Fate of India’s Kingfisher airlines

The time when foreign airlines are investing aggressively in Indian aviation sector with the Jet-Etihad deal and the proposed launch of Air Asia India; India’s Kingfisher airline is struggling to get its license back from DGCA.

Even, the ease in FDI limits to 49% has not been favorable for the carrier owing to its current financial position in the market.

The airline which was grounded last October has a very little hope to gain its license back which will be valid till October 2014. The airline seems no hope to revive itself back in the market due to the following reasons:-

·        Aircraft lessors taking back their aircraft after deregistering them

·        Airports Authority of India (AAI) seizing several aircraft of the carrier and not releasing them till the airline clears their dues

·        Unpaid salary to employees

·        Old associates and executives leaving the firm

The airline is said to be currently in a state of huge funding and loyal employees who could help the airline survive again and regain its license.

Budget 2013: What aviation sector demands today?

·        For the aviation industry which is now facing a severe challenge - a long-standing demand has been to include Aviation Turbine Fuel or ATF in the declared goods category.

·        Reduction in airport-related charges to reduce the burden for the airlines.  

·        Allow imports of items related to airfield crash fire tenders and other fire fighting vehicles, runway marking and pavement testing machine, baggage conveyor (handling) system, and airport ground lighting, which are required for the development of airports at a concessional rate of basic custom duty of 5%.

·        Approve support services of airport to be termed under Infrastructure-80IA Act, which would have a positive impact on airlines.

·        New provision for tax incentives for "Maintenance, Repair & Overhaul (MRO) to bring down Airline's O&M costs and could have enhancing impact their earnings.

·        Easing of RBI limits on aviation funding for airport developers, so that the required funding can be raised from a single source/bank instead of the current practice of raising funds from multiple banks. This would go a long way in ensuring faster execution of airport development projects.

·        Setting up of a separate SPV for handling aviation finance at lower interest and longer maturities and also airport operators is allowed to raise funds through Tax-free infrastructure.

·        Introducing many ancillary or support services required which are essential for smooth functioning of airports. These services include fuel facility, parking, cargo etc.

·        Allowing private airport operators to issue tax-free long-term infrastructure bonds to raise funds from the market.

·        Setting up of a dedicated financing company by the government to facilitate lower interest rates and longer maturity of loans. Also, RBI limits on sectoral funding should be eased enough to remove the current requirement for airport developers to raise required funds / debt from multiple banks making process time consuming and cumbersome.

·        One of the main concerns of any airline is running services in remote sectors. The flights run half empty and currently, even on full capacity, the airlines end up losing money. There should be periodically examination of the route economics and to find ways and means to rationalize the routes so as to make the operations more cost effective.

·        Making route dispersal guidelines (to cover airline services in remote areas) mandatory for the airlines.

·        Develop regional airlines and no-frill airports by providing direct subsidies in a transparent manner. The subsidies may also be extended to those airlines which are willing to provide services in remote routes voluntarily.

Finally Air India on a turnaround plan

According to the economic survey - Air India is likely to come out of its precarious financial position this financial year with a positive cash flow, as its performance has improved considerably.

Strategy to cover losses:-

·        Air India had taken several initiatives to cut costs and enhance revenues like route rationalisation, phasing out and grounding of old fleet, freezing of employment in non-operational areas, leveraging assets of the company to increase MRO (maintenance, repair and overhaul) revenue and revenue from the company's real estate properties.

·        As part of its Turnaround Plan, the airline had also initiated measures to operationalise subsidiary companies in ground handling and MRO and transferring manpower and equipment to them to make them independent profit centres.

·        Apart from leasing its headquarters building in Mumbai, cash-strapped Air India has identified some more properties to monetize those in order to raise Rs 5,000 crore as part of its turn around and financial restructuring plan.

·        Air India has identified land at Chennai, Coimbatore and Kolkata, residential plot at DLF Phase-III Gurgaon, a residential apartment in Kolkata and four unoccupied flats in Mumbai.

·        The airline has leased four floors of its headquarters building at Nariman Point on an annual rent of Rs 14.4 crore. Air India is required to monetize its assets in India and abroad to raise Rs 5,000 crore over a period of 10 years, as per the TAP and FRP.Singh also told the House that the national carrier has managed to earn an additional passenger revenue of Rs 680.13 crores and reduced its cash losses by Rs 1,125.50 crores as compared to the corresponding period (between April and December) of the last fiscal.

