India’s aviation industry has been in the midst of a turbulent ride for a while now. Plagued by mounting debt, losses and high fuel costs, airlines are struggling to stay afloat even as many more Indians take to the skies. This year, India’s airlines are expected to post combined losses of up to $1.9 billion, according to consulting firm Capa India. The government isn’t immune to the industry problems, but Prime Minister Narendra Modi’s plan to sell loss-making national carrier Air India (AI) to private companies was met with a tepid response. Suresh Prabhu, minister for civil aviation, speaks to Forbes India about the failed sale, the success of the Regional Connectivity Scheme and the way forward for the Indian aviation sector. Edited excerpts:
Q. Your ministry unsuccessfully attempted the strategic sale of AI last May. Did you identify the reasons for that and how do you plan to revive its fortunes?
The government remains committed to the disinvestment of AI. In this regard, the Air India Specific Alternative Mechanism (AISAM) has inter alia decided that in view of volatile crude prices and adverse fluctuations in exchange rates, the present environment is not conducive to stimulate interest among investors for the strategic disinvestment of AI. The issue would be revisited once global economic indicators, including oil prices and forex conditions, stabilise. AISAM has directed to separately decide the contours of the mode of disposal of AI’s subsidiaries: Air India Engineering Services Limited, Air India Air Transport Services Limited (AIATSL) and Airline Allied Services Limited. It has approved the contours for the sale of subsidiaries and asked to expedite the sale of AIATSL. The government has also prepared a comprehensive financial package by transferring non-core debt and assets to a special purpose vehicle.
Q. While India’s aviation sector has been growing, there have been concerns about the profitability of some companies. Is the ministry doing something about offering a wider range of financial instruments for the industry?
Each airline prepares its business plan on the basis of its own market assessment and liabilities. Efficient operations and financial resources are the responsibility of the airlines. However, the government has taken several measures to revive the airline industry and ensure long-term viability of the sector. The industry is dynamic and requires continuous adjustment according to global and domestic needs. The government has been constantly responding to industry conditions and undertaking specific measures to facilitate and enable growth. Steps also include reduction of central excise duty on aviation turbine fuel from 14 percent to 11 percent from October 11, 2018, and rationalisation of GST provisions, with a view to revive the airline industry.
Q. Recent reports suggest that eight airlines which saw massive opportunities with the Udan (Ude Desh Ka Aam Nagrik) scheme have shut down operations due to financial and operational challenges. Is the government doing anything on this front?
Operations of two selected operators, Air Odisha and Air Deccan, were closed in Odisha, Chhattisgarh, Northeast, Gujarat and Maharashtra networks. After issuing show cause notices to these agencies, six networks have been cancelled (out of nine awarded to them). These cancelled airports have been opened for bidding in Udan-3 for which bid evaluation process is in progress.
11/02/19 Manu Balachandran/Forbes India
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Q. Your ministry unsuccessfully attempted the strategic sale of AI last May. Did you identify the reasons for that and how do you plan to revive its fortunes?
The government remains committed to the disinvestment of AI. In this regard, the Air India Specific Alternative Mechanism (AISAM) has inter alia decided that in view of volatile crude prices and adverse fluctuations in exchange rates, the present environment is not conducive to stimulate interest among investors for the strategic disinvestment of AI. The issue would be revisited once global economic indicators, including oil prices and forex conditions, stabilise. AISAM has directed to separately decide the contours of the mode of disposal of AI’s subsidiaries: Air India Engineering Services Limited, Air India Air Transport Services Limited (AIATSL) and Airline Allied Services Limited. It has approved the contours for the sale of subsidiaries and asked to expedite the sale of AIATSL. The government has also prepared a comprehensive financial package by transferring non-core debt and assets to a special purpose vehicle.
Q. While India’s aviation sector has been growing, there have been concerns about the profitability of some companies. Is the ministry doing something about offering a wider range of financial instruments for the industry?
Each airline prepares its business plan on the basis of its own market assessment and liabilities. Efficient operations and financial resources are the responsibility of the airlines. However, the government has taken several measures to revive the airline industry and ensure long-term viability of the sector. The industry is dynamic and requires continuous adjustment according to global and domestic needs. The government has been constantly responding to industry conditions and undertaking specific measures to facilitate and enable growth. Steps also include reduction of central excise duty on aviation turbine fuel from 14 percent to 11 percent from October 11, 2018, and rationalisation of GST provisions, with a view to revive the airline industry.
Q. Recent reports suggest that eight airlines which saw massive opportunities with the Udan (Ude Desh Ka Aam Nagrik) scheme have shut down operations due to financial and operational challenges. Is the government doing anything on this front?
Operations of two selected operators, Air Odisha and Air Deccan, were closed in Odisha, Chhattisgarh, Northeast, Gujarat and Maharashtra networks. After issuing show cause notices to these agencies, six networks have been cancelled (out of nine awarded to them). These cancelled airports have been opened for bidding in Udan-3 for which bid evaluation process is in progress.
11/02/19 Manu Balachandran/Forbes India
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