VZCZCXRO7074
PP RUEHAST RUEHBI RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHNE #2437/01 3380204
ZNR UUUUU ZZH
P 040204Z DEC 09
FM AMEMBASSY NEW DELHI
TO RUEHCG/AMCONSUL CHENNAI 5365
RUEHCI/AMCONSUL KOLKATA 4575
RUEHBI/AMCONSUL MUMBAI 4393
RUEHC/SECSTATE WASHDC 8801
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY
RHMCSUU/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RHMCSUU/TSA HQ WASHINGTON DC PRIORITY
RUEHGP/AMEMBASSY SINGAPORE PRIORITY 2341
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHMCSUU/FAA NATIONAL HQ WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 04 NEW DELHI 002437 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/INSB, SA/RA, EEB/TRA/OTP, EEB/TRA/AN 
PASS TO DOT/SHADLEY 
DEPT PLEASE PASS TO USTR/DWATSON/AADLER 
DEPT PLEASE PASS TO EXIM/DFARRELL 
DHS PASS TO TSA/OCC MSHARABI, TSA/OGS DMCQUAID, JCASTLEBERRY 
SINGAPORE FOR TSA/TKEENE 
 
E.O. 12958: N/A 
TAGS: EAIR PREL PTER ETRD EFIN ECON IN
 
SUBJECT:  TOP CONCERNS OF U.S. CIVAIR COMPANIES IN INDIA 
 
NEW DELHI 00002437  001.2 OF 004 
 
 
REFTELS: A) STATE 122215; B) NEW DELHI 1814; C) STATE 100862 
D)NEW DELHI 2036; E) NEW DELHI 2416 
 
¶1. (SBU) Summary:  At a roundtable discussion with Emboffs on 
November 23, representatives of U.S. airlines, express delivery 
services and aircraft manufacturers discussed their doing business 
concerns in order to provide input to government-to-government 
meetings scheduled to take place on the margin of the second 
U.S.-India Civil Aviation Partnership Summit in Washington, D.C. 
December 6-12.  Industry reps were generally optimistic about 
increased economic growth in recent months in India which was 
helping their business operations as well as prospects for future 
growth, but noted that the continued slow economic growth in the 
United States, combined with increased competition from Middle 
Eastern and Asian carriers, meant that the days of easy profits in 
India were over.  Their principal doing business concerns were: 
conflicts between TSA security directives for secondary screenings 
on direct flights to the United States and the Government of India 
(GOI) Bureau of Civil Aviation Security (BCAS) regulations; a new 
ground-handling policy scheduled to take effect January 1 as well as 
the high rates of fees generally; and a new policy requiring 
mandatory travel agent commissions.  Express delivery providers were 
positive about being part of the process in the formulation of the 
new Postal Bill due to be submitted to Parliament in mid-to-late 
¶2010.  Boeing also alerted Emboffs GOI officials might ask EXIM to 
forgive/delay payment of the interest/principal of EXIM loan to 
cash-strapped Air India during their Washington D.C visit.  End 
Summary. 
 
¶2. (U) Roundtable industry participants included: Laurent Recoura, 
Senior Country Director India, Continental Airlines; Dinesh Keskar, 
President, Boeing India; Larry Coughlin, Industry Co-Chair, 
U.S.-India Aviation Cooperation Program; Phillip Lewin, Country 
Manager India, American Airlines; Deepa Das, Senior International 
Legal Advisor, FedEx Express India; and D. C. Selvan, Director, UPS 
India.  Embassy participants included the EEST M/C, FAA Rep, 
Econoffs, TDA Rep and an FCS FSN. 
 
Secondary Screenings - Conflict between GOI and USG Regulations 
--------------------------- 
 
¶3. (SBU) Continental's Recoura stressed the difficult position that 
U.S. carriers in India operating nonstop flights to the United 
States were placed in due to the conflict between the USG and GOI 
security screening policies.  The GOI Bureau of Civil Aviation 
Security (BCAS) regulations provide for exemption from security 
screenings for an extensive list of "VVIPS", whereas TSA policy only 
exempts active heads of state with security detail.  Adhering to TSA 
policy for secondary screenings, and thereby failing to follow BCAS 
regulations, puts American and Continental employees at risk of 
arrest and possible imprisonment in India, while a failure to follow 
TSA directives would subject the airlines to sanctions in the United 
States.  Further, it appears that the GOI may be questioning the 
very legality of the secondary screenings (as evidenced by a recent 
"Notice to Show Cause" to Continental, which questioned both its 
frisking of former President Kalam and its secondary screening not 
approved by the BCAS, Ref A).  Neither airline, however, has been 
asked by the GOI to stop secondary screenings.  American and 
Continental reps strongly expressed the hope that ongoing USG-GOI 
discussions will resolve these conflicts.  Continental and American 
reps continue to seek clear and consistent direction on the security 
procedures they are required to follow.  Until they receive such 
guidance, however, both American and Continental will strive to 
avoid having an exempted VVIP fly on one of their direct flights. 
Neither wants a repeat of the Kalam incident (ref B). 
 
