Scheduled Commuter Airlines (SCAs) in the National Civil Aviation Policy 2015

The author thought 2016 might turn regional aviation around, thanks to the ministry's proposed Regional Connectivity Scheme (RCS) and its Viability Gap Fund (VGF), which would help make flights on selected regional routes pay. The VGF would go only to Scheduled Commuter Airlines (SCAs).

What the ministry proposed

1. Aircraft of 100 seats or fewer.
2. No limit on the number of aircraft.
3. Paid up capital of at least INR 2 crore.
4. A minimum number of weekly movements to RCS destinations, to be set later.
5. The route dispersal guidelines (RDG) would not apply.
6. SCAs flying RCS routes would be eligible for VGF.
7. Code sharing with Indian and foreign airlines would be allowed.
8. They could sell their Departure Flight Credits (DFC) to other Indian airlines.
9. Low landing, parking, navigation and other charges at non RCS airports for aircraft of 100 seats or fewer for 10 years on a given route.
10. Possible extra subsidies from central or state schemes for SCAs flying to Srinagar and the North East.

Size and aircraft choice

Linking regional connectivity to suitably sized aircraft was welcome and probably a first for the government. A 100 seat limit includes many aircraft. Some, such as the Embraer E190, might be fitted with fewer seats to qualify. The author compared aircraft still in production or soon to be, favouring western makers for product support. He thought high wing, high engine turboprops such as the Dornier 228, the Viking DHC-6 Twin Otter, the ATR 42 and 72 and the Q400 are best for rough airstrips, as they are less prone to foreign object damage. The Dornier 228 and Twin Otter have excellent short and high field performance, shown on flights to Lukla in Nepal. Single engine turboprops were also noted, as were regional jets.

No limit on fleet size takes pressure off start ups. Small airlines find it hard to hire staff, and crew shortages slow growth the most for regional carriers.

Why INR 2 crore is too little

The author called the INR 2 crore paid up capital proposal very unwise. Start ups with no track record often pay about ten months of lease as a deposit. An old ATR 42-500 leases for about INR 0.5 crore a month, so the deposit is INR 5 crore. Aircraft usually sit about two months before starting, burning another INR 1 crore, so the lease alone costs at least INR 6 crore per aircraft before flying. Air Pegasus reportedly paid INR 0.9 crore a month per ATR 72-500, spent INR 4.5 crore on lease rent a month before starting, and had an INR 8.1 crore deposit, a total of INR 12.6 crore before operations.

An Indian airline should not expect to break even operationally in under two years. Too little capital could lead to:

• Undercapitalisation.
• Unpaid or late salaries, which run INR 1 to 2 crore a month at a start up.
• Lease defaults.
• Corners cut at the cost of flight safety.
• A high chance that the airline folds, hurting the economy and lessor confidence, which makes it harder for others to start.

The author's estimate for a start up SCA with three aircraft was a loss of INR 70 to 140 crore over two years, on operating expenses of INR 300 to 600 crore. Taking an average loss of about INR 100 crore, pre-start expenses of about INR 20 crore and a lease deposit of about INR 30 crore, such an airline needs about INR 150 crore of paid up capital. The minimum is INR 100 crore, depending on the type, and the advice for larger regional aircraft was INR 200 to 250 crore. Vistara had put in INR 500 crore. The ministry should set a much higher minimum.

Routes, code shares and DFCs

The ministry also needs to name the eligible RCS routes, the minimum movements, and ideally the minimum weekly capacity in seats or ASK. The most interesting part was code sharing. A mainline airline whose fleet cannot serve certain metro to non metro or non metro to non metro routes could contract an SCA to bring passengers to the last airport. That would resemble the American model, where regional carriers fly contracted flights for mainline airlines. This is low risk for the mainline airline, and the SCA need not market itself and might fly under the mainline brand. The sale of DFCs would only make sense if the ministry's 300/600 rule came into force.