Daily Times

Contrary to the general perception that it is only the public sector airline which is running into losses while private sector airlines in Pakistan are making good fortune out of the aviation business, is quite untrue.

As of today Pakistan’s largest private sector airline has eventually vapourised leaving outstanding dues in billions not in millions, other private airlines are striving hard to survive and new aspirants in aviation business have put themselves on hold. The repercussions of the closure of largest private airline of the country due to financial constraints, are not only restricted to making a head count of thousands as jobless or creating acute shortage of flights rather they are much more than that. The entire aviation segment has been marked red. The risk factor so as the cost of provisioning the risk both have escalated proportionally by many folds. The news of launch of half a dozen private airlines have faded away, those who had not invested heavily have opted to wait and watch while those who have attained pre-launch near final stage are now badly confronted with non availability of aircrafts, not because aircrafts for sale or lease are not available in international market rather aircraft owners are not willing to sell or lease their aircrafts to new Pakistani airlines since their feasibilities and future projections are not so promising.

On the other hand there is a phenomenal increase in air traffic in Pakistan which is primarily dependent on workforce and religious driven traffic segment from Middle Eastern region. Alongside, VFR (Visitors, Friends and Relatives) passenger segment from West. Traffic from Far East, especially, China has also increased ever since CPEC project has been launched. The question arises where that if air traffic in our region has grown significantly in the past few years, why are Pakistani airlines are not benefitting from it? It needs to be probed that what went wrong? Whether Pakistani airlines have not been able to compete in international aviation business dynamics or there exists some flaw in the aviation policy? The answer is our very own ‘Open Sky Policy’ also known National Aviation Policy.

National Aviation Policy (NAP) or the Open Skies policy could be bifurcated into two parts, first is the introductory part and other is the operative part. The introductory part is the sugar-coated portion, wherein makers have made some tall claims about the policy like it is a balanced aviation policy which will safeguard the interests of local airlines. Moreover it shall also effect bilateral liberalization in shape of open skies etc. The operative part constitutes rest of the policy, for which the makers had made an idiotically ‘honest’ admission qua its imported and imposed nature, by frankly mentioning in the policy that recommendations, research and statistical data for NAP has been prepared by Embry-Riddle Aeronautical University, USA.

This very admission also refutes the claim that NAP has been formulated after consulting all stakeholders. The imported or operative part of the imposed policy for local airlines has been deliberately designed for curtailing growth and expansion of existing local airlines, by raising the bar higher than their limits under the wake of making local airlines more resilient towards shocks and by confronting new entrants with increased initial as well as operating costs. All such discouraging measures which imbalanced the policy were promised to be balanced with some “incentives and tax relief”, whereby for local airlines calendar age of commercial aircrafts was reduced from twenty (20) to twelve (12) years. Minimum fleet size was enhanced by 33 percent. Paid up capital for airline license was enhanced to 500 million rupees along with 100 million rupees as security deposit was made mandatory. Globally in-practice mode of acquisition of aircrafts on ‘Wet Lease’ which is considered to be a financially viable option for new airlines and ideal for making stop gap arrangement for existing airlines was disallowed and instead acquisition of aircrafts on ‘Dry Lease’ which suits to financially resourceful airlines was just permitted. However acquisition of aircrafts on wet lease only for Hajj, Umrah or Ziarat operations was left open.

But wait, under NAP the entry barriers doesn’t end here whereby it goes on by restricting purchase/lease of only those modern aircrafts which produce noise emission below permissible limits but at the same time NAP does not restrict landing of foreign aircrafts emitting noise above permissible standards. The noise emission restriction condition further curtails the minimum age of aircraft from already reduced 12 years to 8 years in-actual and significantly narrows down the acquisition options. The policy at various places reiterates that the local airlines will be compensated against, all above stated measures through tax reliefs and other incentives given in chapter 6 of the policy but when one reaches the chapter 6 of the policy it is a blank page with a writing at its foot saying ‘This space is intentionally left blank. As integral to this policy document, details of incentives, taxes and duties shall be published for implementation with effect from July 1, 2015 after the budget is passed by the Parliament.’

The local airlines are still waiting for promised incentives to be published and balance the highly imbalanced aviation policy. Ironically NAP was introduced in 2015, when race amongst gulf rulers for the having largest airline in the region and making their capital through aviation hubs had touched the limits. Where the gulf countries were openly violating policy guidelines issued by International Civil Aviation Organization (ICAO), a United Nations specialized agency on international aviation, on providing state aids (except bailout and restructuring packages), state sponsored subsidies on fuel, taxes and ground handling charges being unfair  and non-competitive measures. The makers of NAP were supposed to make adequate provisioning of safeguarding measures for local airlines against the said aggressive approaches adopted by the gulf region airlines but unfortunately they did not owing to the reasons best known to them. Keeping aside the middle-eastern aviation segment Pakistani airlines are now out of the competition from western and far eastern routes also, where aggressively expanding Turkish and Chinese airlines have knocked out our airlines in both the routes respectively.

The local airlines are still waiting for promised incentives to be published, and bring balance to the highly imbalanced aviation policy. Ironically NAP was introduced in 2015, when the race amongst gulf rulers for the largest airline in the region, and making their capital through aviation hubs, had touched its limits. Where the gulf countries were openly violating policy guidelines issued by the International Civil Aviation Organization

If one lists the issues faced by the private sector airlines of Pakistan, ‘Capacity Dumping’ tops the list which is when one airline possessed with resources literally floods a specific market with seats/flights to drive competitor(s) out of business. Although capacity dumping is termed as non competitive and unfair business practice by ICAO which is backed by a series of treaties and conventions adopted by the member states yet all such binding rules and regulations stands defeated when one member state gives its implied consent to override them. Same is the case with Pakistan where the aviation authorities had not only been criminally silent over the capacity dumping issue rather had been criminally generous in granting in and outbound routes to foreign airlines and putting them in dominant position by encouraging non competitive measures detrimental to the Pakistani airlines.

