Air India cancels 18 more flights to Mideast even as minister assures normalcy

Barely a day after Civil Aviation Minister Ajith Singh promised to restore the cancelled Air India and Air India Express flights from Kerala, Air India announced cancellation of 18 flights to Middle East from Trivandrum International Airport.

The airline has cancelled nine flights from Trivandrum to Dubai, six to Sharjah and three to Muscat till October 12, according to Air India Trivandrum station manager SSG Jacob.

He said that the passengers who booked tickets in these flights were being informed through phone.

The official said that the airline had also made alternate arrangements to carry the passengers to their respective destinations.

Majority of the passengers will be accommodated in the flights on the next day.

Jacob said the cancelled flights will be restored after the completion of the first phase of Haj operations.  The airline is preparing a new schedule in this regard.

It will be operating flights from October 12 according to the new schedule.The cancellations are due to diversion of flights for Haj operations. Jacob said two flights operated from Trivandrum to Gulf destinations were diverted to Lucknow for carrying the Haj pilgrims. Ajith Singh had promised to restore the cancelled flights and not to cancel any further flights in the Kerala-Gulf sector following huge protests from various quarters over the abrupt cancellation of the Trivandrum-Sharjah flight on Saturday.

He had given an assurance in this regard to member of parliament from Trivandrum Shashi Tharoor, who had pointed out that the frequent cancellation of flights were causing hardships to hundreds of passengers.

Thousands of passengers were left in the lurch as the airline cancelled as many as 168 flights from the three airports in the state to various countries in the Gulf in the last one month.

India Lifts Block On Foreign Airline Investment

The Indian government has finally given in to demands to ease restrictions on foreign direct investment (FDI) in the country’s struggling airlines. The unexpected September 14 announcement clears the way for foreign carriers to take up to a 49-percent stake in Indian operators, with the exception of government-owned Air India. However, industry and financial analysts indicated to AIN that they view the policy U-turn cautiously, warning that it won’t necessarily mean salvation for cash-strapped carriers.

“We expect FDI would be long drawn process and valuation would be concern for most of Indian promoters [airliner owners] due to poor profitability history and regulatory nature of business,” commented Antique Stock Broking analyst Vikram Suryavanshi. Foreign airlines may not invest automatically and will need to get clearance from the civil aviation ministry and Foreign Investment Promotion Board. Also, according to India’s 1937 aviation rules, three quarters of airline board members and the chairman will have to be Indian citizens.

According to Jasdeep Walia, analyst at Kotak Institutional Equities, “Chennai-based SpiceJet appears the most likely candidate to attract foreign investment. In our view, SpiceJet would be the biggest beneficiary.” Jet Airways won’t gain as it is already in violation of FDI norms, as the promoter [with an 80-percent stake] is classified as an overseas corporate body [and hence comes under FDI]. In our view, Kingfisher [because of large liabilities] and Indigo [because foreign ownership reportedly has reached 48 percent] also won’t gain. Also privately owned GoAir might stand as a good FDI target.

India-born Tony Fernandes, founder of Asia’s largest budget carrier, AirAsia, has made clear his desire to invest in India. In response to the FDI announcement, he commented via Twitter: “Fantastic news that India has opened up investment to foreign airlines. With Malaysia opening up, this is fantastic news for airlines like AirAsia.”

“While drivers for growth are already present in India, the financials of airlines are in a mess and there will be a lot of work to do, including adoption of best practices,” concluded Rattan Srivastava, a director with consultancy Frost & Sullivan.

Can the Dreamliner become AI's magic weapon?

On 12th September, Boeing's much-delayed 787 Dreamliner touched down at Delhi airport amid a water cannon salute to join Air India's ailing fleet.

An elated Civil Aviation Minister Ajit Singh, who has been upbeat that the 27 Dreamliners, all of which are expected to be delivered by 2014, would be game changers, said, "We hope that the Dreamliner will take Air India back to its good old Maharaja days."

For Boeing, Air India (AI) is just one among the 57 customers which have ordered the hi-tech aircraft. For AI, however, it represents its one shot at flying clear of the financial mess that it has found itself mired in over the years.

