Indian airlines will stop domestic flights on August 18 in demand of bailout

On July 31, 2009, Indian private airlines announced to suspend domestic operations on August 18 in demand of bailout from the government. If their demands are not met then flights will be suspended for indefinite time period. Private airlines are saying that due to huge losses, they would not able to continue its business. The airlines are not asking for money as bailout but demanding to lower ATF tax on fuel and airport taxes.

In Friday afternoon, Federation of Indian Airlines (FIA), the lobby organization representing Indian private airlines, held a meeting which was attended by Naresh Goyal of Jet Airways, Vijay Mallya of Kingfisher Airlines and other members of FIA. The state-run Air India and Paramount Airways did not participate in the meeting. After finishing the meeting, Anil Baijal, Secretary General, Federation of Indian Airlines, read out a statement which said that the airlines industry incurred losses worth Rs.10,000 crore in FY 2008-2009. ATF sales tax, airport charges, devaluation of the Indian rupee, economic recession and terrorist attacks were some of the major causes behind these losses.

However, Indian aviation Praful Patel said that the government would not support any kind of activities that will create problem for people. Such movement is first in the history of the Indian airlines industry and if it happens 12,000 domestic flights including those of Kingfisher, Kingfisher Red, Jet Airways, Jetlite, IndiGo, Go Air and Spice Jet will not fly on August 18. There will be only 300 operating flights of Air India.

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The Times of India

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Air India defers insurance premium for three months: Not a good move.

Already the Indian aviation industry is under serious financial pressure and the Air France aircraft crash added another problem for the Indian aviation companies; reinsurancing their planes. Before reading this news, I did not know that airlines have to insure their planes and they have to pay a large amount of money for premium. Already the Indian air lines, both private and public, incurred huge losses and facing cash crunch. At such a situation, paying premiums to renew their insurance is really a serious issue.

Vijay Mallya’s Kingfisher Airlines paid more than half billion rupees ($10.5-11 million) in foreign currency to cover its 74 aircrafts against Rs. 380 million in 2008. The company is looking forward to raise money to cover its losses. Kingfisher bought insurance worth $3.09 billion from ICICI Lombard that became effective from June 24, 2009. Indigo Airlines, another domestic airlines, is scheduled to pay its premium within July 31, 2009. Jet Airways cleared its insurance premium at the beginning of the current financial year and it did not have to pay higher insurance premium.

However, Air India, the state-run airlines, deferred the renewal by three months. It is afraid that it would have to pay higher amount of premium and it does not have the capacity to do so. Air India took government bailout money and could not even pay the monthly salaries of its employees. Under government rule, Air India has the capability to defer its renewal by three months.

Related article:

Business Standard

Indianor Aviation Sect: Foreign investment would be allowed

The high flying days of the aviation industry around the world is numbered. First, there was the high price of oil in 2008 followed by the global recession. Finding no other options, Indian government has decided to allow foreign investors to buy up stakes in its domestic airlines; a thing that has never been allowed by the government for decades. On the contrary, Indian domestic could buy 49% stakes in foreign carriers which includes portfolio and direct investments.

Praful Patel, Civil Aviation Minister, told reporters in Mumbai that government is studying a proposal to allow foreign airlines to buy stakes in domestic airlines. It would help to better the conditions of the domestic airlines that are now going through severe financial crisis.

In the pre-recession period, Indian aviation sector, like other industries of the country, was observing a better year-to-year growth but things took an ugly turn when price of oil sky-rocketed in the middle of 2008. Many domestic airlines cut down their flight routes, decreased stuffs and changed business policy of collecting passengers through travel agencies to save money. Now, they are in a deeper crisis. The world wide economic slowdown has changed everything. Indian aviation companies are now finding it difficult to raise money. Analysts forecast that the industry would incur a loss of Rs. 80 billion in the current fiscal year ending in March. Mr. Patel said that, at such critical situation, injecting more cash directly into the industry would not change anything. Government will bring necessary changes in business policies to give the industry some breathing space.

If this law is passed, then foreign aviation companies like Singapore Airlines Ltd., Virgin Atlantic Airways Ltd. and others would be able to invest in the Indian aviation sector.

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(This entry was first published in February 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)

Indian air passengers will pay extra air charges from now on

Saroj Dutta, Executive Director, Jet Airways, India’s second largest international airlines, said that Indian air passengers will have to pay airport charges that has been hiked in recent times. Already Indian aviation sector is facing huge losses and now, Indian people will bear this extra burden. Mr Dutta said that the increase in aeronautical charges will further worsen the situation and it would affect the volume and growth of passengers using Indian airways. Mr. Dutta said that this was not the right time to increase airport charges.

Mr. Dutta also announced to cut Jet Airways’ capacity where it is possible and go for shorter routes instead of longer ones. Already the company laid off 12% of its workforce last year and this time it will be 10%. He also said that the airlines will cut staff salary, freeze on hiring and would not fill out vacancies created by resignations and retirements. The company will make its next step looking at the next major industry trends.

Last year, several Indian private airlines have stopped selling tickets through travel agencies to cut cost and this agitated the travel agencies in the country. The airlines are now laying off people including pilots which also created serious agitation among Indian pilots who do not receive high payments like pilots who are hired from abroad. Moreover, getting pilots license is not so easy in India. Procuring a pilot license costs a hopping Rs. 2 million in India. Many parents borrowed huge money to send their children to these schools. As the private airlines are not buying any new airplanes, the Directorate General of Civil Aviation (DGCA) is not giving license to any other pilots.

Related articles:

Money Control.com

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(This entry was first published in March 2009. Because of a technical problem, the entry had to be deleted and I am reposting again now.)