16. January 2007


Date: 16 Jan. 2007
It’s a win-win situation for all - the airline, the bank, the pilot training institute and cadets with soaring dreams.
Not wanting to let pilot shortage ground its sky-high aspirations, budget airline SpiceJet Ltd has come up with a novel way of facilitating cadets for pilot training in acquiring loans from banks at lower interest rates and an easy repayment scheme.
And, it is doing this by providing ‘surety of job’ to students wanting to enrol for training but cannot afford it. In effect, it is acting as guarantor for the students who borrow from banks for their course.
“In the past, we had seen that economic constraint was a major factor in keeping away many capable candidates from undertaking pilot training. It was confined to only a few who could provide their parent’s property as collateral. This is the reason we are taking care of the affordability factor, so that we can choose from a broader base of people,” said SpiceJet Ltd executive vice-president Capt J S Dhillon.
For this, the low-cost carrier has tied up with the flying school - United Aviation - which helps students raise loans from Centurion Bank of Punjab.
Under the scheme, students can raise a loan of up to 100% of their fees (close to Rs 16 lakh for both local and overseas training) at an interest rate of 9.5-10.5%, depending on their ability. This would not be repayable until six months of joining their service at SpiceJet. That is, the bank would start drawing EMI only after they have started earning their full salaries.
“These candidates are rated high in the loan appraisal because SpiceJet is providing them stipend during the training. This lowers our risk factor. Till the time their course is completed, we charge them simple interest rate. Compound interest rate begins only some months after they have taken up the job,” explained Centurion Bank of Punjab sales manager Yamini Solanki.
Besides United Aviation, Centurion Bank of Punjab has also tied up with other pilot institutes like Aerostar, High Fly and others for disbursing loans to commercial pilots training. In 2006, it has processed around 50 applications for commercial pilot licence.
“We get around 5-10 applications every month from United Aviation alone. Since they have a guarantee attached from SpiceJet, they pass the muster more easily than others,” informed Solanki.
United Aviation has begun talks with Bank of Maharashtra, J&K Bank and HDFC Bank. “HDFC Bank made a presentation to us, but they are ready to provide the funds as personal loan, which attracts a higher interest rate between 14.5% and 18%. We have asked them to go back to the table and consider giving the finance as education loan,” said its director Randeep Panag.
The school has also approached Jet Airways for a tie-up. Meanwhile, SpiceJet is preparing to take on board the first batch of 24 pilots from this scheme in June this year. Even though this will meet only part of its requirement of 80 pilots this year, it would ease the pilot crunch to some extent.
“In future, a majority of our pilots would be coming from this scheme,” Dhillon comforted himself.
Source: http://www.dnaindia.com


Date: 16 Jan. 2007
Airlines are in favour of coming out with a common fog policy to counter the fallout of weather-related delays and cancellations. The idea is to put collaborative processes in place among various carriers to mitigate the impact of such disruption on air travelers.
Also high on the discussion agenda of the association of carriers, Federation of Indian Airlines, which meets in Mumbai on Tuesday, is compensation to be paid to passengers due to delays and cancellation of flights beyond a certain time period. Honchos and senior executives from the airline industry, including those from Jet Airways, Air India, Indian, Air Deccan, Kingfisher, Spicejet, Go Air, Air Sahara, and IndiGo, are likely to attend the meeting.
Some airlines are keen to flag the issue of escalation in rentals and landing charges in various new airports across the country, which directly impacts their bottomline. Carriers are also in favour of bringing in more transparency while charging fuel surcharge from passengers. “As the jet fuel rates fluctuate, our fuel surcharge rates need to operate within a price band,” said CEO of an airline.
Interestingly, the industry is already divided on the issue of the congestion cess. State-run carriers Indian and Air India are not in favour of the congestion cess, following a diktat by ministry of civil aviation while private carriers are pressing forward to continue it. However, there is possibility airlines may decide to do away with congestion cess in the lean travel months of February and March. The association has also been pressing for rationalisation of airline turbine fuel rates in line with international rates.