FDI in Aviation: Structural challenges to limit investments

India Ratings says that the government of India’s recent decision to allow the foreign direct investment (FDI) limit in aviation up to 49% is expected to improve the capital structure of airlines with viable business models. The possible equity infusion would not only deleverage the sector but also provide funds for long-term growth. However, structural challenges may limit the attractiveness for such foreign investors at least in the medium term. 

In addition to equity infusion, stronger strategic and operational ties with foreign partners with stronger credit profile, may potentially improve the credit profile of domestic airlines. This may have a beneficial impact on the funding cost of this sector known for its high capital intensity.

While the long-term growth potential of the Indian market may draw interest from International Airlines, the continuing structural weakness and regulatory risks may increase the perceived risk in such tie-ups. Other key considerations of prospective JV partners would be the lack of majority equity control in addition to specific board constitution.

The key structural weakness of the Indian airlines industry is its higher operating costs, driven primarily by a higher tax on aviation fuel, compared with that of the other emerging markets. The cost of infrastructure development is also higher for the Indian industry which usually translates into higher airport usage charges. This is in addition to the currently limited airport infrastructure which acts as a bottleneck to significantly improve scheduling efficiency - which is a direct drag on operating cost.

FDI in aviation: Etihad to invest in Jet Airways?

With the government having allowed foreign carriers to buy up to 49 percent stake in domestic airlines, India’s leading private airline, Jet Airways could be the first to receive investment from Etihad Airways.

According to reports, both the airlines have held several rounds of discussions, fuelling speculation of a possible alliance.

Last week, the Cabinet Committee on Economic Affairs approved the FDI in aviation proposal, a permit that would allow foreign airlines to buy up to 49 percent in domestic carriers and a move which would pave way for much-needed equity infusion into India's airlines passing through acute turbulence as most of them are in dire need of funds for operations.

North Eastern Council to improve air connectivity in northeast

Since the 10th Plan period, the North Eastern Council (NEC) has taken an initiative to improve air connectivity in the northeastern region.

To understand the issues and problems of improvement of air connectivity in the region, NEC has initiated a study at an estimated cost of Rs 1.87 crore through the Airports Authority of India (AAI) under the guidance of the ministry of civil aviation and the report is expected in the next six months.

The report will address the issue of linking of the remote areas through helicopters and also major townships by small aircrafts.

Can Jet, already 80% owned from Isle of Man, seek FDI?

Is Jet Airways really qualified to invite equity participation from Etihad, or any other foreign carrier, for that matter, given its current shareholding structure?

The BS story clarifies that though Goyal himself is a non-resident Indian (NRI), Jet is an Indian company and is, therefore, entitled to seek a strategic foreign partner. It is widely known that Goyal holds an overwhelming 80 percent equity in the airline through a company called Tail Winds, which is registered in the Isle of Man.

So, in effect, Jet is already 80 percent owned through a vehicle abroad. Till the new norms removing the cap on foreign companies buying into Indian carriers get notified, Jet continues to operate in violation of the current FDI guidelines which cap investment by foreign institutions (excluding airlines) at 49 percent.

Air Asia may launch new Indian carrier

Malaysia-based Air Asia is considering a joint venture with an Indian partner.

Malaysian low cost carrier Air Asia is considering setting up a new carrier in India, rather than investing in an existing Indian airline, according to Asian news sources.

AirAsia may be first to enter India

Asia's largest low-cost carrier (LCC) AirAsia may be among the first global players to invest in India with the government allowing foreign airlines to invest in Indian carriers. It is learnt that instead of investing in an existing carrier, the Malaysian LCC is looking at the possibility of a start-up with a strong Indian partner.

AirAsia currently flies between Kuala Lumpur and five Indian cities — Kochi, Trichy, Chennai, Kolkata and Bangalore. Additionally it also connects Bangkok with Chennai and Kolkata. The LCC had pulled out of Delhi and Mumbai in March due to high airport charges. The Malaysian LCC already has subsidiaries in Thailand, Indonesia, Philippines and Japan. One of its other subsidiaries, AirAsia X, is possibly the only long-haul LCC in the world.

