Rumours & fears grip aviation sector as coronavirus dampens operations

Many in the industry argue that there will be at best three to four players over the long term, and that the weaker airlines will be weeded out

Two rumours gripped the aviation industry as the COVID virus revealed its full stranglehold over the sector earlier this week. One, the aviation industry in India has been speculating on which would be the next airline to down shutters. This question has been a topic of much debate for a long time now — ever since Jet Airways became history. Many in the sector argue that there will be at best three to four players in the sector over the long term and that the weaker airlines will be weeded out sooner or later. 

The epidemic has brought home that reality with a bang. Even CAPA’s Chief Executive Officer (CEO) Kapil Kaul, usually an industry cheerleader who always errs on the positive side of caution, seemed pessimistic. “If this continues for another two weeks with the same severity, a shutdown of certain players cannot be ruled out,” he said. 

Almost all the airlines are seeing a drop in loads, which is expected to intensify as the numbers for March come in. International operations have been suspended by almost all players. A senior official in IndiGo said that while loads had currently shown a dip of 12-15 per cent, the drop in bookings in the coming weeks was even sharper and therefore they expected a further dip in loads for April. But airports in India are equally stressed and claim they need support too. 

On March 16, Mumbai-headquartered GoAir began to give everyone the jitters. The airline stopped all international operations, drastically reduced domestic flights, and asked employees to stay at home without pay. The contracts of 70-odd expat pilots, signed as recently as August last year, have been terminated and the pilots have been asked to return to their home countries with a promise that their “full and final settlement would be done in due course”. The airline asked its own employees to go on leave without pay, aiming to cut at least 35 per cent of its staff across departments and close to 50 per cent in support functions. A staggered salary cut of 20 per cent has been suggested for the remainder staff. GoAir has reduced its fleet from 54 to 38 and will be reducing further down to 20 aircraft. In an email response, the airline maintained that this was temporary and in response to the present crisis but that the airline expects to remain on track and add 12-15 aircraft every year to its fleet right up to 2025. In the airline’s case, sources maintained that it faced a double whammy as there was no senior management to handle the crisis.

SpiceJet reported a sharp fall in loads starting mid-March. While the February loads remained high, it is March onwards that traffic has virtually dried up. The airline is suspending its international flights but has not yet grounded any aircraft although it has reduced utilisation and future grounding cannot be ruled out. Ajay Singh, the airline’s CEO, is likely to delay vendor payments and is largely expected to manage to keep his ship afloat as he has through past crises. He is expecting a large compensation for the delay in the Max aircraft by Boeing but the two sides have not yet agreed on the final amount. The chances of compensation, however, are looking brighter since the US government is expected to bail out Boeing in the coming weeks. Vistara too has not yet grounded its domestic fleet but has reduced utilisation.

In a more precarious position, sources argued, is Air Asia India. That the Tatas have been less than happy with the way this venture has unfolded is well known but sources in Mumbai’s aviation circles and in the ministry of civil aviation (MoCA) speculated that this might be the “perfect opportunity” for the Tatas to put an end to this sad saga. 

“Considering the mayhem that airlines in Malaysia too are currently facing, the Tatas’ partner in the venture Air Asia Berhard may not be as resistant either,” pointed out a senior government official. Sources said that a Tata team had gone recently to meet Tony Fernandez to stress the fact that the Tatas could no longer put in any more funds to keep the airline going. This has been conveyed to him more than once, said a Tata source. The auditors of the airline have raised concerns on it being called a going concern on the grounds that the accumulated losses of the airline for the year ended 2018-19 are now Rs 1,284 crore against a share capital of Rs 534 crore. In addition, the company’s current liabilities exceed current assets by Rs 962 crore. 

According to sources, the MoCA and finance ministry are looking at a package to bail them out. The bailout includes waiving all kinds of taxes (including on aviation turbine fuel) and lowering various charges. A top MoCA official, however, told this writer that “consolidation among Indian carriers has been long overdue and perhaps this is the best time”. He argued the government’s financial situation itself was precarious with goods and services tax collection below expectations.

But private airlines argue that this is by that yardstick perhaps the best time for the government to close down Air India also. The airline recorded a higher than ever before loss of more than Rs 8,550 crore in 2018-19 and this year is expected to be even higher. The beating the traffic has taken since the beginning of this year will reflect in the financial year’s results, many argued. They pointed out that cancelled flights were in fact the bright spot because the aircraft loads had dipped so sharply.

Moreover, there are unlikely to be any buyers for Air India for a while to come. “The chances of sale of the airline are down to nil in the present environment. Before suggesting the private airlines consolidate, the government should put its own house in order,” said a private airline CEO. He argued that the most inefficient players should be the first to bow out and Air India should lead that pack. 

Airlines around the world are seeking support from their governments and several governments are stepping in to support the sector. India has not yet announced anything and pressure on the government is building up. Whether it succumbs is a several billion rupee question.