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Troubled airlines looking for a rescue package

Our Bureau New Delhi | Updated on March 19, 2020 Published on March 19, 2020

Governments of the US and the UK have said they will bail out their aviation industries   -  PTI

With the ban on entry of global carriers, the sector’s pain is likely to shoot up

On Thursday evening, the Indian Government banned all scheduled commercial international flights from landing in India for one week starting March 22. This will have a far-reaching impact, both on international carriers and Indian airlines with international operations, such as Air India, IndiGo and Vistara.

With governments around the globe, including those of the US and the UK, indicating they will bail out their aviation industries, the need for the Indian government to do the same for their carriers becomes even more important.

A number of airlines and industry persons declined to speak to BusinessLine on record, pointing out that at the Hyderabad air show, which concluded last week, government officials had made it clear during closed-door meetings that the industry should not expect help from the state and, instead, look at the aviation eco-system for help, if needed.

What the govt can do

Pointing out that the key fiscal challenges for the aviation industry can be broken into five major areas — aviation fuel, aircraft lease, payrolls, taxes and surcharges and financing costs — Sanjay Vishwanathan, founder and Chairman of AdiGroup, the parent company of AdiGro Aviation, said the government can pass on benefits of the reduced cost of aviation turbine fuel to the airlines immediately; refund and waive all government levies and excise duties in the last six months and for the next year, while at the same time ensuring that the airlines pass on this benefit to the passengers immediately.

With regard to financing costs the domestic airlines have to bear, Vishwanathan suggests that the Government should look at providing short-term, zero-interest loans to refinance working-capital and related financing and waive the interest on working-capital borrowings for the past six months.

Waiving GST

An industry watcher with knowledge of aviation financing added that the government can announce a special window for external commercial borrowings in dollars to meet airlines’ working-capital requirements, especially since the US Fed has reduced interest rates. But he cautions that airlines might still have to bear the foreign exchange fluctuation risks.

“The government can also look at providing relief in landing and parking and navigational charges at airports, and waive the Goods and Services Tax on import and movement of aircraft spares and parts,” he said, adding that inter-company transactions should be exempt from GST for the next six months.

An airline executive said another way the government can help the industry is by encouraging leasing of aircraft in India, allowing airlines to sell discounted tickets for no check-in baggage, and do away with the existing route dispersal guidelines, allowing market forces to decide where an airline should fly.

Strongly advocating a government bailout package, Sanjay Vishwanathan points out that the payback to the government could be in two years or by 2022, when the industry returns to normal and starts generating $25 billion in overall revenue for this short-term stimulus.

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Published on March 19, 2020
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