Saturday, December 26, 2020

Covid-19 had massive impact on Indian aviation sector in 2020

The Covid-19 pandemic had a massive impact on the Indian aviation sector in 2020 and major airlines facing losses and challenging times laid off employees, sent them on leave without pay, or cut their salaries.

The government also had to extend the deadline for submitting bids for Air India five times during the year. When the pandemic started spreading across the country, all scheduled international flights and domestic passenger flights were suspended from March 23 and March 25, respectively. Scheduled domestic flights were restarted in a limited manner from May 25. 

The effect of this disruption can be gauged by the loss figures of India's two largest airlines. IndiGo incurred net losses of Rs 2,884 crore and Rs 1,194 crore in Q1 and Q2 of this fiscal respectively. SpiceJet posted net losses of Rs 600 crore and Rs 112 crore in Q1 and Q2, respectively. 

The government, meanwhile, permitted special international passenger flights under Vande Bharat Mission since May and air bubble arrangements were formed with around 24 countries since July. However, scheduled international flights remain suspended in India.

"The revival of overseas travel is expected to be slower and more challenging than domestic. This will hurt Air India in particular as around 60 per cent of its revenue was earlier generated from international operations," said aviation consultancy firm CAPA in October. It estimated that just 50-60 million passengers -- 40-50 million domestic and less than 10 million international -- would travel in 2020-21.

In 2019-20, approximately 205 million air passengers -- 140 million domestic and 65 million international -- travelled in India.

CAPA India projected in October that the Indian aviation industry will lose a combined USD 6-6.5 billion in FY21, of which airlines will account for USD 4-4.5 billion. As a result, the government's plan to sell Air India has been hit.

After its unsuccessful attempt to sell the national carrier in 2018, the government in January restarted the divestment process but the pandemic forced it to extend the date for submission of expression of interest (EOI) five times.

The last date of EOI submission was December 14. The government has received multiple EOIs and it will announce the name of qualified bidders by January 5.

In order to make debt-laden Air India more attractive, the government changed the bidding parameter in October - bidders will now quote enterprise value instead of equity value. This means that the bidder will be able to quote how much cash it would give and how much debt of the airline it would be able to carry. However, the government made it clear that minimum 15 per cent of the bid amount has to be in cash while the remaining would be the debt component.

Air India's debt was Rs 58,255 crore as on March 31, 2019. Later in 2019, Rs 29,464 crore of this debt was transferred from Air India to a government-owned special purpose vehicle called Air India Assets Holding Company Limited (AIAHL).

While Air India was unable to get a private owner in 2020, bankrupt airline Jet Airways was able to find one.

A consortium of UAE-based businessman Murari Lal Jalan and London's Kalrock Capital won the bid on October 17 to revive Jet Airways. It expects to start operating the airline by the summer of 2021.

Slots -- which is the time zone at which a flight can land at the airport -- as well as bilateral traffic rights -- the number of flights an airline can fly to another country's city -- are precious commodities in the aviation sector.

26/12/20 PTI/Deccan Herald

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