First, the good news: India is set to become the third largest aviation market in the world by 2025, behind China and the United States, according to a report by the International Air Transport Association (IATA).
The bad news? India’s airlines are facing an existential crisis, buffetted by high fuel costs, low ticket prices and clogged airport infrastructure. India’s current annual airline passenger traffic is over 150 million. It is expected to double by 2025 and more than triple to 478 million passengers by 2036.
According to a Bloomberg report by David Fickling, “For all the disagreement in the industry about the future of aviation, there’s perfect accord on one point: there’s going to be a lot more of it. The world’s air passengers flew a combined 7.64 trillion kilometers (4.75 trillion miles) in 2017, according to Boeing Co’s latest 20-year market outlook. By 2037, that will rise to 18.97 trillion kilometers, with about 40 per cent of the increase happening within five intra-regional markets: China, India, North America, Europe and Southeast Asia.
“That’s sparking a battle over the biggest bottleneck holding back this growth: airports. The governments that still own many of them should be more open to privatisation to cover a $78 billion funding gap in needed capital investments, the Airports Council International, an industry group, argued in a report earlier this year.”
The aborted sale of Air India and the financial crisis in Jet Airways symbolise the mismatch in the country’s aviation sector: great potential but poor planning. In the 25th year of its operations, Jet Airways is bleeding. Pilots are being allowed to leave the airline with just 48 hours notice rather than the normal six months period. The airline has 2,000 pilots (including foreign pilots) and 16,000 employees. Clearly, it is overstaffed but the rising cost of aviation turbine fuel (ATF) and a weak rupee have made matters worse. Caught in a low-priced ticket environment, Jet’s ability to increase revenue is limited.
The acquisition of Jet by the Tata group, which owns Vistara Airlines (along with Singapore Airlines) and AirAsia India, is the most viable outcome. The initial obstacle in the way of a deal was Jet Airways’ founder Naresh Goyal’s reluctance to give up control of the airline – an immutable condition for a Tata buyout. Jet’s huge second quarter loss has added a sense of urgency to resolving the airline’s problems. Once the board of Tata Sons clears it, the acquisition of Jet will take several months to conclude, given the complexity of the transaction.
For the Tatas buying Jet makes economic sense. It is a relative bargain at its depleted market capitalisation. A majority stake in Jet would cost the Tatas very little, apart from taking over the airline’s significant gross debt of nearly Rs. 10,000 crore. That would still be worthwhile given Jet’s legacy airport slots at Heathrow, Brussels, Amsterdam and other global hubs. Jet has a fleet of 124 aircraft (though several leased planes are being returned) and a good domestic route network (though here too routes have been cut in the winter schedule in order to reduce costs).
25/11/18 Minhaz Merchant/Business World
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The bad news? India’s airlines are facing an existential crisis, buffetted by high fuel costs, low ticket prices and clogged airport infrastructure. India’s current annual airline passenger traffic is over 150 million. It is expected to double by 2025 and more than triple to 478 million passengers by 2036.
According to a Bloomberg report by David Fickling, “For all the disagreement in the industry about the future of aviation, there’s perfect accord on one point: there’s going to be a lot more of it. The world’s air passengers flew a combined 7.64 trillion kilometers (4.75 trillion miles) in 2017, according to Boeing Co’s latest 20-year market outlook. By 2037, that will rise to 18.97 trillion kilometers, with about 40 per cent of the increase happening within five intra-regional markets: China, India, North America, Europe and Southeast Asia.
“That’s sparking a battle over the biggest bottleneck holding back this growth: airports. The governments that still own many of them should be more open to privatisation to cover a $78 billion funding gap in needed capital investments, the Airports Council International, an industry group, argued in a report earlier this year.”
The aborted sale of Air India and the financial crisis in Jet Airways symbolise the mismatch in the country’s aviation sector: great potential but poor planning. In the 25th year of its operations, Jet Airways is bleeding. Pilots are being allowed to leave the airline with just 48 hours notice rather than the normal six months period. The airline has 2,000 pilots (including foreign pilots) and 16,000 employees. Clearly, it is overstaffed but the rising cost of aviation turbine fuel (ATF) and a weak rupee have made matters worse. Caught in a low-priced ticket environment, Jet’s ability to increase revenue is limited.
The acquisition of Jet by the Tata group, which owns Vistara Airlines (along with Singapore Airlines) and AirAsia India, is the most viable outcome. The initial obstacle in the way of a deal was Jet Airways’ founder Naresh Goyal’s reluctance to give up control of the airline – an immutable condition for a Tata buyout. Jet’s huge second quarter loss has added a sense of urgency to resolving the airline’s problems. Once the board of Tata Sons clears it, the acquisition of Jet will take several months to conclude, given the complexity of the transaction.
For the Tatas buying Jet makes economic sense. It is a relative bargain at its depleted market capitalisation. A majority stake in Jet would cost the Tatas very little, apart from taking over the airline’s significant gross debt of nearly Rs. 10,000 crore. That would still be worthwhile given Jet’s legacy airport slots at Heathrow, Brussels, Amsterdam and other global hubs. Jet has a fleet of 124 aircraft (though several leased planes are being returned) and a good domestic route network (though here too routes have been cut in the winter schedule in order to reduce costs).
25/11/18 Minhaz Merchant/Business World
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