Grounded Jets Show Wasted $1.7 Billion Bailout: Corporate India
Indian taxpayers gave Air India Ltd. $1.7 billion as bailout funds in the past four years. The airline now says it lacks cash to purchase spare parts.
That’s grounded 16 aircraft for the nation’s oldest carrier. Without the funds, the airline is also unable to refurbish some of the idled planes before returning to lessors.
“Some are just empty shells standing,” Air India Chairman Rohit Nandan said about the parked aircraft. “We are in the process of returning some leased planes.”
The grounded planes add to the struggles of the former monopoly carrier saddled with about $8 billion of debt and six straight years of losses. Air India has also lost market share as discount carriers that started flights less than a decade ago lure passengers with the latest fleet and cut-rate fares.
Inability to fully utilize the fleet means Air India, the nation’s largest by number of aircraft, will operate fewer local flights than smaller rivals. The flag carrier won approval to operate 1,788 departures a week in the six months through September compared with IndiGo’s 2,821 and SpiceJet Ltd.’s (SJET) 2,467, according to the Ministry of Civil Aviation.
“It’s a criminal waste of public money,” said Harsh Vardhan, chairman of Starair Consulting, a New Delhi-based company that advises airlines. “With all this funds pumped in, what’s stopping Air India from spending on aircraft? They have to deploy fleet, expand network, increase frequency and go for market share.”
Air India has also parked all of its six Boeing Co. 787s after overheating of lithium-ion batteries on the jet caused their worldwide grounding. The airline will seek at least 2 billion rupees ($37 million) from Boeing as compensation for the losses caused by the Dreamliner’s grounding.
The carrier has been asked to set aside money and review maintenance every fortnight to reduce aircraft downtime, Prabhat Kumar, joint secretary at the Ministry of Civil Aviation, said on March 17. Return of some aircraft to lessors has been delayed over clearance of accumulated dues, he said.
“We have infused a lot of money” for maintenance of Air India’s aircraft, Aviation Minister Ajit Singh said in a March 4 interview in New Delhi. The company is “really spending a lot for getting the smaller aircraft back in service. But many of them are there because there’s no other way.”
Air India has got 92 billion rupees of state funding since the year that began April 1, 2009 and is set to receive another 50 billion rupees this year. The government last year pledged to give as much as 300 billion rupees to the airline by end of this decade.
The carrier has idled the planes for at least two years, according to government data. The company has 106 operational aircraft in its fleet, including six of the now grounded Boeing 787s (BA), according to its website. In comparison, Jet Airways (India) Ltd. (JETIN) has 100 aircraft. Budget carriers IndiGo has 65 and SpiceJet 52.
Air India ordered 111 aircraft in 2005 and 2006 from Airbus SAS (EAD) and Boeing as it sought to upgrade its fleet to counter competition from new discount operators. The airline hasn’t added any narrow-body aircraft to its fleet in almost three years. In comparison, IndiGo, the discount carrier that ordered 180 Airbus A320 planes in 2011, is adding one aircraft every 45 days, data from the nation’s aviation regulator show.
The average utilization of Air India’s 18 A320s was 7.10 hours in the year ended March 31, 2011, according to data available on its website. That’s lower than the 13 hours for Go Airlines India Pvt. and 11.4 hours for IndiGo, government data show.
Air India had the worst record for domestic flights’ on-time performance among the nation’s five carriers, according to the Directorate General of Civil Aviation. The company had a score of 68 percent, compared with IndiGo’s 93 percent and Jet Airways’ 85 percent.
That contributed to the flag carrier’s market share slipping to fourth in February, as billionaire Kalanithi Maran- controlled SpiceJet edged past the state-run operator for the second time in 12 months. Budget carrier IndiGo has the biggest share of domestic market.
Competition for Air India may intensify. Southeast Asia’s biggest budget carrier AirAsia Bhd. (AIRA) is planning to start its India venture by the end of this year. Etihad Airways PJSC is also in talks with Jet Airways to buy a stake as the nation’s air travel demand may surge threefold by 2020.
Still, airlines in the country have been losing money because of high fuel costs, airport charges and a price war. Jet Airways hasn’t made an annual consolidated profit in five years, according to data compiled by Bloomberg. Kingfisher Airlines Ltd. (KAIR) ended operations in October after years of losses.
Air India has lost at least 281 billion rupees since April 1, 2007, government data show. The carrier’s debts totaled 434 billion rupees as of March 31, 2012, according to the Aviation Ministry.
The company owes 42.5 billion rupees to jet fuel suppliers, Panabaka Lakshmi, junior minister for petroleum and natural gas, said in parliament on March 8. Air India spent as much as 5 billion rupees to clear salary arrears to employees in the year ended in March, according to a government statement.
“The funding Air India receives largely goes into outstanding vendor payments, and strategic issues remain unresolved,” said Kapil Kaul, who heads the Indian unit of CAPA Centre for Aviation. “The priority should be to make the entire serviceable fleet operational.”
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