In deep distress, aviation sector needs help

AK Sachdev | Updated on June 28, 2021

The govt has left the airlines to their own inventiveness to cope with the surging losses

Civil aviation is capital intensive; astronomical investments and enormous fixed costs of airlines and airports mean that any slowdown distresses their bottomlines directly. Air travel is one of the sectors worst affected by the second wave of Covid.

The first wave had mauled Indian civil aviation but, belying many predictions, no airline was grounded. This year began with aviation struggling — successfully — to regain lost ground but the second wave, coming at the worst possible time, has hit aviation real hard.

During May, only two million passengers flew domestically in contrast to the pre-Covid figure of 12.2 million in May 2019. International flights were miniscule, limited to air bubble flights only. CAPA-Centre for Aviation, a reliable source of information on air and travel industries, puts FY 2020-21 losses of Indian airlines at $3.9 billion and, for the current fiscal, it projects losses of $4.1 billion.

Desperate times call for desperate measures; airlines’ despondency is manifest in their frenetic measures. IndiGo, the biggest player, which recently posted its fifth consecutive quarterly loss of around ₹1,100 crore, has revived its plan of selling new shares into the market to raise working capital of ₹3,000 crore.

SpiceJet has completely eroded its net worth and is now resorting to paying its employees by the hour of actual work demanded from them (after having withheld May salaries). GoFirst is in the final stages of launching an IPO and is looking at an ultra low yield carrier segment, even more price sensitive than the ultra low cost one.

Necessity has also spawned an invention, wherein SpiceJet and GoFirst have agreed to combine flights to accommodate each other’s partial loads on common sectors. TruJet, a budding airline, has already had all but one of its aircraft reclaimed by their lessor due to non-payment of dues and is thus on the verge of losing its airline permit which mandates five aircraft as the minimum for an airline.

Air India, hit hard by the ban on international flights, is perhaps the worst affected. Its daily losses even before Covid were to the tune of ₹20 crore per day; that figure has probably doubled by now, further detracting from its evaluation in its disinvestment process.

Unwilling to assist

The government had shown no willingness to help airlines during the onslaught of the first wave. In his interaction with media, the Minister for Civil Aviation, Hardeep Puri, said that the aviation sector will return to normalcy once all Indians have been vaccinated (in 2021), but the government has has shown no inclination to handhold the airlines till that happens. It has increased the lower and upper fare limits and reduced the seat capacity from 80 per cent to 50 per cent.

But the effect of these has been minimal as the demand was essentially necessity driven, and leisure travel had virtually come to a halt due to Covid.

The government also permitted airlines to borrow up to ₹200 crore under the Emergency Credit Line Guarantee Scheme (ELCGS), but given the scale of airline revenues, this paltry amount is unlikely to provide any meaningful succour.

In short, the government has left the airlines to their own inventiveness to cope with Covid. This is in contrast with the global trend. According to an estimate by International Air Transport Association, global airlines have received cash support of over $100 billion since the onset of Covid.

The government has ignored the sector, but the airlines appear determined to survive the second wave, with or without support. However, given the contribution of civil aviation to the national economy, the government needs to do a rethink.

The writer is a retired Group Captain

Published on June 27, 2021

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