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REUTERS/Pascal Rossignol
Not the right time to take off.
FLIGHT CANCELLED

Indian aviation’s wings will remain clipped long after the coronavirus lockdown

Niharika Sharma
By Niharika Sharma

Aviation and social media reporter

From our Obsession

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For India’s coronavirus-wrecked aviation sector, the bad times are likely to continue long after the ongoing 21-day national lockdown.

The sector watchdog, directorate general of civil aviation, on March 27, banned all domestic passenger flights in the country till April 14, when the lockdown ends. International operations, too, have come to a standstill due to flying bans imposed by many countries. For an already ailing sector, the pandemic has been a body blow.

While most Indian airlines are taking domestic bookings for April 15, India’s ministry of civil aviation has not confirmed if operations will resume from that date.

The curbs and the uncertainty have paralysed the sector and are bound to cause unprecedented turmoil.

“The April-June period, traditionally one of the stronger quarters for Indian airlines, is increasingly looking like it will be a washout. This will have implications for July-September (usually the weakest quarter) and for the rest of financial year 2021,” said Sydney-based aviation think tank Centre for Asia Pacific Aviation (CAPA), in a report published in last week of March.

India’s two listed carriers, IndiGo and SpiceJet, could report combined losses of up to $1.5 billion across January-March and April-June quarters, CAPA estimated. “IndiGo’s hitherto enviable cash reserves may almost be wiped out,” it said.

The aviation industry could bear losses of up to $3.6 billion in the April-September period, CAPA said based on the assumption that domestic and international operations will remain grounded till June 30.

 

“Even with some partial resumption of services in May and June, the financial outcomes may not change significantly.”

Passenger traffic degrowth

Even before the coronavirus-related disruption, Indian aviation was reeling from an economic slowdown that had brought passenger traffic to low single-digits.

Now, it is expected to contract in the ongoing financial year.

“Passenger growth of airlines is to register a negative 20-25% growth in the financial year 2021,” predicted Mumbai-based credit agency, Care Ratings in a report on March 25. “Even post the nationwide lockdown, fares of airline operators may remain low considering the lack of air travel demand.”

The low demand may force carriers to postpone their expansion plans. “There is a strong likelihood of aircraft orders being deferred or even cancelled. Some leased equipment, particularly those aircraft approaching the end of their lease terms, may be returned early to lessors,” CAPA noted in its report.

Too much pressure

The crisis is already claiming its first victims.

Yesterday (April 5), regional carrier Air Deccan said it was ceasing all operations until further notice and all its employees are being put on sabbatical without pay. The two-year-old airline has a fleet of three aircraft and primary focuses on Gujarat.

“In view of the recent global and domestic issues and the subsequent directive by the Indian regulator, Air Deccan has no choice but to cease operations until further notice,” CEO Arun Kumar Singh wrote in a letter to airline staff, reported news agency PTI.

The bigger carriers, too, are feeling the heat.

“SpiceJet announced a company-wide pay cut for its employees for the month of March 2020 to tide over the unprecedented crisis thrust by the Covid-19 pandemic. The airline has implemented a 10-30% pay cut for all its employees across the top- and mid-rung levels,” the airline said in a press release on March 31.

However, some of the SpiceJet employees alleged that the company has deducted more than 70% of their salaries.

Vistara, a joint venture between Tata Sons and Singapore Airlines, on March 27, announced a similar measure saying that 30% of its 4,000 employees will go on mandatory leave without pay between April 1 and April 14 to curb costs.

Low-cost carrier, GoAir has also announced a company-wide pay cut. On March 17, the carrier suspended all international operations and asked staff to opt for mandatory leave without pay.

State-owned Air India, which has been at the forefront of evacuating stranded Indians abroad, announced on March 20 that it will implement a 10% cut in employees’ pay for the next three months.

The gravity of the current crisis has surprised industry veterans. “I had seen an airline through a time when revenues dried up by 90% due to an advance booking ban. Then, oil prices were at $100. It was incredibly tough. But current times are even tougher,” wrote Sanjiv Kapoor, advisor to India’s low-cost carrier GoAir on Twitter. “There is zero demand, everything is grounded, and zero revenue. It is NOT business as usual.”

SOS calls

The dire situation has sent alarm bells ringing in the sector.

On March 31, the Airports Council International (ACI), which represents the world’s airport authorities, urged India’s Narendra Modi government to defer aviation-specific taxes till Dec. 31 this year to safeguard airports’ operational and business continuity.

“Airports are engines of the national economy in terms of jobs created and GDP growth. The airport industry in Asia-Pacific employs more than 63% of aviation industry jobs, providing a variety of services. This unique resource for the society and the economy should be fully preserved and supported to prepare for its revival, as soon as the negative effects of Covid-19 starts to decrease,” ACI director general, Angela Gittens said in the letter, dated March 31.

Domestic carriers have requested the centre for a relief package to deal with the crisis. The government assured them of help, without providing any details.

CAPA India, too, has listed out a number of policy steps needed to save the aviation sector from a crash landing.

“The centre can provide a cash infusion to support part-payment of salaries up to a certain grade for 3-6 months,” it said in its March report. “For survival relief, the government should allow a moratorium on outstanding payments for a period of 3-6 months including airport charges, and other tax payments.”

It further said the government must fulfil the long-pending demand of bringing aviation turbine fuel (ATF) under the goods and services tax (GST). “This will provide for a full input tax credit. In the interim, until ATF is brought under GST, sales tax should be reduced to 4%,” CAPA said.

It also suggested ensuring appropriate credit lines from banks to support the revival of the sector.

Better placed?

Despite being vulnerable, Indian airlines are in a better position, compared with global counterparts.

“Given how they (domestic carriers) have been aiding the government with the logistics of the entire Covid-19 control measures, they seem to be better placed,” Mumbai-based analyst Ashish Nainan told Quartz.

Most of the Indian airlines are helping the government with logistics operation and have offered to ramp up cargo movements amid the pandemic. IndiGo, SpiceJet along with Air India and Blue Dart have contributed to the government’s efforts to supply essential medical goods to places in need.

Both SpiceJet and IndiGo have so far operated two and six flights respectively.

The government has set up a Lifeline Udan scheme to facilitate the easy movement of goods and services. Airports Authority of India (AAI) and other airport entities of India have helped to set up cargo hubs across the country. At present, major cities like Delhi, Mumbai, Hyderabad, Bengaluru, and Kolkata have been equipped with cargo facilities specifically dedicated to Covid-19.

However, this can cushion the hit only to a limited extent.

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