The government is likely to tell the cashstrapped Air India to prune its order for 111 planes that would cost the exchequer about Rs 44,000 crore. This order was placed three years ago when the aviation industry in India was growing at nearly 30% and the economy booming.
But, now, in this slowdown, almost all airlines are struggling to remain afloat and AI is seeking a bailout from the government to survive. Nearly 45 of the ordered planes have already joined the Maharaja’s fleet.
Air India today requested its top management and senior officials to voluntarily forego their salary and productivity-linked incentives for July to help the cash-strapped and crisis-ridden airline.
Air India CMD Arvind Jadhav requested all executives in the level of general managers and above to voluntarily forego salaries and incentives for July as a gesture to ease the liquidity crunch faced by the airline, an Air India spokesperson told PTI.
National carrier Air India is likely to receive an equity infusion plus soft loans amounting to around Rs 4,000-5,000 crore soon, a source said on Tuesday.
“The Government has, in principle, accepted that Air India requires equity infusion. A decision to this effect will be taken in due course. These are all matters which will be reflected in the coming budget irrespective of the (party/coalition) in Government,” the source said.
National carrier Air India (AI) is at an advanced stage of negotiation with three public sector banks to raise Rs 5,000 crore, or nearly $1 billion, for funding its purchase of seven Boeing aircraft and spares.
According to an official familiar with the talks, AI is close to securing a loan from a consortium led by IDBI Bank, Punjab National Bank (PNB) and Canara Bank at lower than prevailing market rates for a term of 11 years. Being the lead arranger of the loan, IDBI Bank is trying to rope in more lenders to the syndicate, the official said. He added that the deal may be finalised by the month-end and the loan was likely to be disbursed next fiscal (FY10). When contacted, an AI spokesperson said in a text message that the deal was still at the negotiation stage and the company would, therefore, not be in a position to comment on it. Earlier, a similar deal between the carrier and a consortium of banks led by Barclays had to be aborted as the latter could not raise the total funding requirement.
As the rupee hit a record low of Rs 51.92 per dollar on Monday, domestic airlines are likely to revise their breakeven targets. As much as 30% of an airline’s operational expenses, excluding the cost of jet fuel, are denominated in dollars.
With the dollar appreciating against the rupee, domestic carriers will have to cough up a lot more and the operating costs will shoot up. Airlines such as Jet Airways, Kingfisher Airlines, SpiceJet and Air India make substantial payments in dollars towards the rentals of leased aircraft, maintenance, spare parts, foreign crew and pilots. For the aviation industry, Citigroup expects the rupee to touch 54 by end-March.
Jet Airways is to withdraw the daily Amritsar-London flight, push back the launch of its flights to Saudi Arabia and also lease out some of the aircraft in an attempt to tide over the current slowdown in the industry.
Sources told Business Line that though the decision of flight cut back has been communicated to the staff no date has yet been fixed for withdrawing the Amritsar flight. The airline is also evaluating its entire route network to see whether some domestic flights should also be curtailed.
The Amritsar-London service is the second international flight that the airline will be suspending. It has already announced that it will stop operating the Mumbai-Shanghai-San Francisco flight from January 13 next year, exactly eight months after it was launched.
Low-cost carrier SpiceJet will receive about USD 65 mn within a week as the second tranche of investment by US private equity firm WL Ross and Co and by Goldman Sachs.
Wilbur Ross had earlier agreed to invest USD 80 mn in the Delhi-based carrier by buying out its foreign currency convertible bonds from Goldman Sachs Group Inc of the US and Istithmar PJSC, a UAE-based investment house. He also managed to get Goldman to invest USD 20 mn in SpiceJet.
Airline sector has moved into negative growth and urgent reforms are needed if it wants to survive a “perfect storm” hitting the industry, an association said Wednesday.
Growth has slowed from 33 per cent in 2007 to 7.5 per cent for the first six months of this year, Giovanni Bisignani, director general and CEO of the International Air Transport Association (IATA), told business leaders here.
“The global crisis resulting from high oil prices and declining traffic is hitting India hard,” Bisignani said, adding the last two months “have been negative.”
“Indian carriers could post 1.5 bn dollars in losses in 2008, the largest outside the US. Urgent action is needed to help Indian carriers weather the perfect storm of high costs and falling demand,” he said.
The Naresh Goyal-promoted Jet Airways has set ambitious goals of achieving a turnover of $4 bn (over Rs 18,000 crore) by the end of the current fiscal and breakeven in 2010.
