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Aug 10, 2009 at 09:08am IST

Devil's Advocate: Patel on aviation crisis

Private sector airlines have been severely criticised for threatening a strike but are the issues that they have raised more justified than legitimate? Karan Thapar asked Minister for Civil Aviation, Praful Patel.

Karan Thapar: Mr Patel, let's start with the state of private sector airlines. They say that in the last year they have lost Rs 10,000 crore. The Business Standard estimates that their cumulative losses are somewhere in the region of Rs 50,000 crore and Vijay Mallya says that it is probably cheaper not to fly than to fly. Would you therefore accept that private airlines face dire straits.

Praful Patel Let's accept one thing. The entire aviation sector, worldwide and in India, is going through a very difficult phase. Everyone tends to be forgetful of the reasons behind it. In 2008, the oil prices reached $147. That one year gave a hit of almost Rs 10,000 crore to all the airlines in India. Combined that with the fact that there is an economic slowdown. Today, if 30 per cent people are flying less than last year, you are bound to have empty seats on planes and you are going to see that much more money is being lost.

Karan Thapar: Absolutely. I accept your point that there is a severe economic downturn, made much worse with the economic oil situation of last year. Therefore, you accept my point that the private airlines face dire straits?

Praful Patel Certainly. But the figure of Rs 57,000 crore or whatever thousand crores quoted in some newspaper is absolutely wrong.

Karan Thapar: Said apart, the airlines face dire straits?

Praful Patel Absolutely.

Karan Thapar: Secondly, given that private airlines account for 80 per cent of domestic flights of India and given that they fly perhaps over a lakh people a day, would you also accept that if private airlines go bankrupt, it would cripple aviation connectivity in India?

Praful Patel Of course. I am the Minister for Civil Aviation, I am not only the Minister for Government-owned public carrier and therefore I show equal concern and respect to even the private sectors. The problem is not just something which has happened overnight and they are not of the Government's making.

Karan Thapar: Again, I accept your point but you agree with me that if the private airlines sector were to go bankrupt, it would cripple India's aviation connectivity?

Praful Patel Of course. Eighty per cent of India's aviation, over a period of time, we have deregulated this sector. We have consciously allowed both private and public sector to grow. So there is no question of saying that if the private sector is crippled it does not affect India.

Karan Thapar: In which case, with that background, let's then come to the issues the private airlines have raised. There were two issues that they raised in a press conference last Friday. Let's take them one by one. To begin with they raised the issue of reducing taxes on ATF (aviation turbine fuel) given that ATF accounts for 40 per cent of the cost of a private sector airlines in India compared to just 13 per cent in Europe. Can you accept that it's a legitimate concern?

Praful Patel Before even some of these private carriers came into existence, this problem has always been there. From 2004, I have been consistently fighting with the states and talking to the Centre that please help in this regard. I took the entire aviation industry, public and private, to meet the Prime Minister in June 2008 with the wish-list that please do something because the aviation industry is facing a major problem in the tax account.


Karan Thapar: Let me point out two things which underline the concern of private airlines regarding ATF. ATF charges in India are said to be 60 per cent more than they are internationally and Jitin Prasad on August 3, speaking in Parliament has accepted that 35 per cent of those charges are Government taxes. In other words, the taxes are bleeding these airlines dry.

Praful Patel I agree. And that's why I am saying I have full sympathy for them. In fact, on the day of the strike, I said I do understand the problems being faced by the aviation sector. However, I do not approve of the way they are going about on a strike which will cause inconvenience to the travelling public.

Karan Thapar: Let's leave the strike out of it. I am not arguing in support of the strike at all. I suspect today that the airlines themselves believe that it was a mistake in their decision. I am actually questioning the degree of sympathy that you show. You are saying that you are sympathetic but your answers - you said that the ATF problem goes back to a period before the airlines came into play and then what you are suggesting is that first of all this is a rich moment in which to bring it up, it's an old issue they should have learnt to live with it and secondly you are saying it's a state issue not a Central issue. That's not just unhelpful, it's not even sympathetic.

Praful Patel Can I go one step further? As I said in June 2008, when I took the entire aviation sector to meet the Prime Minister, two thing came out of it. First, five per cent duty on ATF was abolished. Second thing, all the private carriers were given six months extension to pay their old dues to the oil companies.

Karan Thapar: It coincided with the economic downturn so dramatically that it did not end up becoming a benefit anywhere near enough.

Praful Patel I am not saying that it was the only reason that would solve the problem. What I am saying is that to say that the Government is not sympathetic is not fitted. I called all the state finance ministers for a meeting in Delhi to be able to convince them when we talked to the Prime Minister and the Finance Minister that why don't we have a declared good status from Delhi.

Karan Thapar: Precisely.

