Tuesday, May 26, 2020

Fear of airline bankruptcies triggered knee-jerk opening; but states not playing ball

Precarious and worsening financials of some of India's biggest airlines, including the state-owned Air India's - may have been a key reason behind the Centre's sudden decision to start flights even before working out crucial details with state governments.

With states refusing to play ball, some due to political rivalry while others for fear of spreading coronavirus, it's the unsuspecting flyer who is bearing the brunt of the Centre-state disharmony.

Keeping the passengers' issue aside for a moment, the question that arises is: why did Centre restart commercial flights without consulting state governments? Why was there a rush to re-start flight operations without tying up the loose ends? An aviation analyst points out the Union Civil Aviation Ministry was perhaps anticipating bankruptcies in the sector, particularly for some carriers, if the airlines stayed grounded for a few more weeks.

Airlines like SpiceJet and GoAir are literally on a wing and a prayer. SpiceJet, for instance, had negative net worth of Rs 773.4 crore in December 2019. As per Mumbai-based Centrum Broking, SpiceJet is expected to report net loss of Rs 1,178 crore in FY20 which is more than the annual net profits that the airline has ever generated since it was acquired by Ajay Singh in 2015. The no-frills airline was incurring some of the costs - employee expenses and depreciation - even when it was grounded for two months during the lockdown. As a result, it reportedly paid only part salaries for most employees while sending others on furloughs to bring down the fixed costs.
Domestic carriers are losing Rs 75-90 crore per day, and their debt level is expected to rise to Rs 46,500 crore in FY22, according to rating agency ICRA. Airlines have a long list of creditors (lessors, airports, oil companies) who are waiting to get paid. They also have Rs 3,700 crore of pending refunds to the passengers. Some airlines have stopped paying staff salaries from April.

Ironically, just two days before formally giving a go-ahead signal, Union Civil Aviation Minister Hardeep Singh Puri had tweeted that it's not up to the civil aviation ministry alone to decide on resuming domestic flights. "In the spirit of cooperative federalism, the government of states where these flights will take off and land should be ready to allow civil aviation operations," Puri had tweeted on May 19.

It seems that the minister was aware of a probable resentment from some state governments for these flights. By putting a start date, the minister has perhaps worked backwards in convincing 'opposing states'. His strategy of doing a formal launch (on May 21) paid off because otherwise it would have been challenging for the central government to bring these states on the same page. But why did states agree? In a pandemic like this, no state government can afford to abandon its natives when a majority of other states would not be doing so.
26/05/20  Manu Kaushik/Business Today

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