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Charting a way out for cash-strapped Indian aviation industry

India's PM Manmohan Singh to meet with the heads of all Indian airlines

Nov 25, 2011

Prime Minister Manmohan Singh will meet with the heads of all Indian airlines on Saturday in an attempt to chart a way out for the cash-strapped aviation industry. "The PM is concerned... It's the major institution of connectivity, supporting the development of the country," civil aviation minister Vayalar Ravi told reporters.

Manmohan Singh had said Nov 12: "A private airline has to be managed efficiently, but if there are difficulties, we have to find ways and means to help them."

Ravi declined to say if the government was contemplating any special package for the ailing airline industry.

The minister did not divulge any deatils about Reserve Bank of India's report on Air India turnaround and financial restructure plan or the next meeting date of finance minister-led Pranab Mukherjee group of minister (GoM) which is looking at the airlines' troubles.

"The date for the next meeting (GoM) has not been decided yet. But it will be held soon," he said.

Some of the key issues which are likely to come up in the discussion will be the proposed foreign direct investment (FDI) by foreign airlines and relief by state-run oil marketing comapnies (OMCS) which sell jet fuel.

"There are proposals to provide some relief in the form of credit extension to the airlines, but nothing is concrete as of now. Everything will be chalked out in the meeting," said a petroleum ministry source.

Owing to high jetfuel and interst costs three major airlines - Kingfisher, Jet and SpiceJet - have reported heavy second quarter losses.

Kingfisher Airlines alone reported a net loss of Rs 468.66 crore, owing to higher fuel costs and low yields.

The company's net loss stood at Rs 230.81 crore in the corresponding period of the last fiscal.

Jet Airways reported a net loss of Rs 713.60 crore in the second quarter from a net profit of Rs 12.40 crore in the same period of the previous fiscal.

Even budget airline SpiceJet lost Rs 240 crore in the quarter under review. It had a net profit of Rs 10 crore in 2010.

Jet fuel prices have increased by 30% since December 2010, and the domestic airlines are expected to lose Rs 3,500 crore in the first six months of this fiscal.

On FDI in domestic carriers by aviation players, Ravi said he would not make any statement as parliament was in session.

Earlier, the department of industrial policy and promotion (DIPP) proposed a 26% cap on FDI in the airline sector by foreign carriers.

"Private airlines in the country are in need of funds for operations and service upgradation to compete with other global carriers," the DIPP note said.

Currently, the government allows for FDI of 49% in Indian carriers by non-airline players but bans foreign airlines from directly investing due to security reasons.

Industry sources say the fresh infusion of investment would give a lifeline to the struggling sector, which bears the brunt of high jet fuel prices caused by state levies and high interest cost of their debt.

"Current financial position of Indian carriers is extremely challenging. FDI by global airlines in India would be a very welcome step," said Amber Dubey, director, aviation for consultancy firm KPMG.

India's PM Manmohan Singh to meet with the heads of all Indian airlines
India's PM Manmohan Singh / Image via


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