Praful Patel The view taken was that the Government of India cannot take away the revenue of the states without consulting them. Secondly, a decision was taken that there was an empowered group of state finance ministers on VAT, so there was a presentation made by my Ministry to that committee, then the Federation of Indian Airlines (FIA) went to that committee and also made a presentation after which they haven't come back to us.

Karan Thapar: But this is the point. You consulted them, you called them to Delhi, you made every effort on your part to persuade them but you got no result. I will tell you why you got no result - because you didn't use the power that you have. You have the power to declare ATF a 'declared goods'.

Praful Patel That power has to be exercised by the Finance Minister.

Karan Thapar: Absolutely. It's a power that the Government of India, of which Praful Patel is an important man, should have used. Had you been prepared to exercise that power, you would have encouraged the state governments themselves to voluntarily to reduce their tax. But because you weren't prepared to exercise the power, the leverage that you had wasn't used and therefore, the state government's ignored you.


Praful Patel I talked to the Prime Minister then and even before the Budget 2009.

Karan Thapar: Are you passing the buck to the Prime Minister?

Praful Patel I am not passing the buck. I talked to the Finance Minister then and now. The Government of India certainly sees reason in this. The Prime Minister sees reason in this. We tried our best to convince the states. We have not yet succeeded but that does not mean that we will not try again.

Karan Thapar: This is amazing. There is a whip in your hand that you can threaten to crack, the states would have fallen in line. Clearly, you haven't done your best.

Praful Patel We live in a country with a structure where states and Centre have got defined responsibilities and I would say that as much as we are talking about the responsibility of the Centre, the state governments should also cooperate and see that aviation is equally important to their development.

Karan Thapar: If they don't see that aviation is important for their development, are you going to allow 80 per cent of your domestic flights to collapse because that is the situation that stares you in the face?

Praful Patel Why 80 per cent, even the balance 20 per cent. It's not even an issue of private or public. It is an issue of the whole sector.

Karan Thapar: Even more so, because what you are putting to me as the point of democratic propriety - that you can't force the states - is actually nothing more than timidity on the part of the Government. You are behaving not like the Central Government of India but like a junior partner of the state governance, concerned more about the feelings of state chief ministers rather than the Indian economy that could collapse.

Praful Patel It is absolutely right what you say. It is not the issue where the Federal Government is running away from the issue.

Karan Thapar: But you are being timid?

Praful Patel We are not being timid. The question is that within the Government, now since this issue is coming more and more to the fore, I am sure a collective decision making apparatus - that is the Cabinet - will look into this much more closely.

Karan Thapar: In other words, a crisis has to be built up before the Government has to act?

Praful Patel No that is not the issue. The entire crisis in aviation is not only because of ATF. Is it only because of ATF?

Karan Thapar: Even more the need to act because it affects Air India just like it affects the private airlines. And if India's aviation sector itself is in danger of going under, then surely this concern of propriety about state governments should have become a secondary issue. You should have said to them that we have the capacity to force you to act, if you don't we are going to declare this as a 'declared good' and the sales tax will fall to four cent per cent. Every state government would have reduced voluntarily.

Praful Patel This is probably the first time after this crisis has triggered off that everybody is now suddenly aware that there is a problem. It is good. Why do you think I am talking to you? I am trying to vent my feelings, the Government of India's frustrations, also to inform the people and the state governments that this must be done.

Karan Thapar: The minister is so frustrated he can't get the Government to act that he has to vent his feeling on public television.

Praful Patel Of course I have to do it. Ultimately, how do you build consensus. How do you build an opinion that certain things have to be done?


Karan Thapar: The second thing that you are suggesting is that the airlines did the right thing by threatening a strike because they focused opinion on issue where politicians up till now were not prepared to act. They may have been criticised for threatening a strike but they have actually done themselves a great good. Suddenly, people like you, may be the Finance Minister and Prime Minister could sit up and say we have to act.

Praful Patel Yes. I hope so. Everyone has to work in tandem. Both the Federal and the state governments have to wake up.

Karan Thapar: Wake up clearly the need of the hour. The Government can't afford to sleep on the job.

Praful Patel Yes.

Karan Thapar: Let's turn to the second issue. Airport charges and airport levies. They say that in India these are 50 to 60 per cent higher than internationally as a result of which airport charges constitute some 10 per cent of airlines cost in India compared to just three per cent internationally. Once again, I put it to you, do they have a legitimate grasp here?

Praful Patel No. I don't agree that airport charges in India are terribly high.

Karan Thapar: 60 per cent is not terribly high?

Praful Patel They are wrong. Who is giving you the statistics?

Karan Thapar: The Business Standard in August 1.

Praful Patel I don't agree.

Karan Thapar: So the The Business Standard is wrong?

