In what can jeopardise the fleet acquisition plans of Air-India and Indian Airlines, the proposed open sky agreement between India and the US seeks to restrict any government support to carriers so that private airlines get a level playing field.
Finance ministry officials told Business Standard the agreement could put the government's guarantee to Indian Airlines and Air-India to raise funds for acquiring aircraft under the lens and might lead to a dispute.
Besides, government sources said, a restriction like this could prevent the government from seeking counter-trade guarantees from aircraft makers that bagged contracts from the two state-run carriers.
The finance ministry has questioned the rationale behind this clause in the agreement, which has been sent to the Cabinet for its consideration. A speedy clearance of the agreement is crucial to private carriers like Jet Airways and Air Sahara, which have drawn up plans to fly to the US.
The government recently allowed Jet Airways to fly daily to New York via Brussels. A delay in the open sky agreement with the US can affect Jet Airways' plans.
The present arrangement with the US provides only Air-India with rights to fly to New York, Newark, Los Angeles and San Francisco.
The opposition from the finance ministry comes after the civil aviation ministries of the two countries reached an in-principle agreement in January this year to liberalise the present air services agreement to provide greater access to carriers from both sides.
The proposed bilateral agreement also suggests that India and the US should not levy any tax on any goods or service used in the operation of an airline.
This means that the Indian government may not be able to impose service tax or value-added tax on any product consumed by an American airline. Further, tax exemption has been proposed on airline operations resulting in a revenue loss on account of non-levy of certain taxes like property tax.
Officials also said the dispute resolution mechanism under the open-sky policy with the US was not clear.
"In fact, it does not mention whether disputes will be subject to US jurisdiction, Indian jurisdiction or be referred to a third country or an international arbitration forum," an official said.
Ministry sources said US transportation secretary Norman Y Mineta was expected to be in India later this month to iron out the issues.
The proposed bilateral agreement provides for unlimited access to airlines from the two countries, subject to availability of slots at airports. According to a section of the industry, such a move will not be in the best business interest of Indian carriers.
Air services between the two countries are currently governed by an agreement entered in 1956. Civil aviation ministry officials said the agreement restricted the number of airlines flying between the two countries, the frequency of service and pricing.
