India’s Airlines Can Shut Down If Govt Doesn’t Help; 30 Lakh Employees Will Be Fired, Rs 88,000 Crore Loss

India's Airlines Can Shut Down If Govt Doesn't Help; 30 Lakh Employees Will Be Fired, Rs 88,000 Crore Loss
India’s Airlines Can Shut Down If Govt Doesn’t Help; 30 Lakh Employees Will Be Fired, Rs 88,000 Crore Loss

India’s aviation market is already in a turmoil with cheap airfare, high fuel prices and taxes. Airlines suffered a total collapse in demand from March 25 to late May as India banned commercial passenger flights as part of its coronavirus lockdown.

Hence, COVID-19 pandemic might be the final straw for some of the country’s airlines!

According to the CAPA Centre for Aviation in Sydney says, Indian carriers need as much as $2.5 billion to keep flying. And that may only last to the end of this year if they’re lucky. 

Read on to find out more…

Airlines Were Battling To Stay Afloat Even Before the Pandemic!

The Indian aviation market was challenging enough before the pandemic as aggressive fare wars and high costs took their toll. 

Governments in Europe, the U.S. and elsewhere have provided $123 billion to support airlines through the COVID-19 crisis.

However, the Government of India is already facing a widening fiscal deficit and hasn’t disbursed funds to individual industries or airlines backed by private businesses and, in some cases, billionaires.

Satyendra Pandey, an independent consultant and former head of strategy at Go Airlines India Ltd said that the country’s airlines need significant investment or one or more will fail. That puts them on track to follow the likes of Flybe Group Plc in the U.K., Virgin Australia Holdings Ltd. and Latam Airlines Group SA in Chile into administration or collapse.

Pandey said, “Airlines with weak balance sheets and inadequate collateral have survived by withholding payments to suppliers for 2 months and counting.”

There were two major collapses in the last decade: Jet Airways India Ltd., the country’s oldest private-sector carrier, and Kingfisher Airlines Ltd., which was owned by Vijay Mallya.

Air India Ltd. has been limping along under a mountain of debt for years searching for a buyer.

Additionally, to Indian states imposing levies of as much as 30% on jet fuel, a weakening rupee adds to the pain. 

The currency has fallen nearly 10% against the dollar over the past year, the weakest in Asia, which hurts Indian airlines as their costs are mostly dollar-denominated.

Pradeep Singh Kharola, the top bureaucrat in India’s aviation ministry said, “We haven’t given a financial bailout package, but that doesn’t mean the government has not been helping the aviation sector.” He also said, “The help can be in various ways.”

Kharola cited an announcement to open up the nation’s airspace — part of a $277 billion government stimulus package for the economy first proposed in 2013. Another decision to reform plane-repair facilities was announced in 2016, and a plan is in the works to privatize more airports.

CAPA’s South Asia Chief Executive Officer Kapil Kaul said on Bloomberg Television that without immediate government support, any cash infusion would need to come from tycoon owners. 

Billionaire Backing Doesn’t Ensure A Safety Net For Airline Companies!

Tata Group, India’s biggest conglomerate, owns majority stakes in Vistara and AirAsia India Pvt Ltd., while Wadia Group- a family business empire -owns GoAir. Billionaires Rahul Bhatia and Rakesh Gangwal own IndiGo.

However, billionaire backing don’t guarantee salvation, as Jet and Kingfisher show.

Two senior bankers who approve loans to large companies, including airlines, said there’s little desire to lend to them without a government backstop, adding that there is now a big gap between carriers’ revenues and expenses. Cash flows have almost dried up, but the airlines still need to pay salaries, maintain airlines and cover outgoings, the bankers said, asking not to be identified as they weren’t authorized to speak publicly on the matter.

SpiceJet Ltd., Air India and Vistara had cash ratios of less than 1, the latest annual figures show, indicating there’s a risk of not fulfilling current liabilities with cash and cash equivalents, according to data compiled by Bloomberg.

Close to 3 million jobs in aviation and related industries could be lost in India this year because of the pandemic, as well as more than $11 billion in revenue, according to the International Air Transport Association. 

Pandemic Making Matters Worse For Airline Companies!

Even after some domestic routes reopened in late May, planes were flying only about half full in the first week back, according to data shared by the country’s aviation regulator. 

The fixed costs of maintaining grounded planes and meeting financial obligations to banks, oil companies, lessors and staff make it even harder for weaker carriers to stay afloat.

There is an added legal risk, too, that could run the airlines dry, with India’s top court hearing a plea to mandate carriers refund passengers whose flights were canceled due to the lockdown. That figure that could top $500 million, according to CAPA.

Vistara, a joint venture between Tata Group and Singapore Airlines Ltd., said it is working to lower or defer operating expenditure and avoiding discretionary expenses. It also reduced staff costs to save jobs. 

SpiceJet said it is confident of emerging stronger after the crisis and has adequate cash flow. The listed carrier, whose market value has more than halved this year, hasn’t cut jobs.

Also at stake are orders with Boeing Co. and Airbus SE. IndiGo, operated by InterGlobe Aviation Ltd., is the world’s biggest customer for Airbus’s best-selling A320neo-family of jets, while GoAir also has ordered 144 of them. 

SpiceJet is one of the biggest buyers of Boeing’s now-grounded 737 Max jets, with as many as 205 on order.

“The growth of airline capacity in India far outstripped demand at economic prices, placing the viability of fleet plans and entire carriers in doubt,” said Robert Mann, New York-based head of aviation consultancy R.W. Mann & Co. “Covid will accelerate the reduction of capacity, in a number of cases by extinguishing airlines.”

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