India-registered carriers at present can fly abroad only after completing five years of service and if they have a fleet of over 20 aircraft. So under current rules, a startup launched by a foreign airline will use its domestic flights to act as feeder for flights to their main hub and then offer connectivity to the rest of the world. But the aviation ministry is reviewing the 20-aircraft, five-year rule as no country applies such stringent conditions on its airlines. If that change happens, a new India-registered carrier could also be allowed to fly abroad much faster.

Apart from AirAsia, other global LCCs like Tiger (Singapore), EasyJet (US) and RyanAir (UK) are also learnt to be looking at India. Sources said that foreign airlines eying startups would look for strong local players which, at present, are not in aviation space in India. Among existing carriers, SpiceJet—which has admitted to being in talks with a Gulf carrier—and GoAir could be the first to get funding and technical expertise from foreign airlines.

Whether Kingfisher BSE 3.70 %, with debt over Rs 8,500 crore, gets an investor remains to be seen.

While India's traffic potential is mouth-watering for airlines of our neighboring areas—many of who depend solely on India to fill their wide body aircraft—they say some issues need to be sorted out to attract investment. These are rationalizing aviation turbine fuel price by tackling the twin issues of high sales tax on it and the high price set by oil PSUs.

A combination of these two factors has made ATF in India for domestic flights among the most expensive globally. The other issue is high airport charges in Delhi, which was recently allowed by the government to hike its charges by 346% in one go.

Air India pilots protest over new flight duty timings

Trouble seems to be brewing again in Air India, this time with pilots of erstwhile Indian Airlines unionised under the Indian Commercial Pilots Association (ICPA) issuing a legal notice to the airline CMD Rohit Nandan to protest against recent changes in their flight duty hours through a new flight duty time limitations (FDTLs).

The legal notice argues that the flight duty time limitations of ICPA pilots are fixed under a bilateral agreement between the union and the management and that "all these settlements are within the knowledge of the company and the government (DGCA), and therefore, no unilateral alteration is permissible"

Civil Aviation Minister Ajit Singh earlier this month had asked Air India to implement FDTL of 125 hours per month for pilots (as mandated by sector regulator DGCA), instead of 90 hours a month as per their union agreement, to increase flying-time and in turn utilisation of fleet and manpower. A recent study by the ministry had found that Air India pilots were flying just 6.5 hours a day against the laid down norm of nine hours.

Gulf airlines show lukewarm response to India’s FDI policy

None of the Indian airlines are investment ready at this stage, says analyst

Five days after India opened up its aviation sector for 49 per cent FDI (foreign direct investment), Emirates says it is not looking at acquiring a stake in any of the Indian carriers, while Etihad Airways says it will make such investments only if it’s convinced of strong commercial prospects.

A lot of it has to do with the fact that the Indian aviation sector on the whole has been ailing for a while with the country’s flagship carrier, Air India, waiting to be thrown a lifeline, and carriers such as Kingfisher Airlines barely managing to survive.

Emirates has no plans to acquire a stake in another airline in India or anywhere else. We are busy focusing on the many aspects of our own growth including the launch of flights to five new destinations in as many months.

However, Emirates President, Tim Clark, had said in June that for Emirates it would make sense to invest in an Indian carrier if only Emirates would get a complete management control along with the 49 per cent stake. “I should think all of them [the Indian carriers] will be very happy if Gulf money came in to the tune of 49 per cent. But Emirates is not keen on it — not at the moment. If I was to say, I will come in but these are the rules of the game — 49 per cent and we have complete management control, we decide where, what and when. Have you seen that working in India? You have to have the management control to make it work.

The fact is that none of the Indian airlines are investment ready at this stage. Secondly, as huge as the Indian market is, the rights that the Gulf carriers have may allow them to access most of the big markets directly, making the need for an investment more remote.

Etihad Airways, meanwhile, said while it welcomes the Indian government’s decision to allow foreign investment in Indian carriers, such investments will be made where Etihad Airways believes the “commercial prospects are strong, where there are like-minded business philosophies, and where such commitment will be welcomed”.

Small airlines to get a boost from more FDI in aviation

Regional connectivity is likely to get a boost after the government's nod to foreign airlines to invest in non-scheduled airlines, or carriers that operate without a fixed schedule.

Experts said the decision could open up opportunities for about a dozen small regional players that have sprung up in the domestic aviation sector, even as the bigger airlines have been ailing. Such airlines can harness the seasonality of air traffic to their advantage and do without deploying a dedicated aircraft, they said.