Source: http://economictimes.indiatimes.com


Date: 16 Jan. 2007
The rapid expansion of seat capacity in the domestic aviation market is taking its toll on the players. Jeh Wadia's GoAir is undergoing a churn with some senior management people quitting, and its fleet size reducing from seven to five in the next two months. Further, there would be no network expansion over the next six to eight months, with at least two destinations going off air.
The top management of the company terms the downsizing of operations, as “fleet optimisation” which would help reduce cash-burn in the lean travel months. “This will help us become cash-flow positive and profitable over the next two months,” Mr Jeh Wadia, managing director, GoAir, told ET.
The short-term operating lease of two aircraft in the fleet — whose contracts end by March — will not be renewed and their replacements would only come in October when the first of the 20 - A320 aircraft joins the fleet. February and March are lean travel months for the industry.
According to Mr Wadia, the carrier wants to put in place a “flexible fleet management plan” by the year end where around seven aircraft would be part of a fixed long-term lease, while three to six aircraft would be available for use only in peak travel season.
The airline plans to have 10 aircraft in its fleet by the end of the current calendar year. Also GoAir does not have plans to carry any of its new aircraft on its books. “We have decided to adopt the sale-lease model. All our aircraft would be on lease,” Mr Wadia said. Talks for entering into sale-lease-buy back agreements are on with potential investors.
While conceding that there is some top management level churn in the company, Mr Wadia said most of them are “non-performance related”. Industry sources said among others, GoAir’s chief commercial officer Raj Halve is said to be have put in his papers. However Mr Wadia insisted that Mr Halve was on sick leave and his association and future role in the company would be decided over the next few weeks.
All these come at a time when the Wadia group promoted airline is looking at diluting up to 26% stake in the company to raise funds. This is expected over the next couple of months.
Over the last three months, private carriers such as Air Deccan, Kingfisher and IndiGo have added over 35,000 fresh seat capacity.
This has put pressure on passenger yield per seat for all airlines. The Indian aviation industry is expected to end the financial year 2006-07 in the red with losses to the tune of Rs 2,000 crore.
Source: http://economictimes.indiatimes.com


Date: 16 Jan. 2007
INDIA'S domestic airlines had handled a total of about 21 million passengers during 2005-06 . This financial year, despite a 49% traffic rise in the first six months, it may total about 30% for the whole year. However, it will soon level out and the growth rate could even decline during the next economic downturn. Thus, over a five-year period, the average growth could at best be 20% a year.
By contrast, the airlines' capacity increase has been explosive. India's domestic airlines had a fleet of only 184 aircraft, big and small, by end 2005. In view of the unprecedented orders rate, with more to come, the total could be around 600 by 2010. Thus, while the capacity increase from end 2005 to end 2010 could be 300 to 350%, the passenger rise may be only about 250% - resulting in gross over-capacity . Importantly, should the airlines have to raise their unremuneratively low fares, the traffic growth could be even less.
The airlines' average, system-wide , yearround passenger load factors already reflect over-capacity . Low-fare carrier Spicejet had an unprecedented 86% load factor in 2005-06 . Despite that, it had made an operating profit of only Rs 71.52 crore, and a net loss of Rs 41 crore. Clearly, its breakeven load factor had to be even higher - at around 90%. Worse still, it made a 65% higher net loss of Rs 17.81 crore for the quarter ending 31 August 2006. It is not yet out of the woods.
Other Indian low-fare airlines had much lower average load factors. It was 78% for Air Deccan last year. Its break-even load factor could also be about 90%. Air Deccan enjoys greater economies of scale than Spicejet, with its current fleet of 37 aircraft, (compared to six for Spicejet), but its financial performance is somewhat inferior.
