Indian airlines will ground 68 per cent of aircraft over the next two months because of the impact of the coronavirus outbreak (COVID-19), according to a calculation by the government. The firms currently have 633 aircraft and the government said they would operate only 200 of these.
This projection of the Ministry of Civil Aviation forms the basis of a relief package for the aviation sector, which has been the worst hit by COVID-19. The government has planned a host of measures as part of the relief package, including tax breaks on jet fuel, waiver of air navigation charges and parking charges at airports and soft loans at reduced interest rates to increase liquidity of airlines.
At a marathon meeting held on Thursday with chief financial officers of airlines and airports, the government calculated the quantum of losses airlines might suffer as passenger numbers fall daily. “Airlines have been sending SOS messages to the government daily because bookings have been negative for the last few days even on prime domestic sectors, the industry needs a substantially big financial package,” said a CFO of a private airline. Negative booking implies that cancellations have been higher than fresh bookings.
Government sources, who were part of formulating the relief package, said that there would be multiple aspects to the package to take care of airlines’ reduced cash flow. Primary measures will be extending a two month fuel credit from oil marketing companies, waiving landing and parking charges, and waiver of taxes on jet fuel like excise duty, value added tax.
Simultaneously, the government will also ask banks to offer soft loans to airlines at interest rate of 1-1.5 per cent from banks based in Gujarat International Finance Tec-City (GIFT). “Since airlines with weak balance sheet will find it difficult to raise money through external commercial borrowing after the crisis, we will ask banks based in GIFT city to offer dollar denominated loans,” said an official.
For an Indian airline, a bulk of working capital is dollar denominated. These include aircraft lease rents, maintenance costs, salaries of expats, ground handling and parking charges abroad, and payments to global vendors.
“Inclusive of fuel, dollar-linked costs of airlines would be 60-70 per cent. So, if we can raise debt in dollars, at cheaper rate, it is always beneficial,” an airline executive said.
To provide free parking charges, the government is planning to invoke force majeure clause to give private airports a waiver from revenue sharing. Delhi and Mumbai airports pay 45.99 per cent and 38.7 per cent of their revenues, respectively, as fees to the Airports Authority of India. Simultaneously, air navigation charges will also be reduced by 50 per cent.
Industry groups and analysts have issued dire warnings about COVID-19’s impact, with Sydney-based CAPA Centre for Aviation saying that most of the world’s airlines could go bankrupt by the end of May unless authorities step in.
IndiGo is trimming its domestic operations by 25 per cent in view of reduced travel demand because of COVID-19, the airline said Friday.
On Sunday, IndiGo will operate around 60 per cent of its domestic flights to accommodate those with urgent travel requirements. Meanwhile, GoAir is suspending flights for the day to support PM Modi’s call for a janata bandh. Vistara, too, will operate a reduced network. GoAir said it will protect all ticket PNRs dated March 22 and give affected passengers the option of redeeming tickets.
Proposed relief measures
- Two months fuel credit line
- Waiver of excise duty, VAT on jet fuel
- Soft loan at 1% rate
- Waiver of landing and parking charges