"It will give an airline the flexibility to come in as an operator where it can press aircraft into service when the seasonal traffic for a Dubai shopping festival or any such event is there for the taking," said Amber Dubey, a partner at KPMG.

Who will benefit the most from FDI

The change in FDI policy is unlikely to solve problems of debt-laden Indian carriers and banks because more reforms are needed to rationalise taxes on ATF to make the sector operationally viable. But given the current situation, SpiceJet, or Wadia Group-promoted GoAir from the unlisted space, could be the biggest beneficiary of the new development

SpiceJet can provide an attractive entry point for a foreign airline given its over 18% share of the domestic market as relatively unimpaired balance sheet. After a spell of five consecutive quarterly losses, the carrier posted a net profit Rs 56.15 crore in the first quarter due to significant growth in operational and financial parameters.

Naresh Goyal, a promoter of second largest Indian carrier Jet Airways (a complex network of companies and financial arrangements) -and Rahul Bhatia's InterGlobe Enterprises-owner of IndiGo which already have the US-based Caelum Investments as its 48% shareholders have never been keen on allowing foreign airlines to invest in Indian carriers.

Jet Airways will not gain as it is already in violation of the FDI norms as the promoter (with 80% stake) is classified as an overseas corporate body. Kingfisher because of large liabilities and IndiGo with 48% foreign ownership as per media articles will not gain anything from it.

Views on FDI reform: How could FDI benefit the aviation industry?

The government’s move to allow foreign carriers to invest in cash-strapped domestic airlines is unlikely to usher in benefits unless issues of high-taxes and infrastructure cost are addressed, says global airlines body IATA. The decision, however, is positive and opens up wider opportunities for overseas players.

Allowing foreign direct investment by global airlines by itself is not a panacea. The critical problems of a high cost environment, insufficient infrastructure and crippling taxes must also be addressed within a co-ordinated government-wide policy framework.

Centre for Asia Pacific Aviation said the government should rationalize the very high cost structure for airlines for FDI to become a real success. Aviation turbine fuel price tops the list of areas that need focus.

Some foreign carriers were planning to launch startups here with local partners if FDI is cleared. IndiGo and Jet Airways, that already have substantial foreign ownership, may not benefit immediately from FDI.

SpiceJet in talks with a Gulf airline for investment

SpiceJet has held "preliminary discussions" with a Gulf airline for potential investment in the Indian budget carrier, a news report has said.

"There have been preliminary discussions to check in principle whether there is interest on both sides and the confirmation there would be 'yes there is'," SpiceJet CEO Neil Mills told Arabian Business.

Any such tie-up depends on a policy shift in India's aviation industry, which currently prohibits foreign direct investment (FDI) in the sector.

Mills said as the framework for FDI in Indian aviation is not yet in place, overseas carriers were reluctant to enter more formal negotiations.

"(Talks have) been on a preliminary basis, because they've quite rightly said what's the point in investing money in due diligence if the rule to enable (an investment) doesn't even exist," Mills was quoted as saying.

Mills, however, declined to reveal whether UAE-based Etihad Airways, which owns minority stakes in airberlin and Virgin Australia, and Qatar Airways were among the interested parties.

SpiceJet has a network of 41 destinations across South Asia and the Middle East.

Any future tie-up, Mills said, would provide reciprocal benefits.

"We've got a good network and we're carrying 36,000 people a day (and) about one million people a month now, so we've got good feed and good catchment," he said.

A partnership with an international carrier would give SpiceJet access to economies of scale on procurement contracts and long-haul options for its passengers, he added.

On the possibility of any change in India's aviation policy, Mills said a part of the issue is that the majority of carriers have realised "they cannot use (FDI) anyway".

"Either their debt burden is so large that nobody would want to take a stake in them because you inherit a stake of the debt, and other carriers are already owned up to 49 per cent on an offshore basis anyway," he said.

SpiceJet will begin a daily service to Riyadh from its hub in Delhi by October, he said, adding that the airline is currently not assessing any other Gulf routes.

