The government had timely assigned the drafting of the Civil Aviation Policy 2077. The existing Civil Aviation has been in effect since 2063 BS. Civil Aviation, being global and tech, has constant innovation in technology, changes in the ways of doing business and the translocations of hubs and market shifts. For most of the countries, civil aviation is a key driver of economic development. The review of the existing Policy was due.
The purpose of a policy is to lay out a frame of strategic direction. The policy draft has encompassed vision, general and operational strategies, implementational review for all key areas of civil aviation: safety, security, training, infrastructure, public and private sector investment, foreign investment, accident investigation mechanism, regulatory, service providers etc. In the areas of safety, security and regulatory, the policy draft has asserted the state commitment to the international conventions ratified by the country – the aim being lifting the safety level to higher than the global average. In order for the promotion of aircraft investment and assuring the rights of the foreign owners of the leased aircraft, the policy draft has committed to the working on the Cape Town Convention. These are highlights, in a nutshell, of the policy draft.
In certain areas, the policy draft requires changes. Related to aircraft age for import, the policy draft has prescribed limits of 12 years of age or 50% of the economic design life or 35,000 pressurization cycles for pressurized aircraft and 15 years of age for non-pressurized aircraft. Aircraft airworthiness is a function of its maintenance. Aircraft airworthiness may not relate to the age of the aircraft or its cycles. On the other hand, aircraft age and maintenance have rarely been found as a primary cause of aircraft accidents in our country and many parts of the world. CFIT and human errors are known as primary causes of aircraft accidents. For an airline, aircraft decision has two major criteria: initial aircraft investment and maintenance. Technical advantage and market competitiveness may be other criteria. There may be different criteria on different cases. Airlines having to be competitive on capital and operating costs always look at balancing between two cost components. In principle, the decision trigger is the lowest combined cost that is comparatively lower than competitors. Aircraft age, technical considerations, investment, operating cost, profitability, competitiveness, time factor etc. form the components of the overall decision equation.
Preowned aircraft prices are fluid. Prices rely on trade cycle, seasonal cycle, supply and demand, and many environmental factors. Airlines need to make a decision based on these factors. It’s a significant business decision. Given the aircraft is airworthy, economically viable, and competitive in the market, an airline makes the aircraft acquisition decision. Aircraft decision must be left to airlines rather than restricted by policy and regulations. Age, cycle, hours related restrictions on aircraft acquisition decision do not favor the growth of the aviation industry. On the other hand, these restrictions in our country and elsewhere have not bolstered aviation safety.
A notable aspect of this policy draft is foreign investment in aviation. It comprehends 80% foreign equity investment in international aviation, and 49% in domestic aviation. Paid up equity requirement and total capital employed requirement (equity and borrowed capital) are Rs. 1 billion and Rs. 2 billion respectively for international aviation and Rs. Rs. 0.5 billion and Rs. 1 billion for domestic aviation respectively. In view of the large size of the capital requirement and need for external investment, the above provisions seem pragmatic. However, the policy draft embraces an irony. Other aviation support businesses, where capital requirements are rather very small and therefore local investors can invest themselves, more than 75% of the equity is allowed for foreign investment. Paid up capital requirements laid down by the policy draft are Rs. 5 crore for flying clubs where foreign investment is allowed up to 90%, Rs. 2 crore for approved training organizations where foreign investment is allowed up to 95%, and Rs, 5 crore for MRO where foreign investment is allowed up to 95%. In these aviation support businesses, foreign investment should be limited to less than 50%.
Nepal’s aviation suffers a formidable deterrent, i.e. tax regime. 10% lease tax, 13% VAT on all input material costs, and un-assuring customs duties increase cost of operation and fare levels. As in many other industries, prices navigate growth trajectory in aviation. In the past low fare airlines (due to low cost bases) have revolutionized the growth of aviation in the world over. Therefore, the Policy should strengthen these issues into it.
The next aspect the Policy should embrace is a focus on the making and management of transit facilities for passengers and cargo in TIA. This is an area where the country can benefit more from limited investment. TIA can and should be developed into a transit hub for linking the east and west, north and south.
The Policy draft had come in time. Hopefully, so will happen with the final Policy. The effective cruise of the Policy execution flight will determine the end result.
Mr. Vijay Shrestha
Former President of Airline Operators Association of Nepal (AOAN)