New Ground Handling Policy and Airport Fees 
--------------------------- 
 
¶4. (SBU) The New Ground Handling Policy notified by the Directorate 
General of Civil Aviation (DGCA circular No. 7 of 2007) prohibits 
domestic airlines from self-handling at the six metropolitan 
airports and international airlines from self-handling at any 
airport in India.  In addition, the new policy limits the number of 
 
NEW DELHI 00002437  002.2 OF 004 
 
 
ground-handling companies to three at the six major metropolitan 
airports (Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore). 
 However, an exemption was issued that allows self-handling until 
December 31, 2009.  Although the New Ground Handling Policy is now 
scheduled to come into effect as of January 1, 2010 and carriers are 
making necessary preparations to comply, Boeing's Dinesh Keskar 
expected further delays on implementation since the new policy would 
disadvantage Indian carriers that self-handle as well. 
 
¶5. (SBU) The express delivery carriers, FedEx and UPS, are extremely 
concerned about effects of the new policy and are advocating for the 
right to self-handle.  They argue that the U.S.-India Air Transport 
Agreement not only gives them the right to self handle but express 
operations have specific needs that require operating procedures 
which only express carriers themselves can do effectively.  For 
example, express carrier shipments must be sorted according to 
destination, as well as color-coded, bagged and scanned at various 
points.  They said self handling is vital to ensuring quality of 
service and any decrease in service quality would render the express 
delivery business model redundant.  Another concern is the new 
policy would make express carriers dependant on third parties for 
sensitive security functions by outsourcing the screening of cargo. 
Currently FedEx and UPS employees (certified by BCAS) conduct 
screening of cargo at Delhi and Mumbai.  However, per a new circular 
issued by the airport operator at Mumbai (MIAL), the security 
screening function has been outsourced (to private vendors with BCAS 
certification).  Nevertheless, FedEX and UPS employees have so far 
been allowed to continue to screen but also have to pay screening 
charges to MIAL as if MIAL were providing the services.  FedEX and 
UPS are contesting this with the Ministry of Civil Aviation (MOCA) 
through the Board of Airline Representatives. 
 
¶6. (SBU) Continental's Recoura told Econoffs that the New Ground 
Handling Policy is not a huge concern for U.S. passenger carriers 
and Continental has already contracted out its ground handling. 
Recoura was more concerned about the high cost overall of doing 
business in India compared to other countries as well as the 
possibility that the GOI might try to increase airport fees to pay 
for infrastructure improvements at the new international terminal 
being built in New Delhi.  American Country Director Lewin concurred 
and said he hoped the newly formed Airports Economic Regulatory 
Authority (AERA) would keep a cap on excessive fees.  (Note: GOI 
established AERA in May 2009 to regulate tariffs for aeronautical 
services, determine airport charges for services rendered at major 
airports, and to monitor performance standards of such airports. 
End Note.)  Lewin also said American is in the process of 
contracting with one of the approved ground-handling companies since 
it currently self-handles.  Lewin added that there are now four 
approved ground handling companies at New Delhi, not three as called 
for in the DGCA 2007 circular.  The four are: Bird (World Wide 
Flight Services), Menzies-Cambata, AI-SATS (joint venture of Air 
India and Singapore Air) and Celebi. 
 
Concerns About Mandatory Travel Agency Commissions 
--------------------------- 
 
¶7. (SBU) U.S. passenger carriers remain concerned about a possible 
mandatory travel agency commission policy, but the timing of such a 
policy change is less clear.  Delta, American and Continental 
currently operate on a zero commission basis in India.  The Travel 
Agents Association of Indian challenged this move in the Kerala and 
Karnataka High Courts, and in 2009, the DGCA was asked to determine 
whether mandatory travel agency commissions should be imposed. 
Because of the potential adverse economic impact on U.S. interests, 
on September 30, Econoffs delivered a demarche advocating against 
mandatory commissions (refs C and D) and subsequently learned a 
decision was likely by year-end.  At the roundtable, Recoura and 
Lewin said, at a recent meeting at MOCA, they were told that the 
Directorate General of Civil Aviation (DGCA) has determined it does 
not have jurisdiction to decide the issue and the matter has been 
sent to the Law Ministry for a legal finding.  Continental believes 
this means there will be no formal decision for quite a long time, 
possibly years.  American was more uncertain about the timeline. 
(Note:  Separately (ref E), Econoffs verified with MOCA Secretary 
 
NEW DELHI 00002437  003.2 OF 004 
 
 
Nambiar and Joint Secretary Sukul that a decision has been made and 
was being sent to the Law Ministry for a legal finding.  They did 
not expect this review to be lengthy.  They would not comment on the 
substance of the decision beyond saying it was consistent with 
previous discussions with Washington, D.C. officials and Econoffs on 
the issue.  End Note.) 
 
