The government’s keenness to prevent sickness in the aviation industry may slam the brake on half-a-dozen new airlines which have sought green signal to take off. The civil aviation ministry has asked these companies to come up with fresh business proposals and detailed financial plans to operate as scheduled carriers. The minimum capitalisation norms for airlines have been revised recently and Rajiv Gandhi Bhavan wants new entrants to come up with sound business plans.

New entrants shall be given permission only after the ministry is convinced that the companies have sound financials, sources in the ministry said. The move is part of the civil aviation ministry’s efforts to ensure that only serious players with commercially-viable business model enter the aviation sector.
These applications are being vetted carefully to curtail unhealthy competition that may result in sickness among airlines, government sources said. The decision is likely to affect upcoming airlines including Easy Air, Mega Airways, Megapode Airline and Star.

The aviation industry is already facing acute competition with low fares eroding profits of various airlines. Jet Airways recently reported profits for the third quarter and Air Deccan is expected to come out of the red, but the aviation industry is likely to suffer losses to the tune of Rs 2,200 crore in the current financial year. The government is treading cautiously while issuing fresh licences to prevent the airline industry from collapsing, leading to repeat of the situation which led to collapse of carriers like East West, ModiLuft, NEPC and Damania.

The government is planning to impose tough conditions on the entry of new airlines. While increase in the minimum paid-up equity capital has been implemented, clearances for business and fleet plans may be tightened.

Once the new norms are in place, an airline company will need paid-up equity of Rs 50 crore compared to Rs 30 crore, at present, to qualify as a scheduled carrier. This norm will apply to airlines operating with aircraft takeoff mass exceeding 40,000 kg. In case of a carrier having takeoff mass less than 40,000 kg, like turboprops, ATRs and Dorniers, paid-up capital need will increase from Rs 10 crore, at present, to Rs 20 crore.

This restriction of increased equity will be in addition to the present requirement of domestic carriers possessing minimum five aircraft. The existing players will have to comply with these requirements within a maximum period of one year, official sources said. The new criteria may also affect the airline companies that have applied for licence to operate as scheduled carriers, they added.