Don’t look for the gainers

The announcement on aviation gives the go-ahead for foreign airlines to own up to 49 per cent stake in domestic passenger airlines. Expectation of this has sparked off a rally in all listed airline stocks from the distressed Kingfisher Airlines to Jet Airways and Spicejet. But that seems irrational.

If you were a foreign airline company looking to buy into the India story on air travel, where you would choose to deploy your capital today? Would you sink money in order to revive Kingfisher, with its depleted operations, huge debt burden and high cash burn?

Or would you rather bet on the other listed airlines which stand to gain from the forced consolidation in the sector, by way of less capacity, higher airfares and better load factors? That points to Spicejet or Jet Airways as the only likely choices for these foreign investors. Similarly, hopes that global retailers will rush to sew up deals with Pantaloon, Shopper’s Stop or other cash-strapped players owing to liberalised FDI seem misplaced. Reading through the announcement shows that these new foreign players will have to jump through many hoops to get their India investments off the ground.

Civil aviation ministry seeks transparency in ATF pricing

The civil aviation ministry has written to the petroleum and natural gas ministry for transparency in pricing of aviation turbine fuel (ATF) to bring down prices of air tickets and improve connectivity.

"We have written to petroleum ministry for regulating the prices of ATF manufactured by oil PSUs through Petroleum and Natural Gas Regulatory Board, which at present are not transparent at all," Civil Aviation Secretary K N Srivastava told reporters here on Saturday.

The ministry has also urged for open access to oil infrastructure at airports for private and foreign players to store imported ATF which is less expensive than the domestic jet fuel.

Lufthansa not to buy stakes in domestic airlines

Bangalore: German airline Lufthansa has said that it would not pick up equity in any airlines in India even though the Government has opened up the sector for FDI.

Lufthansa’s head of corporate communications for Asia Pacific, Frank Puttmann said, while India continues to be the top market for the airline, there are no plans to pick up equity. “At this moment, our strategy is to build up a strong presence in India. India is the top market for us worldwide. It is a strong message for the market,” he said.

Puttmann said airport companies in India should work along with the airlines because they are partners in their business. Hence, the decision to impose heavy airport charges would be counterproductive.

FDI in Civil Aviation Sector a win win situation

Reacting to government’s decision to allow foreign airlines to pick up stake in domestic carriers, Mr. R V Kanoria, President, FICCI said “this long overdue measure has happened at a time when the domestic aviation industry is going through rough weather and is starved of funds and technology for fleet modernization and improvement of operational efficiency.”

“Allowing foreign players in the airline sector is expected to lead to a win win situation. It will not just help the beleaguered airlines but will be good for the Indian consumer as well. The possibility of new joint ventures entering the market with the help of foreign strategic partners will result in greater competition and more choices for the consumer. Improved customer service standards and reduced tariffs will follow as has been the experience in sectors such as telecom and manufacturing”, he added.

Jet fuel price hiked by 2%

Days after diesel rates were hiked by a steep Rs 5.63 per litre, Jet Fuel price was on Saturday raised by about 2 percent to Rs 73,711 per kilolitre.

Today's increase in aviation turbine fuel (ATF), or jet fuel, price comes on the back of the biggest ever hike in rates effected from 1st of this month.

ATF at T3 terminal in Delhi has been hiked by Rs 1,429 per kilolitre (kl), or 1.97 percent, to Rs 73,711 per kl with effect from midnight tonight, according to Indian Oil Corp (IOC), the nation's largest fuel retailer.

Long awaited FDI in aviation finally got a green signal

The cabinet finally decided to allow upto 49 percent overseas investments in aviation sector, giving wings to cash-strapped Indian carriers.

These measures were pending for a long time and the government has now shown political courage to push things through. The process of clearing all these got delayed and it is just that all are coming together.

"As an immediate impact, business and consumer sentiment will improve, stock market will improve. But I don't think RBI will cut rates after these measures because the impact of these steps on supply side will only be in the medium term.

Views from Sharan Lillaney, Aviation Analyst, Angel Broking, Mumbai

"FDI in aviation has always been approved, this is just an approval for foreign airlines. This was not something out of the extraordinary, so there is no question of it being reversed."

"I don't think there will be a flurry of investments, but airlines in better shape will definitely see interest from foreign airlines, such as SpiceJet, Indigo or Jet."

"There are a lot of people interested."