Indian aviation: Flying in calm skies

The drivers that propelled Aviation sector in 2010 seem set to continue in 2011. Demand is expected to grow strongly (at least in the mid-teens), supply should be lower than demand (with significant additions expected only from the low-cost players) and balance-sheet repair, which is underway, should ease some pressure off the FSCs. The planned push into the smaller towns and cities should also create new and promising demand pockets. Yet, the sector still has a considerable distance to traverse before it moves into the safe zone.
The overall debt level remains precarious (in excess of Rs 60,000 crore). This, even as accumulated losses over previous years has shrunk the equity base of most players and eroded the net worth of two of the three full-service carriers.
While the much-needed restructuring and planned equity infusions are a good first step, it will take quite some time for Air India and Kingfisher Airlines to shrug off the debt albatross and show profitability at the net level. Also, while Jet has been turning in profits for some quarters now, its debt burden remains huge, and a thinning of flab is a must if the full potential of the improved demand-supply dynamics needs to be realised by the airline at the net level.
The low-cost carriers with limited leverage, better operating metrics and aggressive expansion plans, seem to be in a better position to capitalise on the opportunities being thrown up by a growing economy.
Not surprisingly, unlisted players in this category, such as Indigo and GoAir, are reported to be planning to go public in 2011.
Despite an improvement in the fundamentals and sentiment over the past year, the sector still faces headwinds. The immediate among these are escalating costs due to crude oil prices riding up in the past few months.
06/01/11 Anand Kalyanaraman/Business Line

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Categories: Indian Aviation- In General Jan 2011