A new revival plan of “Air Deccan”- An exclusive interview with Captain G.R. Gopinath

An exclusive interview with Capt G.R. Gopinath, founder of India's first low cost airline, Air Deccan for the show Bottomline, airing on Headlines Today. Below are the views:

Q. Captain Gopinath, your supporters say you are a visionary who dreams big, but is often let down by investors, while your critics say you are a failed entrepreneur who comes up with good ideas you cannot sustain. But most people would agree that you never give up. What do you say to that?

A. I think perception is important and the truth is always somewhere in between. This company for example whose hangar you are sitting in was incorporated in 1995. It took me three years to get the licence. I started here with a tent and one helicopter as a small company but today it is the largest general aviation company in India to cater to infrastructure, high net worth individuals, and corporate houses. We also maintain 60 third party aircraft. We have been here for a very long time. I am a dreamer, as you said. But as I dream, I design. It has also sometimes led me to failures. There is also a burning optimism in me.

Q. And you haven't forgiven Vijay Mallya since…

A. Yeah, I haven't forgiven him because he killed my airline and I think he killed himself. Because the writing was on the wall…the future was in low cost. The market cap of Deccan - which is normally the yardstick - before the merger with Kingfisher had reached $1.2 billion. So every investor made mountains of money, so Air Deccan was not a failure from monetary point of view, and neither was it a failure from the point of view of the model because the dream lives on.

Q.Let me quote another Jet Airways employee about you: "He is the person who killed Indian aviation, bringing to India the concept of low cost flying without the backing of infrastructure. His principle of selling well before cost sent the entire industry into the red and the industry has not recovered since".

A. I think it's too elementary to respond to. It's like saying the Maruti 800 is not the right car for this county but the only the Benz is the right car or the Ambassador is the right car. Indigo is there, Spice is there, Go Air is there…even today you can buy a ticket on a Bangalore-Delhi flight, a week in advance, for Rs 5,000 as against Rs 12,000 a decade ago when salaries were one-third and oil prices were one-third of what they are today. And Indigo is in profit. Jet, 70 per cent of the aircraft of Jet are in the low cost model. All over the world it is low cost which is (flourishing).

Q. What is it that you are going to do that could potentially destabilize the sector…?

A. My idea is not to destabilize but to create a new market. Take TV channels. Imagine if someone wants to start a new channel and the existing channels go and say to the government: 'Look there are already 400 channels, we are already losing money, don't give one more licence because he is going to destabilize TV channels.' What should the government do? Should it protect the existing channels or should it protect the consumer? I am only going to do what any sane businessman does. I made mistakes last time…my mistake was selling under pressure from my investors. I was new. I was not honed in the skills of negotiating with hawkish investors just out to make a quick buck. But it is a lesson in life I have no regrets.

Q. You have a regional airline licence with you…

A. I have a regional airline licence but my investors are saying that if I have a regional airline there will be a conflict of interest. We will have one airline in which we will have the regional as well as the one-equity structure where one will feed the other.

Q. So what you are saying is another national airline like Air Deccan, the revival of Air Deccan…

A. (Laughs) Revival of the dream. As you know every investor made money with me. I don't think they have made money with any other airline. No investor has made any money with any other airline except Air Deccan. So people are ready to invest because I took care of investors' interests. The airline was clean, transparent and it was a national, people's airline.

Q. I can almost see the tag line for the new airline: the people's airline…as opposed to the 'simply fly'.

A. You can see that the most profitable airlines of the world are low cost airlines. Look at Ryan airlines, with 290 aircrafts, 75 million passengers…with lowest fares in the world and the highest profits.

Q. How big will this be when you launch in January or February?

A. We will obviously launch small we will ensure that we are in profit. I am not an NGO…you know some crack-pot said that I am selling my tickets below cost… nobody does that. It is an art and a science to sell tickets and fill the plane… some tickets go below cost, some go above cost… that is to stimulate the market. Even yesterday I came on one of the airlines; it had only 60 per cent occupancy. Seventy seats gong empty. It's a crime to fly planes empty. I don't think my investors will allow me to take the money and burn it because I want to kill Jet Airways. No, that's not the aim. The aim is to build a robust airline for the country which this country needs. And I'm sure all of you are going to root for it.