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On the new national aviation policy

Updated April 01, 2019

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IT will take at least a year to implement the new National Aviation Policy 2019.

The policy is projected to help spur growth of the domestic aviation industry, attract private investment for the management and development of new airports, and help revive the struggling national carrier. It hopes to accomplish its aim through a reversal of the Open Sky policy, significant decrease in assortment of taxes and capital requirements of, and airport charges for, local companies.

“The most significant aspect of the new aviation policy is that we will renegotiate our existing Air Service Agreement (ASA) with all foreign airlines flying into Pakistan, particularly the ones from the Gulf,” Mohsin Syed, an aviation expert and one of the authors of the new policy recently approved by the federal cabinet, told this correspondent.

“Internationally, we will pursue a liberal policy. It will be based on the principles of commercial reciprocity, seat factor and code-sharing to protect our national companies against any capacity dumping by foreign airlines. These airlines are receiving huge subsidies from their respective governments and are able to offer discounted air fare,” he said.

‘Poorly negotiated ASAs under the liberal Open Sky policy are one of the major reasons for the deterioration of PIA and other local airlines. We are going to replace this Open Sky policy with a Fair Sky policy’

The current ASAs with foreign airlines, under the Open Sky policy introduced by Pakistan in the early 1990s, are based on the number of weekly flights. This policy is often blamed by aviation experts and PIA as providing foreign airlines with an open field to snatch away a major portion of international passenger traffic from the national carrier.

Under bilateral air service agreements, countries like India and Japan have also capped the maximum number of passengers that a foreign airline can fly in spite of allowing them a weekly flight capacity.

“Poorly negotiated ASAs under the liberal Open Sky policy are one of the major reasons for the deterioration of PIA and other local airlines. We are going to replace this Open Sky policy with a Fair Sky policy,” Mr Syed asserted.

According to the new policy, aircraft movements on an average grew by 7.1 per cent in Pakistan and passenger traffic by 6.3pc in the last five years. The bulk of the growth in passenger traffic is said to have come from increasing international travel by Pakistanis for business or pleasure with foreign airlines, particularly the three Gulf companies — Emirates, and Qatar and Etihad — capturing the major portion.

Tax cuts: The new policy commits to drastically reducing excessive taxation of air transport.

“The effective tax on various civil aviation activities will be reduced from existing around 35pc to 15pc. Excessive taxation has restricted the growth of civil aviation activities and needs to be brought down,” said Mohsin Syed.

“The decreased tax will boost the aviation business and reduce ticket price without causing financial losses to the Civil Aviation Authority (CAA) and the government,” he insisted.

The key objectives of the policy are to improve governance and oversight for the compliance of the International Civil Aviation Organisation’s standards of safety, security, environmental protection and efficiency.

Another major objective is to build the foundations for a commercially viable aviation industry and attract investment in aviation infrastructure. It aims to do this by incentivising investors, as well as providing a level playing field to all national operators.

It will also create conditions for affordable general aviation activities like sports flying and inter-city air travel by private aircraft or air taxi service.

The new policy proposes a 10-year tax holiday for existing and new aircraft manufacturing industry setups, maintenance and repair firms and airport operational equipment manufacturers. Additionally, aeronautical and non-aeronautical charges will also be revised down.

Custom and import taxes on wet, damp and dry leases of aircrafts will be removed. Flying clubs and schools will also be encouraged through tax exemptions and reduction in license fee and capital requirements.

Cargo village facilities will be developed with tax and other incentives suggested for tapping the investment potential of aircraft manufacturing in the country.

“The formulation of the new policy is the first step. Next is its execution, which will require its ownership by other government departments and agencies including the Federal Board of Revenue and the CAA. We are hopeful that the implementation of the policy guidelines will start soon,” he concluded.

Published in Dawn, The Business and Finance Weekly, April 1st, 2019