Last year, it recorded a turnover of Rs 10,000 crore while the combined loss of Jet and JetLite stood at $152 mn (nearly Rs 690 crore) for the year ended March 31.
To achieve these goals, the country’s largest private sector carrier is targeting big revenue from overseas operations. It is also eyeing spurt in corporate traffic to boost its load factor in the next two quarters. To prop up the bottom line, it is working on a plan to integrate its low-cost carrier JetLite with itself.
“The integration is a part of the strategy to enable Jet to register a turnover of $4 bn by end of this fiscal and to be profitable in 2010,” Jet Airways senior general manager KG Vishwanath said.
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In a bid to check mounting losses, Air India has undertaken a major route rationalisation programme that will see the airline withdrawing flights to Jakarta and Kuala Lumpur and restructuring operations to New York, Toronto, Bangkok and Dhaka.
Forced by high losses due to rising fuel prices and low yields, Air India is adopting business strategies to face not only global competition but also from private Indian competitor Jet Airways.
Due to the unprecedented rise in jet fuel prices, Air India is expected to suffer a net loss of about Rs 2,000 crore in 2007-08 as per revised estimates, official sources said, adding that there would be no respite in 2008-09 which would be another difficult year for the national carrier.
Kingfisher Airlines, owned by liquor baron Vijay Mallya, has run up a debt of Rs 4,000 crore. The airline, which is merging with Deccan Aviation, is understood to have a top line of around Rs 3,000 crore and is expected to make losses of Rs 900 crore on a yearly basis. This is in addition to the losses of around Rs 650 crore suffered by Deccan Aviation.
Sources in Mallya’s UB Group confirmed the debt levels but no official statement was available. Kingfisher, which is gearing up to fly on international routes, is burdened with such a huge amount of debt as the company, like its peers, is struggling to cope with the rising prices of Aviation Turbine Fuel (ATF).
Recently, Kingfisher took charge of a new Airbus aircraft (A330-200), which is expected to be used on international routes connecting Bangalore to London and San Francisco.
“As of today, we have raised a total debt of Rs 4,000 crore for Kingfisher. We had chalked out a $250-million fundraising plan through the equity route when we took over Deccan Aviation. However, due to adverse market conditions, the valuations were down and we were forced to defer the plan resort to further debt,” a senior finance official of the UB Group said.
Kingfisher Airlines is close to sealing a share-swap deal with Delhi-based, low-cost carrier SpiceJet, sources close to the development said.
The share swap is expected to be in the ratio of 1: 3, where SpiceJet shareholders will get one share of the merged entity for every three SpiceJet shares owned by them.
The deal, if it is finally clinched, will give Kingfisher promoter Vijay Mallya access to a formidable route network, making it the largest aviation player in the country with nearly 40 per cent market share.
Mallya, who is currently in Europe, said he will comment on the matter tomorrow.
The sources said Kingfisher will fly its recently acquired Simplify Deccan on regional routes and SpiceJet on the metro route as a low-cost airline. The deal also makes sense as Spicejet’s Boeing fleet will make it easier for Mallya to fly to the US.
There’s turbulence in the air. Two of India’s largest airlines, Air India and Jet Airways, have sounded caution on their fiscal health due to mounting operational costs.
A daily operational loss of $2 million (Rs 8.6 crore) has in fact forced Jet Airways to put its employees on alert.
Jet’s senior general manager (MIS & investor relations), KG Vishwanath, has shot off a letter to its senior executives on the current state of affairs, “The current situation is very grave in terms of the magnitude of losses that we have been incurring. We are very concerned, so is the chairman (Naresh Goyal). Our current losses are $2 million a day (including JetLite). The current run rate of Jet Airways’ domestic losses is $0.5 million (Rs 2.15 crore) and of JetLite is another $0.5 million. Our international business is losing over $1 million (Rs 4.30 crore) a day.”
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Jet Airways may have unveiled a $55 million fourth quarter loss, but much worse is set to come, says the Centre for Asia Pacific Aviation (CAPA). It says that the recent ‘consolidation’ efforts in India have had little impact on industry capacity levels, and that only the high price of oil can force India’s airlines to trim their schedules.
CAPA says that to climb out of the present financial hole, capacity levels must fall, but that is only one part of a complex story. Fares too must increase, and/or the state governments deliver on fuel taxation relief.
