INDIA’S civil aviation policy appears to be wrapped in confusion, with the government occasionally unveiling pragmatic measures to boost the fortunes of the industry, and at other times back pedalling on key reforms initiatives and reverting to the control raj.
The last few weeks have seen the civil aviation ministry give out confusing signals, indicating that it wants to wrest control over crucial decisions that are best left to airlines. The ministry, headed by Ajit Singh — his Rashtriya Lok Dal, with five MPs, provides support to the United Progressive Alliance government — has been delaying giving permission to private airline IndiGo, the largest carrier with a 27 per cent market share, to import 16 aircraft.
The airline, which is also one of the most profitable and efficient carrier in the country today, had placed orders for more than 200 Airbus aircraft, which are to be delivered to it by 2025. This year the airline — with a fleet of 63 — was planning to take possession of 16 aircraft, about three less than the additions in 2012.
However, the civil aviation ministry, through its aircraft acquisition committee, has so far granted permission to import just five aircraft. IndiGo might be allowed to import another four aircraft this year, still seven short of its original acquisition plan.
The official stance is that all these are large-bodied aircraft, which would inevitably be deployed by the airline on the busiest routes, mainly covering the metros of Delhi, Mumbai and Bangalore. The government wants private airlines to cater to other regions and cities, especially in the north-east.
But private airlines are reluctant to fly to cities where the traffic is negligible, where they are forced to offer concessional rates and the operations would undoubtedly result in losses.
The government also fears that deploying additional large aircraft on the trunk routes of Delhi-Mumbai, Mumbai-Bangalore and Bangalore-Delhi would result in further rate wars, forcing the carriers to slash fares. The last few years have seen many airlines, especially state-owned Air India, offering rock-bottom fares to wean traffic away from other carriers, but in the process piling up hefty losses.
The ministry is also thinking in terms of introducing a cap on airfares, both at the lower and higher end. It wants to curb both exorbitant and ‘predatory, pricing. During the peak travel season, airlines jack up rates sharply. For instance, a Mumbai-Delhi flight, which would usually cost around Rs4,000 to Rs5,000, sells upwards of Rs10,000 and Rs12,000 during the peak season.
But after the New Year rush, fares crash and airlines adopt, according to the government, ‘predatory’ pricing. Last month, for instance, low-cost carrier SpiceJet came out with a limited period offer of a million tickets at a fare of Rs2,013. The ministry and the aviation regulator have frowned on such practices.
Last week, Aditya Ghosh, president, IndiGo, slammed the government for considering imposing curbs on airfares. “The aviation ministry is not in the business of regulating tariffs, which should be low and sustainable,” he said. “Prices should be determined by the demand-supply logic.”
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THE woes of the civil aviation sector, which was flying high just a few years ago, have been piling in recent months. Last year, for instance, there was a three per cent decline in the number of passengers flown by domestic carriers to 58.8 million from over 60 million in the previous year.
Airfares were high for much of the year, especially after Kingfisher Airlines — owned by flashy liquor tycoon Vijay Mallya — had to suspend operations after the civil aviation regulator cancelled its licence.
The bankrupt airline has been facing enormous problems and last week, it share prices collapsed on the Bombay Stock Exchange, after a consortium of banks decided to recall their Rs75 billion loan to the airline.
Mallya had in a letter to his employees, who have not been paid their wages for several months, pointed out that things were likely to be hunky-dory and the airline would start operations soon. But minister Singh warned last week that Kingfisher would not be allowed to fly as long as it did not convince the regulator that it had the necessary funds to maintain its schedule and safety.
“Unless the Directorate General of Civil Aviation is satisfied that the airline can provide safe and viable service, there is no question of renewing the licence,” asserted Singh.
The airline management failed to convince bankers to support it further. The consortium of 17 banks, led by State Bank of India, decided to start the process of recovering their debt of Rs75 billion from the airline, following the failure of the management to provide a revival plan.
The banks will start monetising the securities held by them against the loans and hope to recover at least Rs10 billion by the end of next month. They will also start encashing corporate and personal guarantees, besides disposing of properties owned by the tycoon.
International financiers too are worried about their exposure to Kingfisher. Germany’s DVB Bank, one of the largest financiers of aircraft leased to Indian carriers, is battling it out with the DGCA and Kingfisher over the two aircraft that it had repossessed, but which have not been de-registered by the authorities here.
DVB has decided to suspend all financing of Indian carriers and will not underwrite new business in India for the time being.
Similarly, International Lease Finance Corporation, one of the world’s leading aircraft leasing firms — which had leased six Airbus aircraft to Kingfisher and is now in the process of repossessing them as the carrier has not paid the lease rent — feels the civil aviation sector in India could face problems if companies are not able to get their leased aircraft back.
****** LAST year, the Indian government over-turned a widely-criticised rule that prevented foreign airlines — or companies with interest in aviation — from investing in domestic carriers. With airlines such as Kingfisher in deep trouble, the government decided to allow international carriers to invest in the domestic sector.
The biggest beneficiary of the move has been Jet Airways, which is expected to get Abu Dhabi’s Etihad Airways as a minor partner. The two carriers have almost finalised the deal, which will see Etihad acquiring a 24 per cent stakes. Recently, Etihad’s CEO, James Hogan, was in India, meeting senior ministers in Delhi along with Naresh Goel, the Jet chairman.
Etihad has acquired stake in several international carriers including Air Berlin, Air Seychelles, Virgin Australia and Aer Lingus. Other international carriers are also believed to be considering investing in Indian airlines, though the government has still to take a call on whether state-owned Air India would be put on the block.
The Etihad-Jet deal, however, could hurt Air India badly. Last week the airline resorted to a drastic course of action, relocating its headquarters from the iconic Air India building in Mumbai’s Nariman Point, to Delhi. The move was initiated to save costs and is part of the asset-monetisation plan.
The cash-strapped, loss-making airline has been promised a whopping Rs300 billion bail-out package over the next 10 years by the government, but only if it slashes costs.
The Centre for Asia Pacific Aviation (CAPA) says the government should allow foreign airlines to invest up to 49 per cent in the state-owned carrier to ensure a level-playing field for it. The Etihad-Jet partnership could further worsen the airline’s finances; Air India, which has a massive debt of $9 billion, is losing heavily on its international routes.