The thumping majority of Prime Minister Narendra Modi-led Bharatiya Janata Party in the general elections has come at a time when the Indian aviation sector is going through a down cycle. The air passenger traffic numbers registered de-growth on a month-on-month basis in April, a trend that was last witnessed in June 2013. The passenger traffic registered a drop of 4.5 per cent in April as compared to a month ago. The biggest reason for the slowdown is being attributed to the recent grounding of Jet Airways due to its liquidity issues. The other reasons include a rise in average airfares which has impacted the demand and the grounding of some 17 planes of the national carrier Air India. But the NDA government has an unfinished agenda for the aviation sector that would require its immediate attention.
First and foremost, the government needs to revive its earlier plan to privatise Air India. The NDA government's recent decisions seem to suggest that divestment is likely on the cards but when and how it's going to happen depends on the priority list of the next government. The kind of majority received by NDA will give it unprecedented power to pave the way for the stake sale.
Last year, the attempt to sell-off AI's 76 per cent equity couldn't be achieved because the way the deal was packaged. The conditions that the new buyer would have to take over the debt of about Rs 54,000 crore and that it cannot fire AI employees for at least a year proved to be a dampener. No one showed interest, and the deal has to be shelved. The government has been recently trying to address some of these issues. For instance, a new special purpose vehicle (SPV) has been created - Air India Asset Holding Ltd (AIAHL) - to transfer part of the debt (Rs 29,464 crore) as well as non-core assets and other non-operational assets of AI. This will make AI attractive for the new buyer.
The expectations of the new government also include a reduction in tax rates - on aviation turbine fuel (ATF) and other items. The aviation sector has seen several airlines going belly up in the past few years; the most recent example is Jet Airways which couldn't withstand the adverse market conditions. The aviation experts blame the exorbitant tax rates for the death of the airlines. In India, high tax structure on aviation fuel makes it one of the costliest items for airlines - about 35-40 per cent in India as compared to 20-25 per cent globally. The wafer-thin margins - 2 to 5 per cent - of the airlines make them vulnerable in a down market, and some relief can come from reducing the tax rates or bring the ATF under GST regime, a long-pending demand of the sector.
23/05/19 Manu Kaushik/Business Today
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First and foremost, the government needs to revive its earlier plan to privatise Air India. The NDA government's recent decisions seem to suggest that divestment is likely on the cards but when and how it's going to happen depends on the priority list of the next government. The kind of majority received by NDA will give it unprecedented power to pave the way for the stake sale.
Last year, the attempt to sell-off AI's 76 per cent equity couldn't be achieved because the way the deal was packaged. The conditions that the new buyer would have to take over the debt of about Rs 54,000 crore and that it cannot fire AI employees for at least a year proved to be a dampener. No one showed interest, and the deal has to be shelved. The government has been recently trying to address some of these issues. For instance, a new special purpose vehicle (SPV) has been created - Air India Asset Holding Ltd (AIAHL) - to transfer part of the debt (Rs 29,464 crore) as well as non-core assets and other non-operational assets of AI. This will make AI attractive for the new buyer.
The expectations of the new government also include a reduction in tax rates - on aviation turbine fuel (ATF) and other items. The aviation sector has seen several airlines going belly up in the past few years; the most recent example is Jet Airways which couldn't withstand the adverse market conditions. The aviation experts blame the exorbitant tax rates for the death of the airlines. In India, high tax structure on aviation fuel makes it one of the costliest items for airlines - about 35-40 per cent in India as compared to 20-25 per cent globally. The wafer-thin margins - 2 to 5 per cent - of the airlines make them vulnerable in a down market, and some relief can come from reducing the tax rates or bring the ATF under GST regime, a long-pending demand of the sector.
23/05/19 Manu Kaushik/Business Today
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