Indian airlines today filled aviation turbine fuel (ATF) into the tanks of their aircraft at Rs 68,000 a kilolitre. Around the same time, ATF sold at $1,037.8 (Rs 41,500) a kilolitre at the Singapore airport — full 39 per cent below Indian prices.
The bottom line is clear: Higher ATF prices are largely responsible for the red ink on the books of Indian airlines. While Civil Aviation Minister Praful Patel reckons the industry will end the current financial year with losses of Rs 8,000 crore, up from Rs 4,000 crore in 2007-08, aviation consultancy Centre for Asia Pacific Aviation estimates the losses could be still higher at Rs 10,000 crore.
If the oil marketing companies price ATF at the current global prices, the airlines will be able to substantially pare their annual losses. Here’s how: A saving of Rs 26,500 per kilolitre on annual consumption of 2.5 million kilolitres results in savings of Rs 6,625 crore.
“A reduction in ATF price by Rs 20,000 a kilolitre (from Rs 68,000 today) could help the airline save Rs 400 crore in its annual fuel bill, said SpiceJet CFO Partha Sarathi Basu. Full parity with international prices will help the company, which has an 11 per cent share of the market, do still better.
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Cites high valuations as reason for exit.
Jet Airways has decided to pull out of negotiations to buy a strategic stake in Delhi-based low-cost carrier SpiceJet from its key shareholders owing to differences over valuation.
SpiceJet has a market capitalisation of around Rs 750 crore. But according to sources in Jet Airways, the key shareholders have valued the company at Rs 1,200 crore to Rs 1,320 crore ($300 million to $330 million) and are not ready to sell it below this price.
“In the current market situation it is not possible to go ahead with the deal,” said a Jet Airways source.
SpiceJet is India’s second-largest low-cost carrier (Air Deccan is the largest) with a market share of over 10 per cent.
SpiceJet CEO Siddhant Sharma, however, said, “We are not in talks with anyone currently and there is no deal that is on.” But a SpiceJet shareholder confirmed that talks have been going on. “Talks are on with Jet Airways and Kingfisher Airlines but they are stuck on valuation.
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Jet Airways, India’s largest domestic carrier, and the country’s other airlines may lose up to $1.5 billion this year, more than double a year earlier, on higher jet fuel prices, an industry consultant said. Airlines will cut routes and delay introducing at least 30 planes in the year that began on April 1, Kapil Kaul, CEO of the local unit of the Centre for Asia Pacific Aviation said in an interview on Tuesday. That compares with a combined loss of at least $700 million last fiscal year, he said.
A 53% surge in domestic fuel prices this year inflates the biggest cost for Indian airlines and masks a boom in passenger traffic. Carriers globally may bleed $6.1 billion, the most since 2003, on record jet-fuel charges, according to the International Air Transport Association.
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The Indian aviation industry is likely to suffer losses to the tune of more than USD 2 billion in 2008-09, a top aviation industry consultant said.
"The Indian airline industry has already witnessed a loss of more than USD 1-billion in 2007-08, and in the current financial year, the losses could cross USD 2-billion," Centre for Asia Pacific Aviation (CAPA)’s CEO (Indian sub-continent and Middle East) Kapil Kaul said on Wednesday.
The numbers are conservative and the three consolidated groups, national carrier — Air India, Jet Airways and Jet Lite and Kingfisher Airlines and Deccan — might post bigger losses than expected, Kaul said.
Indian carriers are expected to make a collective loss of Rs10,000 crore this year selling below cost, Jet Airways chief Naresh Goyal said. He also sought an end to "irrational and crazy" pricing of tickets, meant to undercut each other.
”It is not just the high fuel cost. All of us (all domestic airlines) have been doing irrational and crazy pricing, selling tickets below costs. There is also no regulator in place. Otherwise this would not have happened," he said.
Goyal, who was re-elected to the board of the International Air Transport Association, said airline losses in India would double this year as carriers continued to fight for enhancing their market share.
He projected airlines in India would suffer a combined loss of $2 billion in the ongoing financial year, up from an estimated $1billion in 2007-08.
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Air India, the new entity created by the merger of Air India and Indian, expects to post a loss of more than Rs 2,000 crore for the financial year 2008, according to highly placed sources.
The rising cost of aviation turbine fuel (ATF), the increase in wages and aircraft leasing costs as also decline in yields due to increased competition on both the international and domestic sectors are among the major reasons being cited for the increase in losses being reported by the State-owned airline.
The airline was also affected by higher depreciation of its assets.