Praful Patel No, you have to draw a mean. I can show you instances where the airport charges are higher than India or lower than India. When you draw a mean and look at it in totality, India has 70 operational airports which make losses because there are one flight a day and sometimes no flight a day.

Karan Thapar: I just want to make a point there. You are trying to suggest that because India has 70 airports that make losses, the charges of those airports where the private airlines go should be higher to pay for the loss making. Why is that not something that the Government shouldn't pay for instead. It is your social responsibility to have airports in areas where losses are made not for the private sector to pay for them.

Praful Patel Let's talk about airport charges as a general subject. If you draw a mean, India is not higher than most parts of the world.

Karan Thapar: I am stating the Business Standard.

Praful Patel Business Standard has on the contrary stated that airport charges in India are not higher than the rest of the world. The latest issue of Business Standard does not state anywhere that airport charges in India are higher.

Karan Thapar: The Hindustan Times says that in privatised airports in metro cities, airport charges have been increased by an astonishing 80 per cent in the last year.

Praful Patel No that is not true. Secondly, remember one thing, we are making world class airports. To say that charges at airports shall remain what they were few years ago can never be right.

Karan Thapar: But there is a limit. If they are going to go up by 80 per cent in year, you would drive airlines out of business.

Praful Patel This is absolutely a myth. I can tell you with a great sense of authority that this is not true. You see the quality of airports which are being made in Delhi, especially when you see next year when the terminal will be opened, it will probably be one of the best in the world. The other thing is that no where in the world you will find new airports coming up without some kind of a fee which the passengers give.


Karan Thapar: The point is how much is that fee? Eighty per cent increase in airport charges in metro cities post privatisation is acceptable to you?

Praful Patel It is absolutely a myth.

Karan Thapar: Why is your Ministry not denying these facts?

Praful Patel I am denying it. The Business Standard issue which I have read has rated India's airport charges favourably. Secondly, the issue you mentioned is - why shouldn't the Government be subsidising loss making airports? - it's a question of equity. Why should the Government subsidise people who travel by air?

Karan Thapar: Travelling by air helps economy, it's a critical component of the economy. If you subsidise people who travel by roads or trains, there is no earthly reason why you shouldn't subsidise air travel.

Praful Patel In a country like India, you have to look into the the principle of equity. Can you equate the same favour you give to a passenger by road or train with the same pattern of equity with the air passenger?

Karan Thapar: You were understanding and supportive of the airlines when talking about ATF charges but when it comes to airport charges, you are not understanding or supportive of them.

Praful Patel I am not very supportive on that part.

Karan Thapar: What is not 'very'?

Praful Patel There are minor issues that can be looked at but if you say that in totality, conceptually, principally, everything is wrong, I will tell you that the Government has appointed an Airport Economic Regulator Authority - which will be arms length from the Government. It has come into function from April 2009, from August 1 and henceforth, all charges of airports will now be decided by the Regulator not by the Ministry.

Karan Thapar: If that Regulator when he/she starts functioning were to decide that the grouse that the airlines have about airports charges are justified, you will not come in the way of remedy?

Praful Patel We cannot come in the way by law and Act of Parliament.

Karan Thapar: There is a small window of hope.

Praful Patel It's a big avenue for them to put their justified demands.

Karan Thapar: The airlines believes that the principal problem is that intellectually, at least on the ATF issue, you are prepared to support them but emotionally you don't. Have they done something to offend you? Have they done something to deny them the emotional support that they need after you have intellectually agreed with them?

Praful Patel I am going to support them in future, but the only issue is that I will not support strikes. After all, my responsibility is also to the people of India, the travelling public. If they are going to be in inconvenience, if the Indian economy is going to be inconvenienced due to a strike, I cannot support it.

Karan Thapar: The strike didn't happen, the strike was a threat and it was a threat to focus attention on the problem and to that extent it succeeded.

Praful Patel To the extent they did what they did and they have withdrawn their strike appropriately and in time. I as a minister am not holding anything against them.

Karan Thapar: My last question. You are supportive on ATF, you are not supportive on airport charges, what do you now propose to do to give them the remedy they need and how quickly?

Praful Patel I am going to talk to the Prime Minister again.

Karan Thapar: When?

Praful Patel Very soon. And I am going to ask him to appoint some high level committee or even a Group of Ministers to understand how we can remedy the issue of the aviation sector, primarily with the focus on ATF.

Karan Thapar: Will the high-level committee have a time frame within which it has to act?

Praful Patel I can't decide the time frame but I will push for an early resolution in this matter.

Karan Thapar: Early resolution. Does that mean weeks, six months?

Praful Patel May be a month or two. I hope so.

Karan Thapar: Praful Patel, a pleasure talking to you.