Aviation sector: After airports, Adani now wants to enter airlines business, this is stuck by one rule

Aviation Sector: Adani Group is gearing up to take a big step to increase its dominance in the aviation sector. The group plans to launch its own new airline. But the Indian government is currently acting on this proposal with great hesitation. Civil Aviation Minister Ram Mohan Naidu clarified during an event on Tuesday that the government is considering allowing the Adani group to start the airline, but caution is being exercised over matters related to cross-ownership.

The government also wants Air India’s monopoly along with IndiGo to end in the country’s aviation market. For this it is necessary that new airlines come into the market. But when an airport operating company wants to launch its own airline, there is a huge risk of conflict of interest.

What is Adani Group’s special demand?

Adani Airports, an Adani Group company, owns 74 percent stake in Mumbai Airport. Adani Defense Aerospace, another group company, is looking to enter the airline business to expand its reach in the aviation sector. For this, this group wrote a special letter to the government in June this year. The letter demanded that the old rule barring the Delhi Mumbai airport operator from holding more than 10 per cent stake in any airline be removed. Adani Airports Chief Executive Officer Arun Bansal, in a letter dated June 4, said that launching a new airline is a natural extension of their existing business.

How is conflict of interest becoming an obstacle?

When the Delhi Mumbai airport was privatized in 2006, this strict rule preventing cross-ownership was added to the agreement. Any change in this rule will require the final approval of the Union Cabinet. Many government officials believe that lifting the rule could send a message that a particular company is benefiting. Due to which this entire matter may come under strict scrutiny.

Minister Ram Mohan Naidu said that when an airport operator wants to operate an airline, we have to do a proper assessment of the losses it may incur. We have to create a system that can overcome all these concerns. A senior government official said the airport is a natural monopoly as it is the only point of entry to any city. In such a situation, the company running the country’s largest airport will have to take a very cautious decision about allowing its own airline to start.

Strong objection from other airlines

India’s incumbent airline Adani Group strongly opposes any relaxation of this rule. Rahul Bhatia, managing director of IndiGo, the country’s largest airline, had recently said that allowing cross-ownership would create a major conflict of interest. He believes that in the long run, this move could prove to be directly detrimental to consumers.

It may be noted that earlier in the year 2019, Tata Group had also proposed to invest 8,000 crore rupees in GMR Airport. At that time GMR Group was managing the Delhi Hyderabad Airport. But then Tata’s proposal was rejected after strong opposition from Solicitor General Tushar Mehta.

Government’s full focus on regional flights

Ram Mohan Naidu in his statement emphasized that India is in dire need of more airlines. He mentioned the UDAN scheme, which aims to make air travel affordable in hinterlands. The scheme is motivating new entrepreneurs to start regional airlines. The minister said the government wants at least five such airlines to operate in the country, each with 100 aircraft.

The UDAN scheme, launched in 2017, aimed to bring air travel to the common man in the world’s fastest growing aviation market. For its second phase, the government increased the budget six-fold to Rs. 28,840 crore has been done. Under this new airport will be selected through ‘Challenge Mode’ based on very strict criteria. This will examine several important factors like distance from tourist destinations, infrastructure of runway terminals, financial commitment of state governments.