The planned liberalisation of the domestic aviation industry has made it harder for domestic aviation companies to take advantage of viability gap funding (VGF), The Sunday Morning Business reliably learns. Industry sources said that the Government’s recent decision to allow international air carriers to operate domestic routes would complicate the process of obtaining VGF as their business plans would have to be altered to factor in the foreign competition. Earlier, the Sri Lanka Tourism Development Authority (SLTDA) had requested the domestic aviation companies vying for VGF to present audited accounts of the last few years along with the business plans for the next few years. The deadline provided for the domestic airlines to submit their accounts and plans expired a few days ago. However, it is understood that prior to the expiration date, domestic airlines had requested the National Agency for Public Private Partnership (NAPPP), which is co-ordinating the VGF process, to clarify as to how airlines are being picked to benefit from the VGF facility. This request had been made by the airlines to ensure that there were no irregularities in the selection process which could be questioned and complained about later by third parties. A month ago, the Cabinet of Ministers approved a proposal from the Prime Minister, to allow selected domestic airlines to enter into VGF agreements with the SLTDA to support the terror-hit tourism industry. Domestic aviation companies that operate scheduled domestic flights to selected destinations – not exceeding a maximum charge of $ 100-150 for one-way travel – are considered eligible under this proposal. However, on 1 October, the Cabinet also approved a proposal submitted by the Minister of Transport and Civil Aviation to allow the foreign airlines to operate domestic flights, increasing competition faced by domestic airlines. Accordingly, the Civil Aviation Authority (CAA) will issue one-year temporary operating licenses to foreign airlines that are interested in flying within Sri Lanka and the airlines would be allowed to operate to Jaffna International Airport, Bandaranaike International Airport, Ratmalana Airport, Batticaloa Airport, and Mattala Rajapaksa International Airport. The local aviation companies that had their business plans prepared are now concerned that with the entry of foreign airlines, these plans would need to be altered. The companies believe that amidst such a situation, implementing their previous plans would only bring down their revenue while increasing their cost of operations, and the airlines may even opt to curtail operating certain routes on which they can’t compete with the bigger foreign airlines. Even if the companies obtain the VGF, the funding is likely to be exhausted in a few months due to the reduction in revenue. However, two domestic airline operators are most likely to submit their business plans and operating models soon in order to be eligible to enter into the VGF agreements with the SLTDA, according to SLTDA. Speaking to The Sunday Morning Business, SLTDA Chairman Johanne Jayaratne noted that two operators were signed up for this agreement but the quantum of their participation cannot be determined until the SLTDA received their respective business plans. “They have to come up with a solid business plan and models they are expecting to achieve. Once we have the business plans in place, we will take a look at it and approve them,” Jayaratne noted. It is understood that a preliminary agreement has been reached to provide Rs. 250 million in VGF to the domestic airlines in the first year, but this might vary depending on the business plans of domestic air operators. Sources believe that the Government’s decision of allowing international air carriers to operate domestic routes might come amidst the less participation of domestic airlines even after their competitor Helitours was removed from the business. Helitours’ operations were suspended in May last year due to a number of issues linked to regulatory matters. Helitours is the commercial air arm of the Sri Lanka Air Force (SLAF), was started back in 1972, and is a company incorporated under the Companies Act of Sri Lanka. Early this year, SLAF commenced the process of handing over its facilities at Ratmalana Airport to the CAA. Sources further noted that since the high competition created by the entry of international airlines would have a severe impact on local carriers, the local airlines should also be given the opportunity to go beyond the Sri Lankan border and operate in other countries’ domestic routes, such as India. The Sunday Morning Business reliably learns that the domestic carriers are in discussion with the CAA on this matter.