Representational image | Commons
Representational image | Commons
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New Delhi: With two-cent airfares, high fuel costs and taxes, India’s aviation market already was one of the toughest around. The coronavirus pandemic could be the final straw for some of the country’s airlines.

Indian carriers need as much as $2.5 billion to keep flying, CAPA Centre for Aviation in Sydney says, and that may only last to the end of this year if they’re lucky. Airlines suffered a total collapse in demand from March 25 to late May as India banned commercial passenger flights as part of its virus lockdown.

Governments in Europe, the U.S. and elsewhere have provided $123 billion to support airlines through the Covid-19 crisis. But Prime Minister Narendra Modi’s administration, facing a widening fiscal deficit, hasn’t doled out funds to individual industries or airlines backed by private businesses and, in some cases, billionaires.

The country’s airlines need significant investment or one or more will fail, said Satyendra Pandey, an independent consultant and former head of strategy at Go Airlines India Ltd. That puts them on track to follow the likes of Flybe Group Plc in the U.K., Virgin Australia Holdings Ltd. and Latam Airlines Group SA in Chile into administration or collapse.

“Airlines with weak balance sheets and inadequate collateral have survived by withholding payments to suppliers for two months and counting,” Pandey said.

The Indian aviation market was challenging enough before the pandemic as crushing fare wars and high costs took their toll. There were two major collapses in the last decade: Jet Airways India Ltd., the country’s oldest private-sector carrier, and Kingfisher Airlines Ltd., which was owned by Vijay Mallya. Air India Ltd. has been limping along under a mountain of debt for years searching for a buyer.

In addition to Indian states imposing levies of as much as 30% on jet fuel, a weakening rupee adds to the pain. The currency has fallen nearly 10% against the dollar over the past year, the weakest in Asia, which hurts Indian airlines as their costs are mostly dollar-denominated.


Also read: Vistara announces 5-20% pay cut for 40% of its workforce till December


“We haven’t given a financial bailout package, but that doesn’t mean the government has not been helping the aviation sector,” said Pradeep Singh Kharola, the top bureaucrat in India’s aviation ministry. “The help can be in various ways.”

Kharola cited an announcement to open up the nation’s airspace — part of a $277 billion government stimulus package for the economy first proposed in 2013. Another decision to reform plane-repair facilities was announced in 2016, and a plan is in the works to privatize more airports.

Without immediate government support, any cash infusion would need to come from tycoon owners, CAPA’s South Asia Chief Executive Officer Kapil Kaul said on Bloomberg Television. Tata Group, India’s biggest conglomerate, owns majority stakes in Vistara and AirAsia India Pvt Ltd., while Wadia Group — a family business empire — owns GoAir. Billionaires Rahul Bhatia and Rakesh Gangwal own IndiGo.

But wealthy backers don’t guarantee salvation, as Jet and Kingfisher show.

Two senior bankers who approve loans to large companies, including airlines, said there’s little desire to lend to them without a government backstop, adding that there is now a big gap between carriers’ revenues and expenses. Cash flows have almost dried up, but the airlines still need to pay salaries, maintain airlines and cover outgoings, the bankers said, asking not to be identified as they weren’t authorized to speak publicly on the matter.

SpiceJet Ltd., Air India and Vistara had cash ratios of less than 1, the latest annual figures show, indicating there’s a risk of not fulfilling current liabilities with cash and cash equivalents, according to data compiled by Bloomberg.

Close to 3 million jobs in aviation and related industries could be lost in India this year because of the pandemic, as well as more than $11 billion in revenue, according to the International Air Transport Association. India is one of the worst-affected countries, with more than half a million confirmed virus cases and 16,475 deaths.

Even after some domestic routes reopened in late May, planes were flying only about half full in the first week back, according to data shared by the country’s aviation regulator. The fixed costs of maintaining grounded planes and meeting financial obligations to banks, oil companies, lessors and staff make it even harder for weaker carriers to stay afloat.

There is an added legal risk, too, that could run the airlines dry, with India’s top court hearing a plea to mandate carriers refund passengers whose flights were canceled due to the lockdown. That figure that could top $500 million, according to CAPA.

Vistara, a joint venture between Tata Group and Singapore Airlines Ltd., said it is working to lower or defer operating expenditure and avoiding discretionary expenses. It also reduced staff costs to save jobs. SpiceJet said it is confident of emerging stronger after the crisis and has adequate cash flow. The listed carrier, whose market value has more than halved this year, hasn’t cut jobs.

Also at stake are orders with Boeing Co. and Airbus SE. IndiGo, operated by InterGlobe Aviation Ltd., is the world’s biggest customer for Airbus’s best-selling A320neo-family of jets, while GoAir also has ordered 144 of them. SpiceJet is one of the biggest buyers of Boeing’s now-grounded 737 Max jets, with as many as 205 on order.

“The growth of airline capacity in India far outstripped demand at economic prices, placing the viability of fleet plans and entire carriers in doubt,” said Robert Mann, New York-based head of aviation consultancy R.W. Mann & Co. “Covid will accelerate the reduction of capacity, in a number of cases by extinguishing airlines.”-Bloomberg


Also read: Output of 8 core industries contracts by 23.4% in May, negative growth in 7 sectors


 

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23 Comments Share Your Views

23 COMMENTS

  1. Since a few years people have started certifying others as Nationalists and Anti-nationalists. Well, never in the history of India such a situation has ever occurred. Even Gandhi did not certify anyone as a Nationalist or an Anti-nationalist. We are a nation formed by the Union of different states. We have a full fledged constitution to decide the rights and duties of citizens. So people must stop distributing certificates since they are not authorized to do so.

  2. Article is not about Indian Airlines advocating selling out by some geneous fellow. Almost all the airlines are facing acute revenue shortage due to unprecedented halt in operation. Even private players are in deep trouble and likely meet the fate of Jet Airways and Kingfisher which were supposed to be the high performing private players.

  3. That Jerk is just greedily trying to rake in moolah for state owned airlines via covid tragedy. He has cleverly put restrictions on private airlines, created a virtual monopoly over Indian skies for last 3 months. Think about it 3500 Dollars for one way air fare to take advantage of someone’s personal situation. This is the level of draconian state this chai waala has slid to. Shame on him and shame on humanity

      • The day u get courage to put your name here …you would be taken more seriously by your parents….who may eventually decide to give u their surname..😂😝😀

  4. India government should sell this organisation out much before. All the budgetory support extended by government are misused for salary, perks of the employee. Ill maintained aircrafts, highly paid non ethical workforce and mismanaged travel are all that countrymen are getting. The organisation is losing business, losing customer confidence and losing govt exchequer on regular basis whereas private players are flourishing everyday. Time for retrospection by the management.

  5. Government of India should sell out Indian Airlines much before. All the support extended by government till date are misused . The aircrafts are ill maintained , staffs are white elephant seeking government fund for timely salary payment, allowances and all other facilities. The most ill managed PSU. In spite of getting all the government support made huge loss, while the private players are flourishing every day. It is time to retrospect.

  6. If the government starts handing out packages to private companies, socialists will get offended and label them as ‘suit-boot’ ki sarkar. If they don’t give out like they are doing right now, the business community or pro-market peeps will get offended. It is high time that we throw away socialism and communism into an incinerator.

  7. The Print is the most dangerous thing for INDIA. ThePrint is more dangerous then those Terrorist. ThePrint you are an Anti-Nationalist… Shane on U

    • Yes Print is. Now deleting correct comments. Retaining paid bhakt comments. Their paid moderators may delete this too.

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