Figures crossed in India this week as ICAO comes to town

Eleanor Steed
By Eleanor Steed August 9, 2017 16:07

Figures crossed in India this week as ICAO comes to town

Over the past week the sale of Air India has been both called off and then put back on the table, but while that story took most of the headlines in the background, one the main Indian airport operators, the GMR-led operator of Delhi airport, has told the government it cannot meet even the basic mandatory security expenses at India’s largest airport.

“Please note that as there is a severe shortage of funds and in case the deficit continues to build up… we shall not be able to meet even the mandatory expenditure to maintain the security of the airport,” the Delhi International Airport (DIAL) CEO, Prabhakar Rao wrote in a letter last week to the CEO of the airport security operators CISF.

Indian airport security is funded through the passenger service fee (PSF) of Rs 130 per departing passenger added to all fares. The fund accumulated from the levy is used primarily to pay the salaries of the CISF security personnel. This generates around Rs900 crore per annum but the current cost of CISF operations is put at just over Rs 1,300 Crore. The huge Rs 400 crore shortfall has been caused by rapid airport expansion and new airport openings, for example Mumbai, until the opening of Terminal 2 ran a surplus, now that operation too is draining funds from the operator. Similarly, the state-owned Airports Authority of India has announced that it is running a deficit of Rs 150 crore a year.

The obvious answer is to increase the PSF at once or increase landing fees, which would be a real setback for the Indian aviation sector. However, the Indian government has decided to dismiss those ideas out of hand and instead the government is in talks with the finance ministry to shift the cost burden and accountability of security at airports back under the wing of the government with direct funding from government – this means that the Indian government would finance the deficit directly. This is a good resolution for the Indian airport operators (if it is carried through), which will see their margins increase dramatically and maybe they are a good investment opportunity. The nagging questions remain, however. The Indian government obviously considers commercial aviation customers in the country to still be extremely price sensitive, while on the other hand one wonders how long the Indian airports have been funding PSF deficits and what they have had to cut back on in the process?

Meanwhile, the Indian Aviation regulator (DGCA) held a meeting with airlines to assess their preparedness for the upcoming ICAO audit. As many will know, the audit will cover licensing, operation, airworthiness, accident investigation, air navigation, airports and security and regulation. ICAO will also pick an airline to check its compliance of the safety regulations at random.

The DGCA is obviously very worried that the ICAO will downgrade Indian civil aviation as it has already commenced a full audit of all scheduled domestic airlines to check their compliance with safety and airworthiness requirements prior to the meeting. Our sources indicate that a great many failures were detected and likely airlines will be told to get a grip. In fact, some 422 air safety violations were listed in 2016 by the DGCA, with 275 in 2015, a growth margin that fits with the growth of the sector (20.3 per cent in domestic air traffic in June alone).

India was downgraded last in 2012 but it recovered its rating in 2015 – Will it be downgraded again? The DGCA is doing its best to make sure that it does not, but the very fact that the DGCA has to go all out to audit airlines and correct problems prior to the ICAO visit tells you quite a bit about the Indian civil aviation sector at this time. It might yet be that the newly-opened regional routes to airfields that suffer from obstacles on runways such as cows might yet lead to the downgrading of Indian aviation.

Eleanor Steed
By Eleanor Steed August 9, 2017 16:07