Our private airlines who are having very limited access to international destinations are mainly dependent upon gulf destinations while using aircrafts having average seating capacity of 200 passengers whereas gulf airlines have been allowed to use aircrafts having 400 to 700 passenger capacity. All this was allowed to happen when western global airlines alliances, Star Alliance comprising of 28 airlines, One World alliance comprising of 14 airlines and Sky Team alliance of 20 airlines had already ousted the Pakistani airlines from western routes. The intellectual dishonesty of the makers of NAP is evident from the fact that NAP while advocating open sky policy falsely portrayed fiscal achievements of some western and far eastern carriers as a result of adopting open sky policy by purposefully omitting rather concealing the fact that most of airlines mentioned in policy are members of aforementioned western aviation alliances and they benefitted from alliances rather than from open sky policy.

After capacity dumping the next issue is generous grant of extraordinary concessions to foreign airlines. In absence of any vigilant watchdog and due to the geographical location of Pakistan i.e. short distance from middle east has provided gulf airlines an open field to commit ‘Tankering’ whereby the aircrafts of oil rich gulf countries performs fueling at their country of origin at dirt cheap rates and carry sufficient fuel to complete the shuttle course resultantly they are able to sell air tickets at rates much lower than rates offered Pakistani airlines and also makes far better profits. These extraordinary profits earned there from enables foreign carriers to give extra sales commission to travel agents much higher than approved IATA sales commission in form of kickbacks and free tickets, who in return boasts their business for mutual financial gain. Pakistani aviation authority levies no restriction on foreign aircrafts especially those who originate from oil rich nearby countries to get them mandatorily refueled at Pakistani airports. This very ‘foreign tankering’ permission has literally thrown Pakistani airlines out of competition.

Then comes the issue of unilateral concessions granted by our aviation authority to the foreign airlines. The gulf airlines enjoys heavily subsidized ground handling charges at their native airports but no such subsidy is provided by CAA to Pakistani airlines, rather CAA in an attempt to make Pakistan a capacity dumping ground, charges meager sums as ground handling charges from foreign airlines. For example ground handling charges for Airbus 320/321 or equivalent sized aircraft of foreign airline are 500 US$ approximately in Pakistan whereas a Pakistani aircraft of similar category is required to pay ground handling charges varying from 1350 to 1500 US$ at airports in gulf countries. The extremely lucrative unilateral liberalization and incentives have also convinced other Western and Asian airlines to adopt the similar approach towards Pakistan resultantly as of today the Pakistani airports have become passenger pickup and drop points for all mighty foreign airlines and aviation business has shifted to foreign aviation hubs.

Then, comes the issue of imposition of non competitive taxes on sale of air tickets. The tax authorities in Pakistan have imposed heavy taxes on carriage by air, being completely oblivion to tax reliefs, incentives and subsidies (whether permissible or forbidden) available to rival foreign airlines by their respective governments. Though NAP promises reduction of taxes and provision of relief to local airlines yet no practical step has been taken by the government in this context so far.

Open Sky Policy which systematically turns the local airlines into cash starved carriers by technically ousting them from fair competition provides another edge to the foreign airlines to acquire equity stakes up to 49 percent in domestic airlines. Not only the National Aviation Policy 2015, is in direct conflict with the provisions of the Competition Act of 2010, but also its interpretation by aviation authority is more flawed through which all self destructive concessions are being given to foreign airlines.

It is hard to find any instance where the aviation authority had ever denied as desired route permissions to foreign airlines having dominant position in aviation sector or had ever resisted grant of routes to budget sister airlines of foreign airlines already in dominant position or had ever raised issues of capacity dumping, ‘tankering’, provision of non-competitive and unlawful subsidies with either ICAO or with the defaulting member states or had tried to provide promised though undisclosed incentives to the local airlines. Rather the role of our aviation authority, which squarely falls under definition of an ‘Undertaking’ as defined in section 2(q) of the Competition Act of 2010, is quite much of a development agent of foreign airlines here in Pakistan whereby the said undertaking has entered into series of ‘Prohibited Agreements’ as defined in section 4 of the act with foreign airlines by way of granting illegal and unlawful concessions to foreign airlines which are not only detrimental to our local airlines but also negates the very spirit of ‘Bilateral Service Agreements and Treaties’ adopted by Pakistan under the umbrella of United Nation’s ICAO.

Under NAP regime the future of our local airlines is quite hopeless, they are fast losing international routes and are soon expected to be badly confronted at domestic trunk routes comprising of Lahore, Karachi, Islamabad, Quetta and Peshawar with completion of road network under CPEC especially Karachi-Lahore motorway, which is expected to be operational from May, 2019 and connects with existing Islamabad-Peshawar motorway.

Where Open Sky Policy has proved itself to be an instrument to safeguard the interests of foreign airlines detrimental to the local airlines and a tool to abuse of dominant position by forcibly ousting the local airlines from the competition by enforcing non competitive measures i.e. granting unilateral concessions to the foreign airlines, the open sky policy needs to be strike down by the Competition Commission of Pakistan before it targets remaining local airlines.

The writer is an Advocate and can be reached at faisalrao@gmail.com

Published in Daily Times, October 15^th 2018.