the country without any written agreement specifying capacity, ports of call or schedules of services. Also, there was no restriction on the type of aircraft used and no demand for certification. This opened the gateway for many international carriers to fly to India, with the domestic hopefuls seeing a great opportunity for a business.
It’s no wonder that over the next 10-15 years, the civil aviation sector saw more private carriers flying in with low-cost models being introduced (more on that later in our year-long series). While a demand-driven market came up that was willing to ferry the common man at affordable prices, but many airlines closed down due to faulty business models. However, there was excitement in the air. Everyone who mattered wanted to run his own airline.
The great buzz: A record 42 airlines in action
In 1994, the then civil aviation minister late Madhavrao Scindia modified the Air Corporations Act, 1953, opening the sector to competition. The era of protectionism was finally over and a number of private airlines, including Jet Airways, Sahara Airlines, ModiLuft, Damania Airways, NEPC Airlines and East-West Airlines, started domestic operations. By 1995, a record 42 airlines were operating in India. Currently, we only have 11 scheduled operators.
The buzz, nevertheless, was short-lived and barring Naresh Goyal-promoted Jet Airways (India) Ltd, the rest had to be closed down or sold off due to operational issues and financial constraints. Damania was acquired by Chennai-based Skyline NEPC in 1995. East-West Airlines, the first scheduled private carrier that took off under the Open Skies policy, also shut shop in 1996, a year after Thakiyudeen Wahid, the airline’s managing director, was assassinated. Even the state-run Vayudoot went into the red and had to be merged with the then-Indian Airlines.
“The first decade of liberalisation, which should have logically laid the foundation for a robust aviation industry, thus ended up as a period of missed opportunities. Though much had been achieved, much more should and could have been achieved at the time,” rues Jitender Bhargava, former executive director at Air India and author of book The Descent of Air India.
“Ad hoc decision-making also saw formulation of irrational policies such as the 5/20. Indian carriers’ failure to expand in sync with the market was foreign airlines’ gain, especially on international routes,” he adds.
The new civil aviation policy announced this year diluted the 5/20 rule wherein an airline was required to have five-year experience and 20 aircraft in its fleet in order to obtain licence to operate international flights.
“Worse still, the government did not frame specific rules or checked the credentials of new aviation entrepreneurs. Also, in their quest to grow in the price-sensitive Indian market, they tried to expand at the expense of profitability. As a result, several new airlines collapsed as fast as they had come up during 1994-2002. Increasing debt also hindered their future plans,” Bhargava says.
According to Bhargava, things didn’t improve much when the ‘second wave’ came with the entry of low-cost carrier Air Deccan.
Of low connectivity and choppers
Meanwhile, there was a growing clamour from the poorly connected north-eastern states. This led to the introduction of helicopter services in Arunachal Pradesh, Sikkim and Meghalaya between 1995 and 1999. State-run Pawan Hans Helicopters Ltd operates these flights while the government subsidises 75% of the total operational costs, subject to an annual ceiling of Rs.7.55 crore. Around 1995, choppers were also used for installing high-voltage power cables in the hilly areas for which industrial helicopters were used. However, most of these came from overseas vendors.
Although private chopper business did not pick up much during this period, Pawan Hans was gunning for growth and was well on its way to become one of Asia’s largest helicopter companies. Founded in 1985, the company provides onshore and offshore services to oil companies, takes part in poll, survey, and is actively developing ‘heli tourism’ across the country. It started its chopper services to the Vaishno Devi shrine, a famous religious destination in Jammu and Kashmir, in 1999. State-run Oil and Natural Gas Corp. Ltd has 49% stake in Pawan Hans.
Of landings and the first private airport
By the mid-90s, the aviation sector was growing at a frenetic pace and the authorities felt the need to create a central body that would look after all infrastructure requirements. Hence, the Airports Authority of India (AAI) was formed in 1995 by merging the International Airport Authority of India with the National Airports Authority. Two years later, the government came up with a comprehensive policy for airport development.
As a result, around 34 airports all over the country, including the metro airports, saw significant renovations besides expansions and runway upgrades, according to senior AAI officials.
“It was required as heavier jets were increasingly flying in, operations (both domestic and international) were expanding at a fast clip and new airlines were bringing in a great many new-age aircrafts,” points out an AAI official, who did not want to be quoted.
Airports also went through a ‘sea change’.
Kochi needed an international airport. Given the growing number of workers from Kerala working in the Gulf countries, the Indian Navy-owned airport on Wellington Island could not meet the growing demand. This also led to an interesting event in the Indian airports history.
A body called the Cochin International Airport Society was registered in July 1993 to execute the Kochi airport through the public-private-partnership model. Around 10,000 non-resident Indians from 30 countries chipped in with interest-free loans. Then there were contributions from the state government, corporate houses, public sector undertakings (both Air India and Bharat Petroleum Corp. Ltd pitched in), banks and co-operative societies. Finally, a public limited company called Cochin International Airport Ltd (CIAL) was registered in March 1994 with an authorised capital of Rs.90 crore. The state government held 51% stake in CIAL at the time.
The project had to face too many challenges. Around 810 hectares of land was acquired for the airport and over 2,000 landowners and 800 families were evicted and rehabilitated under a special package. On 25 May 1999, the airport was formally inaugurated by the then-president K.R. Narayanan and the first commercial service started on 10 June. In the initial days, the Rs.300 crore airport CIAL handled less than 70 flights a week and soon was in deep financial difficulties due to heavy interest outflow on loans. More funding was sought and the equity base was increased to Rs.200 crore via a rights issue while the state government reduced its stake to 26% in 2001. CIAL has been paying dividends to its shareholders since financial year 2003-04.
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