Ratan Tata speaks out against incumbent airlines opposing abolition of 5/20 rule

MUMBAI | NEW DELHI: Ratan Tata, chairman emeritus of Tata Sons, came out publicly against Indian airlines lobbying to keep a rule that bars new carriers from starting international flights unless they have been flying for five years and have 20 planes. He said this smacked of protectionism and had no place in an open economy.
“In the airline industry in India it is sad to see the incumbent airlines lobbying for protection and preferential treatment for themselves against the new airlines which have been formed in full compliance with prevailing govt policy and providing air transport to Indian citizens in line with the dream of ‘New India’ promoted by the new government under Mr Narendra Modi's leadership,” Tata said in a post on his Twitter account.

The Tata group is an investor in two of India’s newest carriers — AirAsia India and Vistara — along with AirAsia Bhd and Singapore Airlines, respectively. Tata’s views found support from AirAsia founder Tony Fernandes. In a series of tweets that hailed Tata as ‘honest, clean, smart, brave’ and a ‘great world leader’, Fernandes asked “would you trust him (Tata) or some of the guys wanting 5/20?” Tata didn’t name any airline in his statement. India’s older carriers— Go Air, SpiceJet, IndiGo and Jet Airways—voice their collective opinion and dissent through the Federation of Indian Airlines (FIA) lobby group and are opposed to the abolition of the 5/20 norm.

Recently, Nusli Wadia met minister of state for aviation Mahesh Sharma to argue in favour of keeping the rule. The Wadia Group-promoted GoAir has fulfilled the norm and is eligible to fly overseas.

“The lobbying for discriminating policies between old and new airlines is reminiscent of the protectionist and monopolistic pressures by vested interest entities who seem to fear competition, as in a variety of other sectors over the years,” Tata said. “These protectionist moves have held back progress in India compared to open economies that have thrived on competition overseas.”

THE COUNTERVIEW: Executives at the older carriers rejected Tata’s view. “All of us were asked to serve our great country before we got profitable rights to fly abroad,” SpiceJet chairman Ajay Singh told ET. “We served with great pride. What is wrong if these two foreign-controlled airlines are also asked to serve the nation before being allowed to fly international?”

He went on to say that “Mr Tata should urge these airlines to serve India voluntarily before being allowed to fly international.” He also said that while obtaining their licences, both Air Asia and Vistara had undertaken to follow the 5/20 rule that they are now opposing.

While Tata talks about ending discrimination, he “overlooks the fact that the new policy that aims at removing 5/20 to benefit two new carriers is actually discriminatory,” Singh said. Along with the 5/20 rule, the government should also abolition Route Dispersal Guidelines, a top airline executive said, pointing to this as another source of potential discrimination against older incumbents. This will free Indian carriers from flying unprofitable domestic routes, he said.

“If 5/20 is regressive, so is RDG,” said the person. “Why should we be forced to fly a large percentage of our flights on unprofitable routes, when the new carriers are being allowed to fly international? So the new airline will expand internationally only and we are forced to fly unprofitable routes? Is it not discrimination?”

As part of RDG, carriers have to deploy a certain percentage of trunk route flights on nonprofitable routes. The Supreme Court last week was critical about airlines not flying such routes and threatened licence cancellations in case they didn’t do so.

The government has in the past year repeatedly announced its intention to abolish the 5/20 rule but this has been strongly countered by the four older carriers, who want the rule to stay.

Abolition or part/full replacement of the rule with a new one is among the clauses of the new civil aviation policy that the government aims to implement shortly. Both AirAsia India and Vistara have been pushing for the rule to be scrapped as they would then be able to take advantage of their partners’ vast global networks by starting overseas flights themselves.

The Tata group’s entry into aviation was a long-cherished ambition that had been thwarted several times previously. State-owned Air India owes its origin to a carrier that was started by JRD Tata and subsequently nationalised.

In his statement, Tata said the “call for a new open market economy in India—in line with the visionary policies promised by Prime Minister Mr Narendra Modi will promote growth in an open market based on competitiveness and not from self interest based protectionism.” Calling the 5/20 rule “controversial,” Tata said he hoped the new policy is “free of discrimination and protectionism, so that Indian aviation can grow for the benefit of consumer and common man- and not to serve the interests of select beneficiaries of of protectionism.”