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No-fly zone for new airlines as big players signal Mayday  Nov 11, 2008

NEW DELHI - Rattled by the crisis afflicting the airline industry, the civil aviation ministry has slammed the brakes on issue of licences for new
airlines. No new airline license is likely to be granted till the UPA government bows out, highly-placed civil aviation ministry sources said. “There is no written word, but the signal is clear,” said the source who did not want to be identified.

It’s learnt that two of the country’s major airlines have urged the ministry to hold new licences. They have argued that there is excess capacity in the market and addition of capacity would only make things worse.

Speaking to ET, a top official in the civil aviation ministry admitted that permission to launch airlines had been frozen. However, he added that the freeze was not at the behest of incumbent airlines.

“We don’t need anybody’s recommendation for taking such a stand. We are watching the situation. At this point, we think there is excess capacity in the market and an attempt to add capacity will aggravate the problem,” he said.

The hold-up would affect Emeric, Star Aviation and Premier Airways. While Star Aviation is owned by the Gulf-based ETA Group with interests in engineering, construction and shipping, Premier Airways is controlled by a group of NRIs. Premier, which wants to launch a national airline under the Easy Air brand, is waiting for necessary government approvals since December 2007, am industry watcher said.

While the aviation ministry’s logic behind the bar is that new airlines should not jump into the fray while existing ones are tottering, those keen to launch an airline are not amused. Companies planning to launch air services are, however, not happy with the development.

“We are ready to start operations provided the regulatory clearances are granted. We have been pushing our case vigorously. If the government plans to hold our application, it’s certainly not good for us,” Emil & Eric Group CEO Muhaimin Saidu said. Emil & Eric plans to launch regional air connectivity in the south with the Emric brand name.

Emric, with an equity base of Rs 20 crore, plans to start a scheduled airline with two Bombardier aircraft. The company’s foray into aviation is aimed at developing synergy with its core business activity, hospitality.

Industry watchers say entry barriers are not good and the government should not prevent new players from entering the fray. “If some carriers didn’t have a sound business model and kept on over-stretching, over-leveraging and over-estimating the market, why should others be penalised? Generally, after air operator’s permit is given to a company, it takes 8-12 months to start operation. We don’t think the government has a rational logic. If the economic crisis continues for another year and airlines with huge losses collapse, what would happen to the industry? Would anybody be left to operate air services?” an industry source familiar with the government’s move said on condition of anonymity.

“The value chain of the industry — from airports to maintenance, repair and overhaul (MRO) — would get affected in the long run if the government holds back new launches,” he added.

Most domestic airlines are facing a financial crunch and the industry is expected to lose $2 billion in 2008-09. In a bid to cut costs, Kingfisher and Jet Airways entered into an operational alliance last month for common ground handling, cross-selling each other’s seats and code-sharing on domestic and international sectors.

No-fly zone for new airlines as big players signal Mayday
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