Positive Prospects for New Postal Bill 
--------------------------- 
 
¶8. (SBU) UPS and FedEX discussed their more hopeful prospects for a 
new Postal Bill that will take industry concerns into account. 
Express delivery companies had been fighting problematic postal 
bills for years, resulting in the last proposed legislation being 
withdrawn in January of 2009, due to opposition from many 
stakeholders, including express courier service providers.  Now, 
after many years of playing defense, it appears that the express 
delivery companies will have a chance to influence the legislation 
positively as they have been invited to comment during the drafting 
of the bill.  In addition, the deadline appears more reasonable than 
the January or February 2010 deadline they had previously heard. 
 
¶9.  (SBU) Selvan explained that carriers had recently learned that 
in August of 2009, the Indian Post Office asked the Administrative 
Staff College of India (ASCI) in Hyderabad to prepare a new 
comprehensive postal bill.  U.S. express delivery companies, 
together with other Express Industry Council of India members, like 
DHL and TNT, reached out to ASCI staff drafting the bill, who 
welcomed the opportunity to hear industry concerns and discuss 
global best practices.  ACSI agreed to hold a series of meetings 
with industry before the bill is finalized, with the first meeting 
on December 2.  Selvan said ASCI expects the bill will be ready for 
the Ministry of Information & Technology to table it in Parliament 
by mid to late 2010.  Selvan hoped industry's participation would 
minimize or prevent the following from being part of the bill: a 
requirement that service providers contribute to financing the 
postal operator's universal service obligation (under 2006 draft 
bill as much as 10 percent of turnover); expansion of the postal 
monopoly to cover all "letters" up to 300 grams; and limitations on 
foreign investment in all private delivery services (from the 
current 100 percent to 49 percent). 
 
EXIM Loan to Air India 
--------------------------- 
 
¶10. (SBU) Boeing India President Dinesh Keskar alerted Econoffs to a 
potential issue that might be raised by members of the Indian 
delegation during the Summit.  He said that they might ask EXIM 
(Export-Import Bank of the United States) to forgive or delay 
payment of the interest/principal of loan to cash-strapped Air 
India.  Boeing Keskar is head of both FICCI's Aviation Committee and 
AmCham's Civil Aviation Committee and has deep contacts in the 
aviation industry.  After the roundtable, Econoff contacted MOCA 
Deputy Secretary Shubha Thakur, who will be part of the GOI 
delegation to the Summit, and asked what topics would be raised by 
the Indian Delegation.  She stated they would be prepared to discuss 
the Airport Technical Visit and Federal Air Marshal MOUs, secondary 
screenings/VVIP exemptions, ground handling, mandatory travel agency 
commissions as well as IASA related topics and code shares.  Econoff 
pressed for any other potential issues and Deputy Secretary Thakur 
said that to her knowledge these would be the only topics raised. 
 
Business Improving in India 
--------------------------- 
 
¶11. (SBU) Roundtable participants agreed that the aviation business 
in India, while costly, had improved and they see India's huge 
market as an opportunity.  American's Lewin said the current 
situation was the best he has seen -- then caveated that he had only 
been in country seven months.  Recoura confirmed Lewin's upbeat 
analysis by saying passenger capacity for Continental was also up, 
as was the fare quality.  Recoura noted, however, that there was 
more intense competition for fares than in the past, with many 
passengers from the United States opting for cheaper fares offered 
 
NEW DELHI 00002437  004.2 OF 004 
 
 
by Middle Eastern carriers via Dubai and West Coast price-sensitive 
passengers opting for cheaper fares offered by Asian carriers. 
Boeing's Keskar noted that Air India wasn't able to benefit from the 
increased willingness of passengers to pay for first and business 
class since most of its seats in this category were provided gratis 
to GOI officials or Air India executives.  Keskar added that 
long-term improvement in India's civil aviation sector would depend 
on continued progress in economic recovery in the United States as 
well as India. 
 
ROEMER