I would tell him that yes, it is powerful, and that if he can find ways to make the most of that, then he will have an advantage in combat.
That's not what's bugging the player. Yeah, it might be nice, and yeah, he might use the advantage if it's kept in-game, but he thinks the rule is bad for PCs and NPCs.
I agree with him. If everyone is aware, I just discount the rule. Who wouldn't attempt to dodge, parry, block, twist, etc. when everyone is aware that combat is about to happen? It's a purely balance rule, not a realism rule, and on that divide, I feel you and your player are not going to agree. However, point out to him that it's in for balance, and that there are other rules for balance as well.
If one side isn't aware of combat, it goes to a surprise round as normal, and people are flat-footed. Then, when the first normal round of initiative happens, people are flat-footed until they act if they were flat-footed in the surprise round. I doubt he'll object to this rule if he's trying to think of things realistically. You were caught off guard (flat-footed), and as soon as you gain your bearing (your initiative), you are able to effectively defend yourself (you're no longer flat-footed).
Now, as the GM, it's your call. I'd at least discuss that the divide in the conversation seems to be realism / game balance, because often times players will grudgingly accept rulings if they agree game balance is the issue.
He seems logical to me (but maybe that's because I agree with him), so I think you can talk this through. If he knows you're trying to preserve game balance for both PCs and NPCs, and you're trying to do this impartially (like he's trying to do with the rule), I think he'll be more willing to accept your view, and your decision.
But, hey, you know your players best. Play what you like
