Barring IndiGo, all the companies are running at a loss. Most have high debts on their balance sheets and at least one of the airlines is nearly bankrupt.
The aviation sector is in a mess and the airlines are at fault.
Barring IndiGo, all the companies are running at a loss. Most have high debts on their balance sheets and at least one of the airlines is nearly bankrupt.
Kapil Kaul of the Centre for Asia Pacific Aviation (Capa) said the airlines were “too aggressive”, trying to double their capacity between 2004 and 2008. Also, none of the companies planned their business rationally, he said.
“Airlines needed 3-3.5 aircraft during that period,” Kaul said. “But they added 6-6.5. Several airlines ordered hundreds of aircraft and they are in the pipeline for delivery. But there is no clear funding plan.” Kaul said the airlines refuse to accept that the aviation infrastructure in the country is weak. “They do not have any business plan that could cushion the effect of fuel price hikes.”
Though most airlines have rationalised capacity, they continue to lose money with every flight. Capa estimates say the industry could add more than $2.5 billion in losses to the accumulated loss of $6 billion. If Air India goes ahead with its plan to buy 27 Boeing 787 aircraft, the losses this fiscal could go up to $4-5 billion. At present, the industry is saddled with a debt of $16 billion; foreign exchange fluctuations keep the figure changing.
Airlines have blamed the “irrational pricing by Air India” for their falling revenues. The first half of this fiscal has been bad for all airlines. “But the second half should be better,” SpiceJet CEO Neil Mills said. Prices have been raised and traffic is expected to improve, he said.
Dismissing Capa allegation that airlines have added more aircraft without evaluating viability, Mills said the industry needed at least two to three years to build their capacity. “We have to predict market growth in advance.”
Having said that airlines are to blame for the current mess does not mean that the government, especially the civil aviation ministry, gets a clean chit. “The government allowed massive expansion of airlines without checking their balance sheets,” an industry expert said. “This compounded the problems in the aviation sector.”
Recently, an airline that had lost its operating permit because of mounting dues has been given fresh permission to fly its aircraft.
The airline still owes almost Rs500 crore to oil companies and insurers.
In a belated move, the Directorate General of Civil Aviation (DGCA) has started monitoring the finances of various airlines to see to it that safety standards are not compromised. The DGCA is responsible for implementing, controlling, and supervising airworthiness standards, safety operations, and crew training. Director general EK Bharat Bhushan said airlines would not be allowed to add aircraft if they are found cutting corners on maintenance.
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