Report by Tom Ballantyne

It seems that every time a new Indian aviation policy ship gently eases itself into port, an election storm rears its head and dashes it onto the rocks.

As India's two state-owned airlines, Air-India and Indian Airlines, prepared for the New Year after a traumatic period of mounting losses and uncertainty, watershed decisions appeared at long last to be on the horizon.

A committee led by Ministry of Petroleum secretary and economist, Dr Vijay Kelkar, had already delivered a wodge of recommendations to government aimed at turning around the fortunes of domestic Indian Airlines.

The Kelkar Committee - India's very own group of wise aviation men - aimed to deliver a similar sweeping strategic plan for international flag carrier Air-India by the end of January.

Just as vital, after years of internal and external bickering, as well as numerous and controversial management changes, the two state-owned flags finally appeared to have achieved stability at the top.

Air-India's new managing director, Michael Mascarenhas, took the reins in July and the government has appointed Probir Sen as joint chairman for its two charges. Sen is a civil servant but has a reputation for being independent, tough and equipped with a sharp commercial brain.

At the same time, India's Civil Aviation Ministry had completed long-delayed internal reviews of the nation's much criticised aviation and airports policies and forwarded them to Parliament for approval.

Both the airline recommendations and the two policy reviews were expected to have been debated and finally approved by the power brokers in New Delhi by February or March, albeit with some alterations.

As they awaited the critical decisions, the worst fears of Air-India and Indian Airlines materialised. In November, the fabric of the fragile coalition government of I K Gujral fell apart and the decision-making process receded into virtual hibernation as political minds turned their attention to new elections, probably in March. Election rules prohibit government from making any new policy announcements while a poll is in the offing.

Suddenly, the confidence with which India's often chaotic and faction-ridden aviation industry had looked forward to the firm guidelines and definite goals needed for recovery and orderly development, was again sapped by political uncertainty.

Among the issues on the table were:

1 The direction of domestic and international liberalisation and foreign ownership limits on both airports and airlines.

2 A total restructuring of the state-owned operators, including a desperately needed re-financing package for Indian Airlines and a strategic and fleet renewal programme for Air-India.

3 A policy on the merger of the two carriers and a timetable for privatisation.

4 Decisions on regulations which have caused intense financial difficulties, including exorbitant taxes on aviation jet fuel and requirements forcing Indian Airlines to continue serving unprofitable social routes.

Air-India says political activity will have no bearing on Kelkar's recommendations for Air-India or the subsequent acceptance or rejection of the committee's plan. But in a country where there are more than sufficient political parties to fill the seats in a Boeing 747 and enough factional interests to overload a fleet of them, clearance for the long-awaited policies will certainly be delayed.

Both carriers have already trimmed their deficits through restructuring, cost-paring and improvements to competitiveness and believe modest profitability is just around the corner. But the political uncertainty in New Delhi is bound to have an impact.

So, too, is the economic climate as business slows in the face of the Asian downturn and plunging currency values. The Indian rupee was valued at around 35 to the US dollar in mid-1997, but by press time it had slumped to 40.

The pace of recovery does not only depend on economic revival and the determination of the airlines' current management, it also hinges on the speed with which the new rulers settle in and give their stamp of approval to revitalisation policies.

New liberalisation measures are sorely needed. India's domestic open skies, launched in the late 1980s, swung into full gear in the early 1990s but have frequently been branded a failure by analysts. Most of the domestic startups have fallen by the wayside, their balance sheets awash in red ink.

On the international front, with constant demands from European and North American airlines for more capacity, liberalisation has been stalled due to fears that big overseas airlines will swamp Air-India's modest fleet and destroy its market share. Between them, Air-India and Indian Airlines have lost more than US$500 million this decade.

Unless vital decisions on desperately required policy changes are taken soon after the elections, India's airlines will find the development path a hard road to hoe.

Source: Airline Business