Air Deccan had losses of Rs 11.77 crore (2003-04 ), Rs 35.232 crore (2004-05 ). - rising to Rs 341 crore on a revenue of Rs 1,340 crore for the 15 month period ending 31 June 2006. They expect to sgnificantly reduce losses in the results due today and become profitable by 2008. Air Deccan may be excessively focused on market share. Spicejet, with a very moderate growth rate, could be profitable earlier.
Among full service airlines, Jet Airways had an average load factor up from 71.3% to 72%, with the domestic figure alone being about 75% - said to be "above industry average" Clearly, most other airlines achieve very poor load factors. Importantly, Jet's post-tax profit of Rs 452 crore included Rs 271 crore from the sale and lease-back of five aircraft. The profit was only from domestic operations, while international services lost money. For Q1 2006-07 , Jet had a post-tax loss of Rs 45 crore - on 25% higher revenues., but domestic services were again profitable. However, if the situation worsens, Jet could some day have to depend on its international services for survival - an alternative most other airlines do not have.
Also profitable was Indian airlines, which has wisely concentrated on profitability rather than market share. It had made a net profit of Rs 65.61 crore in 2004-05 and an estimated profit of Rs 68 crore in 2005-06 . Significantly, the profits were made at load factors of only 64.5% and 67%, respectively, and it must have the very lowest breakeven load factor of any Indian airline. By contrast, Kingfisher made an enormous loss of Rs 240 crore last year. Other airlines are also doing badly, and their position is likely to get worse with time.
TO STAY above water, however, most airlines need continuous infusions of fresh capital. Investors, who have badly burnt their fingers, may not oblige. When Jet had launched its Initial public offering (IPO) early in 2005, investors had paid Rs 1,100 for each Rs 10 share. The offering had been over-subscribed 16.2 times. Since then, however, Jet's shares have been at well below par.
For the Air Deccan IPO last May, despite the low price band of Rs 150 to 175, the airline had to extend the closing date by three days and could only get Rs 148 per share. The coincident market crash did not help. Its share prices are now much below par.
Many of the new airlines had wanted to launch their IPOs soon after launch, so as to use investor's money for their continued operations. However, investors are likely to shun airline IPOs. Jet, Kingfisher and Spicejet have postponed their IPO plans. With competition intensifying, the situation can only get worse.
Many airlines have had to take bank loans or to raise foreign currency convertible bonds, issue preferential equity, and the like on less favourable terms than the IPOs. However, even that pricy finance could dry up once some airlines default on loan repayments At that stage, the less well-financed airlines could run out of cash and fold up. But the much talked about consolidation cannot reduce excess capacity. Also, their very different corporate cultures will make a merger difficult - as the Jet-Air Sahara fiasco proved. The parlous finances of the sinking airlines will also be a deterrent. In any case, closures will only help the industry if the dropouts are not rapidly replaced by new entrants - as seems likely.
Where did the new airlines go so wrong? They ignored the fate of the first-generation private airlines. When the flood tide of entrants began, some could have stayed away. They also overestimated the size of the market and the importance of market share. Most may not have made a detailed market analysis. Some have opted for wrong business models. Worse still, some promoters, with no understanding of the airline industry . took full hands-on control, instead of leaving it to professionals - with predictable results..
Beyond that, the airlines placed enormously large firm orders - that for Indigo being for 100 A320 family aircraft by 2016. Cancellation of firm orders will invite harsh penalties. While many now sell and lease back their aircraft, that does not ease the over-capacity situation, and the lease rental charges are now quite high. Kingfisher has on order five each of A330s, A340s, A350s and A380s, apart from its current A320s and ATR72s - six different aircraft types for a small airline. Such a multiplicity of aircraft types affects the bottom line. The A380 is most inappropriate for such a small airline.
Few airlines have tried to overcome the crippling shortage of skilled labour, or prepared for the gross inadequacies of airport infrastructure. Amazingly, despite the onerous problems that these airlines face, 12 more wish to enter the fray. Hope springs eternal. Attempts to debar them, apart from being discriminatory in law, will not work.
Source: http://economictimes.indiatimes.com