Stormy weather for Indian carriers

Forum Gandhi Updated on: Feb 21, 2021

The pandemic is only the tip of the iceberg that the country’s cash-poor airlines — both regional and national — have run into

Market watch: The government is still struggling to find a suitable buyer for Air India

There is trouble on the tarmac. And while the Covid-19 pandemic may have brought carriers to their knees, they have for long been facing severe financial problems.

Airlines have been floundering for some years now. Take SpiceJet which, in November, had proposed a one-time debt restructuring and additional working capital from Yes Bank in a bid to keep afloat. It faced a similar situation in 2014, when banks weren’t ready to fund the company for even ₹300 crore. Its total liabilities then were ₹4,457 crore. The current and non-current liabilities were ₹ 2,982 crore and ₹1,475 crore respectively. Between Q2 FY15 and Q2 FY21, SpiceJet’s total liabilities jumped by a whopping 223 per cent, a review of the airline’s financial statements shows.

Wadia group-owned GoAir, too, finds itself in a similar situation. In FY20, GoAir, which was founded in 2005, had a negative net worth of ₹1,500.98 crore, and its current liabilities exceeded its current assets by ₹3,333.53 crore. Vistara also posted losses in FY20. Between FY16 and FY20, six-year-old Vistara’s total liabilities had jumped 2284.49 per cent and total losses widened by 352.32 per cent.

“Most, if not all, airlines in India have a weak balance sheet,” said Vinamra Longani, Head of Operations at Sarin & Co. “All airlines with the exception of IndiGo are cash poor and are facing significant liquidity issues. Airlines, where promoters are not inclined to infuse capital, are further impacted and are the most vulnerable.”

The situation, aviation experts hold, is dire. They point out that IndiGo, with a market share of around 54 per cent and the largest fleet in India, also found itself in turmoil because the government had placed a cap on the capacity on the number of flights on all airlines after the pandemic. “A significant fleet like IndiGo, by the sheer size of the number of aircraft grounded, would be at a disadvantage as the fixed cost of the grounded fleet would be a significant burden,” said Rohit Tomar, Managing Partner, Caladrius Aero Consulting LLP.

Airlines are facing difficulties for disparate reasons. Air India has its own problems. The government is struggling to find a suitable buyer even though the Tata group has thrown its hat in the ring to acquire the ailing airline. Dealing with Air India’s whopping losses is just one of the concerns the Tata Group will be facing. It has to deal with the sheer magnitude of Air India’s assets and employees.

The pandemic cannot be blamed for the situation, though it made matters worse. Some airlines had entered the pandemic with cash-on-hand that was less than two days of forward bookings.

Kinjal Shah, Vice President, ICRA Limited, said the cumulative debt would remain at an all-time high for the industry. “The debt will range at around ₹500 billion (excluding lease liabilities) in FY2021 and FY2022, with the industry requiring additional funding of ₹350-370 billion over FY2021 to FY2023. Despite an improvement in the credit metrics will remain stressed in FY2022,” she said.

Cumulatively, debt obligations on the books of Indian carriers including Air India are already more than US$7 billion (₹51,400 crore). Tomar said the direct impact of the weak balance sheet was on the ability of airlines such as SpiceJet to negotiate debt restructuring and raise additional debt capital. “The challenge lies in the mindset of our banking system at large, which have taken the experience of Kingfisher and painted all the struggling airlines in the same colours,” he explained.

Aviation experts believe it takes at least five years for an airline to become profit-making and most Indian airlines had already surpassed the five-year loss cycle.

The aviation industry has also been dealt a blow by extreme competition, low margins and high costs, particularly taxation, according to Vimal Rai, MD of Trace Consulting Services.

The worst affected will be regional airlines. After the pandemic last year, two out of five regional airlines did not see the sky. Tomar said regional airlines would be further affected with Spicejet and IndiGo increasing their deployment on Tier II and Tier III routes.

Published on February 21, 2021 11:15