Tuesday, March 23, 2010

Air India may lose 'national carrier' tag

The Union Cabinet is set to meet soon to decide if beleaguered state-owned carrier Air India should retain its 'national' character at all. It will also debate if strategic disinvestment is the best way forward for the airline, which is estimated to have accumulated Rs 7,200 crore in losses in 2009-10. With most of Air India's woes emanating from its international operations - where it loses around Rs 3,000 crore a year on 30 routes - a group of ministers (GoM), chaired by finance minister Pranab Mukherjee, has recommended that the airline stop flying to these routes. "This will change the character of Air India," this would turn Air India into a regional airline. The civil aviation ministry is preparing a detailed note for the Cabinet on the carrier's financial health and turnaround measures recommended by the GoM. "Cutting down loss-making international routes will have serious implications. Basically, the government has to decide if Air India continues to fly abroad or within India alone". At the same time, the Cabinet may also debate the issue of strategic disinvestment as a long-term viable option for the carrier. "The government cannot pump money into the National Aviation Company of India Ltd (Nacil) forever". But, it is likely that the Cabinet refers back some of these issues to the GoM for its detailed and considered. A major blow to Nacil's finances comes from prestigious but loss-making daily non-stop flights to New York from Delhi and Mumbai on the latest long-range fleet of Boeing, accounting for losses to the tune of Rs 750 crore a year. The GoM, set up to monitor Air India's turnaround plan, was also to decide on the politically sensitive matter of wage cuts of Air India's 31,000 employees. But it has now left the decision for the Cabinet. To avail government bailout, the carrier was asked to undertake cost-cutting measures that would help it save around Rs 2,000 crore by March 2010. Air India was able to cut costs to the tune of Rs 700-800 crore till December last year. As part of its turnaround strategy, the carrier has shortlisted five candidates for the post of chief commercial.

The carrier recently received a shot in the arm with the government releasing Rs 400 crore as a first tranche towards equity infusion. Air India had asked for Rs 5,000 crore as equity infusion and a letter of comfort from the government to convert its high-cost debt into low-cost ones.

Friday, March 5, 2010

Indian Aviation 2010 Snapshot

The Indian aviation industry is one of the fastest growing aviation industries in the world (& incurring maximum losses) with private airlines accounting for more than 75 per cent of the sector. With a CAGR at 18 per cent and 454 airports and airstrips in place in India, of which 16 are designated as international airports, Union Civil Aviation Minister Praful Patel has stated that aviation sector will witness revival by 2011. With an increase in traffic movement during December 2009 and increase in revenues by almost US$ 21.4 million, the Airports Authority of India seems set to accrue better margins this fiscal, as per the latest estimates released by the Ministry of Civil Aviation. This is being primarily attributed to increase in the share of revenue from Delhi International Airport Limited (DIAL) and Mumbai International Airport Limited (MIAL) along with increase in airport charges. The Hyderabad International Airport has been ranked amongst the world's top five in the annual Airport Service Quality (ASQ) passenger survey along with airports at Seoul, Singapore, Hong Kong and Beijing. The Hyderabad International Airport is managed by a public-private joint venture consisting of the GMR Group, Malaysia Airports Holdings Berhad and both the State Government of Andhra Pradesh and Airports Authority of India (AAI). Airports Authority of India (AAI) is also spending US$ 427.5 million on developing the airports in Kolkata and another US$ 384.7 million on Chennai airport. The AAI is also looking at upgrading and modernising 35 non-metro airports. Both Chennai and Calcutta airports will be completed by next year. In addition to actual airport infrastructure, the government is also looking at building infrastructure in the air in terms of air traffic control (ATC) and CNS systems. Safety and surveillance is another huge area being worked upon. The civil aviation ministry has prepared a blueprint to convert Delhi airport into an international hub for passenger airlines with effect from August 2010 to help the airport, which is being expanded by a GMR-led consortium, utilise large amounts of additional capacity that will be ready by July 2010. Under the plan, NACIL will set up its hub in Delhi (Delhi currently serves as the hub for domestic operations and Mumbai for international operations).The government is also planning to make Delhi a regional hub to connect south-east Asia to Europe by capitalising on the capital’s strategic mid-point location, according to ministry sources. State governments too are taking interest in setting up special economic zones (SEZs) for the aerospace industry.

  • Investment Policy With the draft FDI compendium being finalised in end of March 2010, changes are expected in the aviation policy too. Currently, Foreign equity participation in airport infrastructure is permitted upto 74 per cent with automatic approvals and upto 100 per cent in special permission. FDI upto 40 per cent is permitted in domestic air-transport services. Foreign investors are allowed to have representation (upto 33 per cent in domestic airline companies).
  • The Road Ahead Investment opportunities of US$ 110 billion are being envisaged up to 2020 with US$ 80 billion in new aircraft and US$ 30 billion in development of airport infrastructure, according to the Investment Commission of India.
  • Indian aerospace companies are growing too. Hindustan Aeronautics Limited (HAL) was ranked 40th in Flight International's list of the top 100 aerospace companies last year.
  • Aircraft manufacturing major, Boeing is in the process of setting up the US$ 100 million proposed Maintenance Repair Overhaul (MRO) facilities in Delhi. Air India is also in the process of launching Cargo Hub in Nagpur while Deccan Aviation has already started one from the city.
  • North India's first private sector greenfield international airport, Aerotropolis, will soon come up near the industrial hub of Ludhiana in Punjab. Aerotropolis will be built with an allocation of almost US$ 3.77 billion covering an area of 3000 acres by Messrs Bengal Aerotropolis which has partnered Changi International Airport of Singapore.
  • Punjab will also become the first state in the country to set up a Maintenance, Repair and Overhaul (MRO) hub at Ropar, 45 km from Chandigarh, for the civil aviation sector at a cost of US$ 6.4 million
  • The country's first SEZ dedicated to the Aerospace Hattaragi, 37 km from Belgaum, in Karnataka was also inaugurated. The SEZ is spread over 300 acres of land and will come up with an investment of US$ 32.06 million.
  • An Aerospace and Precision Engineering Special Economic Zone with a proposed investment of US$ 641.2 million has also come up at Adibatla, Ranga Reddy district, Andhra Pradesh.

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