Merger delay to push Air India further into red

Written by Shaheen Mansuri | Mumbai, Jul 14 | Updated: Jul 15 2008, 08:52am hrs
The delay in the merger of state-owned carriers Air India and Indian Airlines has cost the National Aviation Company of India Ltd (Nacil), dear, with the latter far from achieving any growth this year compared to revenues of Rs 5,360 crore in 2007. The merger was to be completed by the end of 2008.

Official sources at Air India say that the airlines had projected a 60% growth in its revenues as against last year, but it will now not only post losses to the tune of Rs 2,000 crore but is likely to go further into the red due to the escalating aviation turbine fuel (ATF) cost. An official from Air India explained various reasons as to why the airline is expected to go further in the red. He said, There is still duplication of flights on some sectors like the Chennai-Singapore sector wherein there are flights from Indian (the code is IC) and Air India (AI) within a gap of half an hour with hardly 25% passenger load factors.

He added that due to the increased bilateral rights with various international carriers, the national carrier has lost out on load factors due to its poor services as compared to international carriers which are yet to improve multi-fold. The losses could increase from Rs 448 crore in 2007 to Rs 2,000 crore for this year, he said adding that this time, fuel cost accounted for around 60% of the operating cost which increased by 80% or around Rs 700 crore compared to Rs 386 crore last year.

It may be noted that Nacil has recently sought a Rs 1,300 crore equity infusion and a Rs 1,000-crore loan from the government as part of a sweeping plan to revamp the airlines operations and ride out of accumulated losses.

Meanwhile, Gaurang Shah of Geojit Financial Services said, It's not that the cost of aviation turbine fuel is eating away into the profits of the airlines, its the fixed costs that is a worrisome factor. Though the load factors have gone down, the infrastructure cost at the airport remains the same for Air India. R Sreesankar, head research, IL&FS Investmart adds that the situation is inevitable for Air India with the rising ATF price and input cost which is affecting the sector globally.