5/20 Rule

5/20 rule

“The 5/20 rule impacts not only Vistara, but it is one that holds back unleashing the true potential of Indian aviation. There are no global parallels to the 5/20 rule and the regulation is discriminatory to Indian airlines” - Vistara Airlines CEO Phee Teik Yeoh

“The 5/20 rule is an artificial barrier that needs to be removed” - AirAsia Chairman S. Ramadorai 

One policy of DGCA which has been vehemently protested by both the airline companies has been 5/20 rule which has restricted their ambitions to fly international. The rule only allows those airline companies to fly abroad which has a fleet of more than 20 aircrafts and have operated for more than 5 years locally. This policy is naturally supported by the older and more established players such as Indigo, Spicejet, GoAir as it increases competition for them. However surprisingly Air India has supported the two airlines in their fight to scrap the rule.

Vistara response – Vistara, in order to overcome this barrier, has stated that it is not against buying a domestic airline older than 5 years which would provide it the right to fly international. However it has no such plans at this stage.

AirAsia response – AirAsia was seeking profitability through international operations and in the absence of right to fly abroad they have cut back growth. Initially planning to have 28-30 aircrafts by the end of 2015, now they have only 5 aircrafts. Further they have partnered with AirAsia X, a subsidiary of AirAsia Berhad, which will operate international flights and the ground infrastructure will be managed by AirAsia.

Draft Civil Aviation policy

The Union government had in the month of October launched draft Civil Aviation Policy which if approved by parliament will heavily impact Air Asia and Vistara. For one it proposes to increase FDI limit beyond the existing 49% and thus open Indian skies for foreign players. This will also allow Tata Sons to sell their existing stakes to their foreign partner in case they want an exit route. Regarding the 5/20 rule the policy states that it can be completely abolished or replaced with a credit based system. However the policy also states that the existing rule can be retained if so wished by the law-makers.