Monday, April 15, 2019

Turbulence hits Indian aviation

India saw an impressive growth trajectory of the Aviation Sector with a CAGR (compound annual growth rate) of 12.72% between 2006 and 2018 and proposed Capital Expenditure of Rs. 180 billion over the next four years. The sector has hit an expected roadblock causing speculation on the industry’s future. There is much cavern around the discernible similarities between the two crashes of Boeing 737 Max 8 Passenger aircrafts-Lion Air flight off the coast of Indonesia on October 29, 2018 and Ethiopian Airlines flight on March 10, 2019. This has prompted countries around the world to ban the 737 Max 8 pending conclusive safety investigations.
India’s Aviation Industry regulator, Directorate General of Civil Aviation (DGCA) grounded the operation of the Boeing 737 Max 8 through notifications dated March 11, 2019 and March 13, 2019. This threw schedules of the aviation sector into disarray with widespread cancellations of flights with inflated airfares. DGCA is likely to intervene in the matter to combat the spiralling airfares. Since the airfares of the airlines are driven by market forces, it remains to be seen how and to what extent can DGCA regulate this situation.
This incident seems to have accentuated the financial crisis of a leading full-service carrier, Jet Airways which operated five Boeing 737 Max 8 jets. The Airline is reportedly in the midst of resolution talks at present, and a resolution plan was expected by the end of March 2019. Jet Airways had been reeling under financial woes, reportedly piling up to US $ 1 billion in red on its balance sheets. With the grounding of the 737 Max 8s, there has been a rise in demand for aircraft in Jet’s grounded fleet, particularly older versions of the Boeing 737. This may prompt financiers to re-deploy the aircraft, pushing Jet into further trouble.
Another low-cost carrier, SpiceJet, which operated 12 Boeing 737 Max 8 aircraft is the worst affected. It has leased two additional aircraft to tide over the spate of cancellations caused by the grounding.
Talks of redeployment of aircraft follow the Government’s recent introduction of the Cape Town Convention Bill, 2018, aimed at streamlining the process of deregistration and recovery of aircraft from defaulting lessees along the lines of the international standards.
15/04/19 Poonam Verma/DNA

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