Aviation: A year of turbulence

It was not a year that the civil aviation industry in India will like to remember.

To begin with, domestic airlines are estimated to have posted losses of over Rs 3,500 crore in the first six months of 2011.

Some of the airlines posted losses even though they had made profits in the comparable period last year. For instance, for the quarter ended September 2011, Jet reported a net loss of Rs 713.6 crore as against a net profit of Rs 12.4 crore in the corresponding quarter last year.

Low-cost SpiceJet too posted a net loss of Rs 240 crore as against a profit of Rs 10 crore in the comparable previous year quarter.

Kingfisher Airlines reported a loss of Rs 468.6 crore in the quarter ended September 2011; its losses in the same period last year were Rs 362.2 crore.

Kingfisher was also one of the worst-affected private airlines. During the year, not only did it have to deal with mounting loans and debts, it also announced that it would be giving up the low-cost end of its business. Towards the end of the year, amid speculation that the airline was being bought over by a business house, Kingfisher was also forced to reduce capacity as it struggled to find funds to keep its operations running.

Bail-out package

The losses incurred by private players made them knock on the Prime Minister's door. At his intervention, a high powered committee was set up which will come up with a package to revive the fortunes of these airlines.

The comprehensive package is likely to include banks taking a more liberal view of providing credit to airlines and the Government working on reducing the largest input costs for airlines - the price at which aviation turbine fuel is sold to the carriers across States in India.

But for the package to be available, the airlines will also have to show that they are serious and are themselves working on reducing costs and increasing revenues. At the moment there is no clarity on when the package will be ready. Official sources say that there is no timeline for the package although they have been asked to prepare it at the earliest.

And then there was Air India which once again asked the Government to bail it out of the financial crunch it has been facing.

The Government stepped in with a Group of Ministers recommending providing equity infusion of Rs 23,000 crore over 10 years to the airline. This includes Rs 6,600 crore for the current financial year.

Not that Air India's woes ended here. There were strikes by pilots for pay parity between the erstwhile Air India and Indian and a clear career progression plan.

The infighting between the pilots is said to be one of the reasons for the delay in the induction of the first of the 27 Boeing 787 Dreamliner aircraft into the airline's fleet.

There was also a churning in the top echelons of Air India as its first globally appointed Chief Operating Officer, Captain Gustav Baldauf, who was picked up after a global search of more than 40 aviation experts to turn the airline around, was shown the door. Other heads rolled too.

A few months after the departure of Captain Baldauf, the airline also lost its Chairman and Managing Director with Mr Rohit Nandan, a Joint Secretary in the Ministry of Civil Aviation, replacing Mr Arvind Jadhav.

Changes in Ministry

There were also two changes in the Ministry. Mr Praful Patel, who had been heading the Ministry since 2004, made way for Mr Vayalar Ravi in January, while December saw Mr Ravi vacating the chair for Mr Ajit Singh.

At a larger level, the Government once again made an attempt to allow foreign airlines to pick up a minority stake in domestic carriers with the Department of Industrial Production and Planning (DIPP) moving a note to get inter-Ministerial approval for the policy change. Inter-ministerial consultations are still on going and the issue could be on the Cabinet agenda in the New Year.

Happy few

Most of the good news came from the three low-cost airlines - IndiGo, Go Air and SpiceJet.

IndiGo ordered 180 Airbus A-320 aircraft, including 160 A-320 New Engine Option (NEO) aircraft while SpiceJet inducted the Q-400 aircraft into its fleet which it used to launch services on secondary routes. Go Air has said that it is planning to purchase 72 Airbus A-320 aircraft for $7.2 billion (Rs 32,400 crore).

What analysts are hoping now is that the Government will address some of the issues that became so significant in 2011 in the coming year so that the industry can get on to some kind of firm footing.

The first of these has to do with something that has been plaguing the industry for long – ATF costs. According to the Executive Director, Bird Group and Chairman, CII committee on ‘Growth potential of civil and airports', Mr Ankur Bhatia, “The recommended approach to curb the existing challenges is firstly to include ATF as a ‘declared good'.”

According to Mr Bhatia rationalisation of ATF prices for domestic operations will result in huge savings for the industry – something that it can do with at this stage.

FDI in aviation

Then there is also the issue of allowing FDI in the aviation sector. The jury is still out on this one with one school of thought maintaining that allowing foreign airlines to hold a stake in domestic carriers will bring in the much needed professionalism and money into the sector.

“There is a strong case for allowing foreign airlines to pick up a stake in domestic airlines. But it remains to be seen whether the proposal will finally get cleared in 2012,” said Mr Rajiv Chib, Associate Director, Aerospace and Defence, PwC.

Another school of thought, however, is of the view that this is not the right time to allow foreign airlines into India. This school of thought points out that given the huge losses being reported by domestic carriers, foreign airlines will be able to pick up stakes in domestic carriers for a song.

ashphadnis@thehindu.co.in

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