Sunday, March 17, 2019

Mid-air crises: Why Indian aviation sector's problems go far beyond the Boeing 737 Max itch

Of the 638 aircraft in indian skies, all the 18 Boeing 737 Max's are grounded. Even if this crisis isn't grave enough and may blow over in a few months, India's aviation sector still has too many air pockets ahead to revive any time soon. High aviation fuel prices, rupee depreciation, excessive parking and landing charges, loads of debt and fare wars, even some inefficient operations, have been the millstones around the airline industry. Just last quarter there were indications that the industry was on the verge of mild recovery, even though the distress in the industry is far from over. Airlines such as Jet Airways, IndiGo, SpiceJet, GoAir and Air India continue to struggle when it comes to financial and operational performances.

Take the case of Jet Airways. The Mumbai-based full-service carrier has been battling its biggest financial crisis in history. Recently, the Naresh Goyal-controlled carrier has defaulted to its foreign loan repayment due to liquidity crunch, and is staring at a fault of$109 million which it has to pay by March 28 to the HSBC Bank Middle East. Its lenders have prepared a resolution plan which includes Goyal's shareholding coming down to about 20 per cent from 51 per cent now. Under the plan, the banks will take control of the airline and appoint a new board. The plan is still stuck in the approval stage.

The problems with IndiGo are not as complex as Jet. Besides facing the pilot crunch, the airline has been struggling with rising costs, particularly aircraft rentals, fuel and finance costs. The marginal improvement in the fares have moved up the yields in the last quarter but they are still lower than 2014/15 levels. In the quarter ended December 2018, IndiGo, which has 42.5 per cent market share, registered a 75 per cent drop in net profits.

Its rival carrier SpiceJet, which has been affected by the recent groundings of Boeing 737 MAX 8, reported 77 per cent drop in net profits to Rs 55.1 crore for the same quarter. SpiceJet, which was flying 13 737 MAX 8 till recently, is likely to face issues with capacity additions. It has placed an order of 205 such planes order, including 50 aircraft that the airline has the option to convert into a firm order later.

"Jet's operating fleet have nearly halved; Air India's fleet is down by almost 20 per cent, and the 737 MAX grounding is the most unfortunate thing to have happened to the aviation sector. Six airlines that had bid under UDAN (Ude Desh Ka Aam Naargik) scheme have shut down operations. With all these developments, the passengers will be affected because of lesser number of flights and higher fares. Ticket prices are already costing an arm and a leg on some sectors," says Mark Martin, founder of Martin Consulting.

Experts believe that external factors - fuel prices and rupee-dollar exchange rates -- are difficult to control, and the current situation can be salvaged by the government by lowering import duties. "The government can lower the excise duty on jet fuel further (from 11 per cent now) to bring down the operational costs of the airlines. With the grounding of aircraft, the DGCA could make the wet leasing process easier which is not the case right now," says an aviation consultant.
17/09/19 Manu Kaushik/Business Today

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